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. This model education loan scheme is an attempt to bring out a viable
and sustainable bank loan scheme to meet the aspirations of our society.
information would be the driving force for economic growth in the coming years.
The current rate of economic growth of the country demands technically and
professionally trained man power in large numbers. In this backdrop, loans for
education is seen as investments for economic development and prosperity. The
model Education Loan Scheme was developed by the Indian Banks’ Association to
help meritorious students pursue higher education in technical and
professional courses. As the focus is on development of human capital,
repayment of the loan is expected to come from future earnings of the student
after completion of education. Hence the assessment of the loan will be based
on employability and earning potential of the student upon completion of
the course and not the parental income/family wealth.
recommendations made by a Study Group, IBA had prepared a Model Educational
Loan Scheme in the year 2001 which was advised to banks for implementation by
Reserve Bank of India
vide circular No.RPCD.PLNFS.BC.NO.83/06.12.05/2000-01 dated April 28, 2001
along with certain modifications suggested by the Government of India. In line
with the announcement made by the Hon'ble Finance Minister in his Budget Speech
for the year 2004-05, IBA had communicated certain changes in the security
norms applicable to education loans with limits above ₹ 4 lakhs and up to ₹ 7.5 lakhs. The scheme was further modified
in the year 2007-08 based on experience gained in the operation of the scheme
over the years.
With increased public
awareness about the benefits of the education loan scheme, bank branches
are receiving more and more
applications for loans every year. This has also
resulted in cases of
customer grievances due to misinterpretation of the provisions of the scheme.
This review exercise has been taken up to make the scheme more transparent and
minimize scope for multiple interpretations leading to disputes.
2. OBJECTIVES OF THE SCHEME
The Educational Loan
Scheme outlined below aims at providing financial support from the banking
system to meritorious students for pursuing higher education in India and
abroad. The main emphasis is that a meritorious student, though poor, is
provided with an opportunity to pursue education with the financial support
from the banking system with affordable terms and conditions.
3. APPLICABILITY OF THE SCHEME:
The scheme detailed
below could be adopted by all member banks of the Association or other banks
and financial institutions as may be advised by the Reserve Bank of India. The
scheme provides broad guidelines to the banks for operationalising the
educational loan scheme and the implementing bank will have the discretion to
make changes as deemed fit.
The scheme details are
4.1 Student eligibility:
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 plus 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
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.
4.2 Courses eligible
a. Studies in India:
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.
The above list is indicative in nature. Banks may approve other job oriented courses leading to
technical/ professional degrees, post graduate degrees/diplomas offered
by recognized institutions under this scheme.
2. Courses other than the above offered
by reputed institutions may also be considered on the basis of
Reference : www.ugc.ac.in, www.education.nic.in, www.aicte.org.in
(b)Studies abroad :-
For job oriented professional/ technical
courses offered by
Post graduation: MCA, MBA, MS,
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.
Reference: www.webometrics.info (indicative
considered for loan:
payable to college++/ school/ hostel*
Examination/ Library/ Laboratory fee
expenses/ passage money for studies abroad
premium for student borrower, if applicable
deposit, Building fund/refundable deposit supported by Institution
of books/ equipments/ instruments/ uniforms***
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.***
computing loan required, scholarships, fee waiver etc., if any available to the
student borrower may be taken into account.
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
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.
5. QUANTUM OF FINANCE:
Need based finance to meet the expenses worked out as per para 4.3 above
will be considered taking in to account margins as per para 6 subject to the
- Studies in India
Maximum upto ₹ 10 lakhs.
- Studies Abroad
- Maximum upto ₹ 20 lakhs.
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 ₹ 10 lakhs qualify for
interest subsidy under Central Sector Interest Subsidy Scheme for loans up to ₹
Upto ₹ 4
Above ₹ 4 lakhs
Studies in India
Studies Abroad 15%
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.
7. SECURITY :
Upto ₹ 4
Parents to be joint borrower(s).
Above ₹ 4 lakhs
and upto ₹ 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 ₹ 7.5
lakhs Parent(s) to be joint
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
8. 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
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.
9. 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
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
The accrued interest during the repayment holiday period to be added
to the principal and repayment in Equated Monthly Instalments
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:
For loans upto ₹ 7.5
- upto 10 years
For loans above ₹ 7.5 lakhs
- upto 15 years
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
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
12. FOLLOW UP/MONITORING:
Banks to contact
college / university authorities to obtain progress report on the student
at regular intervals in respect of those who have availed loans. In case of
studies abroad, bank may obtain the SSN/Unique Identification Number
(UIN)/Identity Card and note the same in the bank’s records. The UID number
issued by UIDIA may also be captured in bank’s system as and when available.
Banks to enter into Memorandum of Understanding (MoU) with the educational
institutions to provide the educational loans to the students. There
should be an annual review of the asset quality of educational loans between
banks and educational institution.
13. PROCESSING CHARGES :
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)
14. CAPABILITY CERTIFICATE:
Banks can also issue
the capability certificate for students going abroad for higher studies. For
this purpose financial and other supporting documents may be obtained from
applicant, if required.
(Some of the foreign
universities require the students to submit a certificate from their bankers
about the sponsors' solvency/ financial capability, with a view to ensure that
the sponsors of the students going abroad for higher studies are capable of
meeting the expenses till completion of studies.)
15. OTHER CONDITIONS:
15.1 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.
15.2 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
15.3 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
15.4 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
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.