Government Streamlines Education Loan Process for Higher Studies
SRINAGAR: The Government of India has laid out clear guidelines for education loans to ensure that financial constraints do not hinder meritorious students from pursuing higher education. As per the Reserve Bank of India’s advisory, all Scheduled Commercial Banks are expected to follow the Model Education Loan Scheme formulated by the Indian Banks’ Association. This scheme provides need-based financial assistance to students, with a provision for collateral-free loans up to Rs 7.50 lakhs, provided they qualify under the Central Sector Interest Subsidy Scheme or the Credit Guarantee Fund Scheme for Education Loans. Additionally, no margin is required for loans up to Rs 4 lakhs, and a moratorium period covering the duration of the study plus one year is available for all borrowers. Repayment can be extended up to 15 years, making it easier for students to manage loan repayments after securing employment.
While collateral is not mandatory for loans up to Rs 7.50 lakhs, public sector banks may also provide higher amounts without collateral on a case-to-case basis. The government has clarified that data on loan rejections by public sector banks is not maintained centrally, but banks are required to provide reasons for any rejection and obtain approval from a higher authority before declining an application.
In a significant move, the government launched the PM Vidyalaxmi scheme on November 6, 2024, to streamline and enhance access to education loans for students gaining admission to the top 860 Quality Higher Educational Institutions in the country. This initiative ensures a fully digital, transparent, and student-friendly process for obtaining collateral-free and guarantor-free loans. Under this scheme, loans cover full tuition fees and other specified educational expenses for studies within India. Additionally, the scheme provides a three per cent interest subvention on loans up to Rs 10 lakh for up to one lakh needy students each year, provided their annual family income is below Rs 8 lakhs. For students from families earning up to Rs 4.5 lakhs annually, full interest subvention is already available under the Central Sector Interest Subsidy Scheme.
To further support students, the government will provide a 75 per cent credit guarantee for loans up to Rs 7.50 lakhs through the National Credit Guarantee Trustee Company. This ensures that banks have greater confidence in lending to students without the need for additional security, making it easier for aspirants to access quality education. The government’s latest initiatives reaffirm its commitment to making higher education accessible and affordable for students across India.
