Government is planning to provide education loans at four per cent interest rate to help students from weaker sections of society to pursue higher studies.

Discussions are on between the HRD ministry and the Planning Commission on this innovative concept, which is seen as a significant initiative of the UPA government.

"It (education loan at four per cent proposal) is at a preliminary stage. We have discussed this idea with the Planning Commission and it is supportive," HRD Minister Kapil Sibal told PTI.

This loan will be provided by banks while a proposed funding corporation for higher education will re-finance the banks to help them compensate the loss. The mandate and functioning of the proposed National Higher Education Finance Corporation (NHEFC) are now being worked out.

"I hope it will be crystallised soon," Sibal said.

The detailed modalities are being worked out for the scheme, including the weaker section criteria.

The scheme will have another component of providing loans to students at the rate of seven per cent, subject to a ceiling. There will a cap on loan amount in this category.

There may another provision of extending loans at nine per cent without a cap on the amount.

According to sources, the NHEFC, which will also provide low-interest loans to higher educational institutions for capacity building through commercial banks.

The HRD Ministry has already prepared a concept note on creation of NHEFC. As per the HRD Ministry's plan, the proposed NHEFC will be an institutional mechanism to address the investment needs in higher education sector.

The proposed corporation will nurture philanthropic tradition in education by providing loans at concessional rates on interest to such agencies for establishment of higher and vocational institutions in educationally backward areas.

It will be a NABARD like institution in higher education and will raise debt by issue or sale of bonds for augmenting resource from the market and will finance creation of universities.

The proposed scheme will be in addition to the existing interest subsidy on educational loan scheme. Under the existing scheme, students, whose family income is less than Rs 4.5 lakh per annum, are able to get loans at a concessional rate. Normally the education loan is about one per cent less than the Prime Lending Rate (PLR) of the banks.

The PLR of the national banks is around 11-12 per cent on loans.