Model Educational Loan Scheme for pursuing higher education in India and Abroad
Education is central to the human resources development and empowerment in any country. National and State level policies are framed to ensure that this basic need of the population is met through appropriate public and private sector initiatives. While government endeavour to provide primary education to all on a universal basis, public funding of higher education is not considered feasible. Cost of education has been going up in recent times and since the student has to bear most of the cost, there is a clear case for institutional funding in this area. Indian Bankers Association (IBA) has formulated and circulated to all member banks a "Model Education Loan Scheme" for providing financial support to meritorious students for pursuing higher education in India and abroad. The Reserve Bank of India (RBI) has advised all Scheduled Commercial Banks to adopt Education Loan Scheme, formulated by IBA.
- Loan upto Rs 10 lakh for study in India and upto Rs 20 lakh for study abroad.
- Collateral free loans upto Rs 7.5 Lakh under the Credit Guarantee Fund Scheme for Education Loans (CGFSEL).
- No Margin for loan up to Rs 7.50 Lakh.
- Repayment period of 15 years
- One year moratorium for repayment after completion of studies in all cases. Moratorium taking into account spells of unemployment/under-employment, say two or three times during the life cycle of the loan. Moratorium for the incubation period if the student wants to take up a start-up venture after graduation.
- Simple interest for loan is calculated from the date of disbursement of loan upto the end of moratorium period i.e. course period plus one year and therefore the interest is never risen upto principal amount. At the start of repayment period, the interest accrued is clubbed with principal and EMI is calculated accordingly.
- The servicing of interest during study period and the moratorium period till repayment commences is optional for students.
- For the students belonging to economically weaker sections, an interest subsidy scheme on educational loans is in place. Under the scheme full interest subsidy is available during the period of moratorium on educational loans upto Rs 7.50 Lakh disbursed on or after 1st April, 2009.
- Other concessions on educational loans which inter-alia includes,
- 1% interest concession if interest is serviced during the study period and subsequent moratorium period prior to the commencement of the repayment
- 0.5% concession in the interest rate to the girl students
- rebate in Income tax to the extent of interest paid on education loan.
- The student should be an Indian National.
- Should have secured admission to a higher education course in recognized institutions in India or Abroad through Entrance Test/ Merit Based Selection process after completion of HSC (10+2 or equivalent). However, entrance test or selection purely based on marks obtained in qualifying examination may not be the criterion for admission to some of the post graduate courses or research programmes. In such cases, banks will have to adopt appropriate criteria based on employability and reputation of the institution concerned
Note: It would be in order for banks to consider a meritorious student (who qualifies for a seat under merit quota) eligible for loan under this scheme even if the student chooses to pursue a course under Management Quota.
Studies in India: (Indicative list)
- Approved courses leading to graduate/ post graduate degree and P G diplomas conducted by recognized colleges/ universities recognized by UGC/ Govt./ AICTE/ AIBMS/ ICMR etc.
- Courses like ICWA, CA, CFA etc.
- Courses conducted by IIMs, IITs, IISc, XLRI. NIFT,NID etc.
- Regular Degree/Diploma courses like Aeronautical, pilot training, shipping, degree/diploma in nursing or any other discipline approved by Director General of Civil Aviation/Shipping/Indian Nursing Council or any other regulatory body as the case may be, if the course is pursued in India.
- Approved courses offered in India by reputed foreign universities.
Studies abroad : (indicative list)
- Graduation : For job oriented professional/ technical courses offered by reputed universities.
- Post graduation: MCA, MBA, MS, etc.
- Courses conducted by CIMA- London, CPA in USA etc.
- Degree/diploma courses like aeronautical, pilot training, shipping etc provided these are recognized by competent regulatory bodies in India/abroad for the purpose of employment in India/abroad.
Expenses considered for loan:
- Fee payable to college++/ school/ hostel*
- Examination/ Library/ Laboratory fee
- Travel expenses/ passage money for studies abroad
- Insurance premium for student borrower, if applicable
- Caution deposit, Building fund/refundable deposit supported by Institution bills/receipts. **
- Purchase of books/ equipments/ instruments/ uniforms***
- Purchase of computer at reasonable cost, if required for completion of the course***
- Any other expense required to complete the course - like study tours, project work, thesis, etc.***
- While computing loan required, scholarships, fee waiver etc., if any available to the student borrower may be taken into account.
++ For courses under Management quota seats considered under the scheme, fees as approved by the State Government/Government approved regulatory body for payment seats will be taken, subject to viability of repayment.
*Reasonable lodging and boarding charges will be considered in case the student chooses / is required to opt for outside accommodation.
**These expenses could be considered subject to the condition that the amount does not exceed 10% of the total tuition fees for the entire course.
*** It is likely that expenditure under Item Nos. vi, vii & viii above may not be available in the schedule of fees and charges prescribed by the college authorities. Therefore, a realistic assessment may be made of the requirement under these heads. However, the maximum expenses included under vi, vii & viii may be capped at 20% of the total tuition fees payable for completion of the course.
Quantum of Finance
Need based finance to meet the expenses worked out as per above details will be considered taking in to account margins subject to the following ceilings:
- Studies in India - Maximum upto Rs.10 lakhs.
- Studies Abroad - Maximum upto Rs.20 lakhs.
Note: The ceilings fixed for studies in India and Abroad correspond to the limits fixed by the RBI for treatment as priority sector lending. Banks may consider higher quantum of loan on course to course basis (eg: courses in IIMs, ISB etc). It may also be noted that even loans in excess of Rs 10 lakhs qualify for interest subsidy under Central Sector Interest Subsidy Scheme for loans up to Rs.10 lakhs.
- Upto Rs 4 lakhs Nil
- Above Rs. 4 lakhs
Scholarship/ assistantship to be included in margin.
Margin may be brought-in on year-to-year basis as and when disbursements are made on a pro-rata basis.
- Studies in India 5%
- Studies Abroad 15%
- Upto Rs 4 lakhs: Parents to be joint borrower(s). No security
- Above Rs 4 lakhs and upto Rs 7.5 lakhs: Besides the parent(s) executing the documents as joint borrower(s) , collateral security in the form of suitable third party guarantee will be taken. The bank may, at its discretion, in exceptional cases, waive third party guarantee if satisfied with the net-worth / means of parent/s who would be executing the document as joint borrower(s).
- Above Rs.7.5 lakhs: Parent(s) to be joint borrower(s) Tangible collateral security of suitable value acceptable to bank, along with the assignment of future income of the student for payment of instalments.
- The loan documents should be executed by both the student and the parent/ guardian as joint-borrower.
- The security can be in the form of land/ building/ Govt. securities/ Public Sector Bonds/Units of UTI, NSC, KVP, life policy, gold, shares/mutual fund units/debentures, bank deposit in the name of student/ parent/ guardian / any other third party or any other tangible security acceptable to the bank with suitable margin.
- Wherever the land/ building is already mortgaged, the unencumbered portion can be taken as security on second charge basis provided it covers the required loan amount.
Rate of Interest
- Interest to be charged at rates linked to the Base rate as decided by individual banks
- Simple interest to be charged during the study period and up to commencement of repayment.
Note: Servicing of interest during study period and the moratorium period till commencement of repayment is optional for students. Accrued interest will be added to the principal amount borrowed while fixing EMI for repayment.
Appraisal/ Sanction/ Disbursement
- Applications will be received either directly at bank branches or through on-line mode. Upon receipt of application, standard acknowledgement giving a reference number will be issued. The acknowledgement will contain contact details of the bank official who, could be contacted in case of delay in disposal of application.
- Normally, sanction/rejection will be communicated within 15 days of receipt duly completed application with supporting documents.
- In the normal course, while appraising the loan, the future income prospect of the student only will be looked into.
- Rejection of loan application, if any, shall be done with the concurrence of the controlling authority of the branch concerned and conveyed to the student stating reason for rejection.
- Students may submit their loan applications either at the bank branches near to the residence of parents or to the educational institution. However, after the loan is sanctioned, the cases be transferred to the bank branch near to the institution for follow up with student / institution. The KYC compliance for the purpose has to be done by the branch nearest to the residence of parents.
- The loan to be disbursed in stages as per the requirement/ demand directly to the Institutions/ Vendors of equipments/ instruments to the extent possible.
Repayment holiday/Moratorium : Course period + 1 year or 6 months after getting job, whichever is earlier.
If the student is not able to complete the course within the scheduled time, extension of time for completion of course may be permitted for a maximum period of 2 years. If the student is not able to complete the course for reasons beyond his control, sanctioning authority may at his discretion consider such extensions as may be deemed necessary to complete the course. In case the student discontinues the course midway, appropriate repayment schedule will be worked out by the bank in consultation with the student/parent.
1% interest concession may be provided by the bank, if interest is serviced during the study period and subsequent moratorium period prior to commencement of repayment. Repayment of the loan will be in equated monthly instalments for periods as under:
- The accrued interest during the repayment holiday period to be added to the principal and repayment in Equated Monthly Instalments (EMI) fixed.
While EMI based repayment is the generally accepted practice, many times the salary levels at the start of the career may not facilitate comfortable payment of EMI in certain cases (e.g. professionals like Doctors). Telescoping of repayment with stepped up instalments with passage of time may be considered in such cases.
- For loans upto Rs. 7.5 lakhs- upto 10 years
- For loans above Rs.7.5 lakhs - upto 15 years
Note: No prepayment penalty will be levied for prepayment of loan any time during the repayment period.
Banks may, with the consent of the student, arrange for life insurance policy on the students availing Education Loan. Individual Banks may work out the modalities with insurance companies.
- No processing / upfront charges may be levied on loans sanctioned under the scheme.
- (Banks may charge processing fee for considering loans for studies abroad. The fee would however, be refunded upon the student taking up the course)
- Sanction of loan to more than one child from the same family : Existence of an earlier education loan to the brother(s) and/or sister(s) will not affect the eligibility of another meritorious student from the same family obtaining education loan as per this scheme from the bank.
- Minimum Age : There is no specific restriction with regard to the age of the student to be eligible for education loan. However, if the student was a minor while the parent executed documents for the loan, the bank will obtain a letter of ratification from him/her upon attaining majority.
- Top up loans : Banks may consider top up loans to students pursuing further studies within the overall eligibility limit, if such further studies are commenced during the moratorium period of the first loan. The repayment of the loan will commence after the completion of the second course and further moratorium period, as provided under the scheme.
- Joint Borrower : The joint borrower should normally be parent(s)/guardian of the student borrower. In case of a married person, joint borrower can be either spouse or the parent(s)/parents-in-law.
- No Due Certificate : No due certificate will not be insisted upon as a pre-condition for considering education loan. However, banks may obtain a declaration/ an affidavit confirming that no loans are availed from other banks.
- Disposal of loan application : Loan applications have to be disposed of in the normal course within a period of 15 days to 1 month, but not exceeding the time norms stipulated for disposing of loan applications under priority sector lending.
Source : Indian Bank's Association
Central Sector lnterest Subsidy Scheme of MHRD
Under this Scheme Interest Subsidy is given during the moratorium period i.e., Course period plus one year on Education Loan taken from the Scheduled Banks under the Model Education Loan Scheme of Indian Banks Association to students belonging to economically weaker sections whose annual parental income is up to Rs. 4.5 Lakh from all sources. The subsidy is allowed for undergoing recognised Professional/ Technical courses in recognised Institutions in India. This subsidy is allowed only once.
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Education Loan Scheme of the NBCFDC
National Backward Classes Finance & Development Corporation (NBCFDC) provides Educational Loans to the students of Backward Classes, the annual income of the family is below 3 lakhs for pursuing general/ professional/technical courses or trainings at graduate and/or higher levels. Maximum loan limit in India is Rs.10 lakh and abroad is Rs.20 Lakh. The rate of interest is 4% p.a. and girl students will get at special concessional rate of interest @ 3.5% p.a.
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Scheme of Interest Subsidy on Educational Loans for Overseas Studies for the Students Belonging to the Minority Communities is being implemented by the Ministry of Minority Affairs
This is a Central Sector Scheme to provide interest subsidy to the student belonging to the communities declared as minority communities in terms of section 2 (c) of National Commission for Minorities Act, 1992, on the interest payable for the period of moratorium for the Education Loans to pursue approved courses of studies abroad at Masters and M.Phil/Ph.D levels.
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