Student Loan by Commercial Banks: A Way to Reduce State Government Financial Support To Higher Education

This paper makes an empirical analysis of the role of student loan by commercial banks in financing the estimated budgetary subsidy to general collegiate education by Government and Private Aided colleges in Karnataka State (India). A major estimation result shows that the maximum total fee collectable, as a percentage of total estimated subsidy, is equal to 4.22 (or 4.74) percent in Government (or Private Aided) Colleges in 2000-01. Consequently, student fee revision, as a single instrument for total reduction of the budgetary subsidy is found to be inappropriate, even if it is entirely financed by student loan. The policy framework for analysis of linkage between student loan and regional fiscal policy in this paper is of special relevance for other states within India as well as for other developing countries, where the regional governments face the problem of reducing budgetary support to higher education through student loan scheme. In addition, the description of Indian model of student loan is useful for comparative studies in international education.