Model Educational Loan Scheme (IBA)

Education is central to the human resources development and empowerment in any country. Knowledge and 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. Though government intends to provide education to all through public funding, it is not feasible in view budgetary constraints. At the same time the cost of education has been going up in recent times and it has become financial burden to the parents of the students. Hence, there is a clear case for institutional funding in this area. 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.

Eligibility Criteria: The student should be an Indian National and should have secured admission to a higher education course in recognized institutions in India or Abroad through Entrance Test/Merit Based Selection process. 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 programs. In such cases, banks will have to adopt appropriate criteria based on employability and reputation of the institution concerned.

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.

Courses Eligible: Approved courses leading to graduate/post graduate degree and PG 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 etc., approved by Director General of Civil Aviation/Shipping, if the course is pursued in India. Approved courses offered in India by reputed foreign universities. However, banks may approve other job oriented courses leading to technical/professional degrees, post graduate degrees / diplomas offered by recognized institutions under this scheme. Courses other than the above offered by reputed institutions may also be considered on the basis of employability.

Expenses considered for loan: Tuition, Hostel, Library, Laboratory and Examination fee; Caution deposit, Building fund/refundable deposit; Purchase of books, uniforms, equipments & instruments including computer/Laptop and study tour & project work costs etc., are to be considered as cost of education for the purpose of loan. It is to be noted that reasonable lodging and boarding charges will be considered in case the student chooses / is required to opt for outside accommodation. In case of studies abroad, Travel expenses/passage money and Insurance charges should also be considered as cost of education. However, the maximum expenses other than Tuition fee may be capped at 20% of the total tuition fees payable for completion of the course. The scholarship / assistantship, if any, is to be excluded from the total cost while arriving eligible loan amount.

Quantum of finance: Banks may consider sanction of maximum up to Rs.10 lakh for studies in India and Rs.20 lakh for studies abroad. 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.

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.

Margin: No margin is required to bring in by the borrower for the loans up to 4 lakh and for loans above 4 lakh, 5% margin is stipulated. In case of studies abroad the margin stipulated is 15%. Margin may be brought-in on year-to-year basis as and when disbursements are made on a pro-rata basis.

Security: The loan documents should be executed by the student and the parent / guardian as joint-borrower.

Loan Security / Co-obligation
Up to Rs.4 lakhs Parent as Joint borrower. In case of a married person, joint borrower can be spouse or the parent(s)/parents-in-law.
Above Rs.4 lakh & up to Rs.7.5 lakh Beside the parent as joint borrower, suitable third part guarantee.
Above Rs.7.5 lakh Parent/spouse as joint borrower and suitable tangible collateral security
The security can be in the form of land/ building/ Govt. securities/ Public Sector Bonds/Units of UTI, NSC, KVP, life policy, gold, and 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. The loan attracts simple interest during the study period. 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. 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. No processing / upfront charges may be levied on loans sanctioned under the scheme.

Repayment: Repayment of the loan starts after one year from the date of completion of course or 6 months after getting the job whichever is earlier. The repayment should be in Equated Monthly Installments (EMI) and maximum repayment period allowed for loans up to Rs.7.5 lakhs & above Rs.7.5 lakhs 10 & 15 years respectively. 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.

Educational loans can be sanctioned either at the Bank branch near to the residents of the parents or to the educational institution. 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. Loan applications have to be disposed of in the normal course within a period of 15 days to one month, but not exceeding the time norms stipulated for disposing of loan applications under priority sector lending. Branches should not reject any eligible loan proposal for the reason that the applicant’s residence does not fall under service area of the Bank/Branch.