RBI (Reserve Bank of India) basically regulates all commercial banks and non-banking finance companies (NBFCs) operating in India. Being a leader of the banking system and money market, it monitors the money supply, as well as credit regulation in the country. In recent years, it has decided to give priority to the Educational loan sector in lending from banks.
RBI has ordered all the Commercial Banks like SBI, Bank of Baroda, Syndicate Bank, etc. to adopt the ‘Model Education Loan Scheme’, formulated by the Indian Banks Association (IBA), vide Circular dated April 28, 2001. Under this scheme, the banks can check the credit-worthiness of the borrower. If a student does not have a credit history, banks will look at the CIBIL score of the parents who is there as the co-signer for the student borrower.
Below we have described some of the other guidelines issued by RBI for Education Loan:
According to RBI, banks should grant Education Loan to the meritorious students. Here, the meritorious student is a subjective term which is assumed if the student has qualified for the entrance exam to professional and technical courses.
If a student is getting admission to a prestigious college then he/she will also be eligible for many other benefits like loan limit, interest rate, etc.
There are 2 categories of loans namely secured and unsecured loan depending on the loan amount granted.
|Less than 4 Lakhs||No|
|More than 4 Lakhs||A security deposit in the form of collateral|
Under the Credit Guarantee Fund Scheme for Education Loans (CGFSEL), the students can even get an education loan up to INR 7.5 Lakhs.
The moratorium period must be there after the completion of the course during which the borrower can arrange the funds to start repayment of the education loan. The minimum moratorium period is 1 year for all. If a student wants to go for a startup venture after graduation then there will be a moratorium for the incubation period.
For loans up to INR 7.5 Lakhs, there will be no margin. The loan limit for the study is:
India: INR 10 Lakhs
Abroad: INR 20 Lakhs
Income Tax benefits should also be provided to student borrowers. Under Section 80E of the Income-tax Act, the interest part of the loan can be claimed as a subsidy while filling for the Income Tax. The CSIS (Central Sector Interest Subsidy) scheme is also there for the economically weaker section which will provide full interest subsidy during the moratorium period.
The interest rates for an education loan are also decided by the RBI. It will depend upon whether you are seeking a loan for India or abroad. The interest rate for the Indian Institution will be comparatively lower than the institution abroad. There will be some fixed and floating rates in the interest rate. The floating rate of interest will be considered for the Indian loans whereas fixed interest rates will be used in the case of foreign loans.
The RBI rules will also include the Education loan repayment procedure. The loans have to be paid back in the form of EMIs as soon as the moratorium period gets expired. The EMI of a person cannot be greater than the 50% share of one’s salary. The repayment should be completed within a year span of 8-15 years soon after the grace period. The repayment period can be extended in some of the rare cases.
The guidelines given by RBI are much reliable in the terms of rate of interest as well as the repayment factors. This makes Education loan affordable for all.