The Reserve Bank of India (RBI) is the Central Bank of the country and is responsible for regulating the banks and non-banking financial companies (NBFCs) in India. Moreover, it is the only one in power that controls the money supply in the Indian economy. It also looks after credit regulation as well and keeps issuing guidelines from time to time regarding the distribution of loans. The RBI has advised all Scheduled Commercial Banks to adopt the IBA Model Education Loan Scheme, which was formulated in 2001.
The government has always prioritised the education sector, focusing majorly on education loans, loan limits, collateral requirements, and many more. In this blog, we will cover all the latest and necessary guidelines laid out by the RBI for education loans. Read below to know more.
Table of contents
- RBI Guidelines for Education Loans for Banks
- RBI Guidelines for Education Loans for Students
- What is the Model Education Loan Scheme (MELS) 2022?
- RBI Guidelines on Service Area Approach for Education Loans
- RBI’s Ombudsman Scheme for Education Loan Complaints
- What Are the Loan Amount Limits Under RBI’s Education Loan Scheme?
- Prepayment and Foreclosure Rules for Education Loans
- FAQs
RBI Guidelines for Education Loans for Banks
The Reserve Bank of India provides broad guidelines for Scheduled Commercial Banks (SCBs) on offering education loans. The major highlight of the guidelines is to adopt the IBA Education Loan Scheme Model formulated by the Indian Bank’s Association (IBA).
- The IBA Model Scheme does not apply to Regional Rural Banks, Cooperative Banks, NBFCs, Fintech companies, etc.
- Banks cannot ask for collateral for education loans up to INR 4 lakhs.
- Banks can set their own rates with RBI approval.
- Banks cannot reject loans based on your location.
- No processing/ upfront charges may be collected on educational loans.
- Scholarships/ assistance should be included in the margin money.
Eligibility
The education loan can be granted only to students who fulfil the eligibility criteria-
- The student must be an Indian national.
- The student must have secured admission to a recognized institution in India or abroad through an entrance test or merit-based selection process.
- The student’s academic performance and family’s financial background are considered.
Loan Amount
The IBA Model for Education Loan Scheme clearly states the maximum amount of loans that can be lent to aspiring students. The loan amount is need-based and subject to a minimum margin requirement.
- For studies in India: Up to INR 10 lakh
- For studies abroad: Up to INR 20 lakh
However, students who have an excellent credit history and academic record can be granted with loan above the maximum limit.
Also Read: Check out the FAQs on the Restructuring 2.0 Scheme of RBI that provides benefits to the borrowers affected by the COVID-19 pandemic.
Margin Money
All Scheduled Commercial Banks are required to take the margin money from students who wish to apply for loans above INR 4 lakhs.
- For loans up to INR 4 lakh, no margin is required.
- For loans above INR 4 lakh for studies in India, the margin is 5% of the loan amount.
- For loans above INR 4 lakh for studies abroad, the margin is 15% of the loan amount.
- Scholarships and assistantships are included in the margin calculation.
Security
The RBI guidelines for education loans lays down the need for security against the education loan for a certain amount. The two categories of education loans can therefore be secured loans and unsecured loans, depending on the granted amount.
| Amount Granted | Collateral Requirement |
| Up to INR 4 lakhs | No collateral/ security deposit is required. Parents act as co-borrowers. |
| Up to INR 7.5 lakhs | A third-party guarantee is required in addition to parents as co-borrowers. |
| More than INR 7.5 lakhs | A security deposit in the form of tangible collateral is required along with parents as co-borrowers. |
Interest Rates
- The interest rate is linked to the bank’s base rate and can vary based on the type and value of collateral.
- Simple interest is charged during the study period and moratorium.
Repayment
Repayment starts 1 year after completion of the course or 6 months after securing employment, whichever is earlier.
- For loans up to INR 7.5 lakh, the repayment period is up to 10 years.
- For loans above INR 7.5 lakh, the repayment period is up to 15 years.
Banks are encouraged to follow these guidelines while offering education loans to students. The scheme aims to make higher education accessible and affordable for students from diverse backgrounds.
Also Read: Also Read: Applying for an education loan to study abroad? Read this blog and know the latest guidelines issued by RBI on credit reports.
RBI Guidelines for Education Loans for Students
Students need to be aware of the RBI guidelines for education loans. These inform you about the maximum loan amount that can be availed, interest rate details, collateral requirements, grievance redressal and much more. This ensures a simplified application process, flexibility in repayments, and interest rate regulations.
Loan Amount
A student can avail education loans of up to INR 10 lakhs to study in India and up to INR 20 lakhs to study abroad from Scheduled Commercial Banks (under Priority Sector Lending).
However, some banks like the State Bank of India provide education loans of up to INR 1.5 crores to study abroad. This solely depends on factors like academic background, family income, credit score, and security mortgage.
Repayment
Loans must be repaid within 5-7 years after starting repayments. If you can’t finish your course on time, you can get an extension of up to 2 years. If there are reasons beyond your control, the bank might extend it further.
- Interest that accrues during the repayment holiday will be added to the principal, and you’ll make fixed monthly payments (EMIs).
- You might get a 1-2% discount on interest if you make payments during the study period (when you’re not required to repay the loan).
Also Read: The majority of applicants are unaware of the reasons behind their education loan rejection. Read this blog to find out about the same.
Collateral
Though the collateral requirements are set for Scheduled Commercial Banks. Public Banks like SBI, Bank of Baroda and others offer collateral-free education loans up to INR 7.5 lakhs.
However, students need to know that they can apply for education loans without collateral with private Banks like HDFC, ICICI, Axis and others providing collateral-free education loans up to INR 1 crores. This is only subject to excellent credit score, co-applicants/ guarantor’s financial income, and exceptional academic performance.
Tax Benefits
Student loan tax deduction is another aspect of the RBI guidelines for education loans. According to Section 80E of the Income Tax Act, income tax rebate on education loans can be claimed by the applicant. This section allows for a deduction of the total interest paid on the education loan from the taxable income. This benefit is also offered to encourage borrowers to take an education loan.
What is the Model Education Loan Scheme (MELS) 2022?
The Model Education Loan Scheme (MELS) 2022 is a standardized framework designed by the Indian Banks’ Association (IBA) under the guidance of RBI. This scheme outlines how banks should provide education loans to students. It covers everything from eligibility criteria to loan limits and repayment options.
MELS 2022 aims to ensure that education loans are easily available to students for a wide range of courses, both in India and abroad, and makes the process of applying for a loan more student-friendly.
RBI Guidelines on Service Area Approach for Education Loans
One of the student-friendly changes RBI introduced is the removal of the “service area” rule. Earlier, some banks would reject loan applications if the student didn’t live within a particular geographic area. Now, banks cannot reject your education loan just because your residence falls outside their usual service area. This change ensures that more students, no matter where they live, have access to education loans.
RBI’s Ombudsman Scheme for Education Loan Complaints
If you ever have an issue with your bank regarding your education loan, RBI has set up a robust complaint system through its Integrated Ombudsman Scheme. If your bank is not addressing your concerns or you’re unhappy with the services, you can lodge a complaint online through the RBI’s portal. You can also submit complaints via email or even send them by post to RBI’s dedicated complaint center. This ensures that students have a way to resolve their issues efficiently.
What Are the Loan Amount Limits Under RBI’s Education Loan Scheme?
The amount you can borrow under the RBI’s education loan guidelines depends on whether you’re studying in India or abroad. For studies in India, students can typically borrow up to ₹10 lakh, and for studies abroad, up to ₹20 lakh. However, banks can offer higher amounts based on their discretion, especially if the student is pursuing high-cost courses like an MBA or medicine.
Prepayment and Foreclosure Rules for Education Loans
RBI guidelines encourage banks to allow students to repay loans early without penalties. This means if you’re able to pay off your loan before the designated tenure, you won’t be charged extra fees. Early repayment can help reduce the overall interest you pay.
That was about the RBI Guidelines for Education Loan 2024. It is important to know about these guidelines before applying for education loans to stay updated on important information like the collateral requirements, limit is education loans availed, moratorium period, tax benefits, interest rates, and grievance redressal.
FAQs
The rule for education loans is to be eligible to apply for an education loan, for which one must be a citizen of India, earning admission into a reputable and recognized educational institution in India or abroad.
Yes, banks can reject education loans if the student fails to fulfil the eligibility criteria or does not have a good academic record or credit history.
Education loan repayment is to be started after a year of moratorium period on course completion of the student.
As per RBI guidelines, income tax rebates on education loans can be claimed by the applicant under Section 80E of the Income Tax Act. This section allows for a deduction of the total interest paid on the education loan from the taxable income.
A student can avail education loans of up to INR 10 lakhs to study in India and up to INR 20 lakhs to study abroad from Scheduled Commercial Banks. However, the loan amount may vary depending on the security mortgage, academic background, family income, credit score, and other factors.
Yes. As per the RBI guidelines on unsecured loans, the banks are supposed to provide education loans up to INR 4 lakh without collateral. Any loan above INR 4 lakh up to INR 7.5 lakh will require a guarantor.
In case you are not getting an unsecured loan as per the guidelines issued to the bank, you can report the same to the RBI ombudsman. However, make sure that there are no mistakes from your side as the loan rejections are done on multiple grounds
The good news is that almost any student can apply for an education loan under RBI guidelines, as long as they meet the eligibility criteria set by the banks. Typically, students who have secured admission to a recognized institution for higher education can apply. Whether you’re pursuing a professional, technical, or vocational course, both in India and abroad, there’s a loan option for you.
Most of the Scheduled Commercial Banks (SCBs) in India follow the RBI’s education loan guidelines. This includes major banks like State Bank of India (SBI), Punjab National Bank (PNB), HDFC Bank, and more. These banks provide loans based on the Model Education Loan Scheme. Always check with your bank to see if they follow the latest RBI guidelines.
Unfortunately, Regional Rural Banks (RRBs), Non-Banking Financial Companies (NBFCs), and fintech companies do not fall under the purview of the Model Education Loan Scheme 2022. They have their own policies and guidelines, which might differ from those followed by Scheduled Commercial Banks. However, some of these institutions do offer education loans, but their terms might not be as favorable as those from SCBs.
Education loans under the RBI guidelines cover a wide variety of courses, from traditional degrees like engineering and medicine to vocational and technical courses. Loans are also available for studying abroad in prestigious institutions. Whether you’re pursuing a diploma, undergraduate degree, or postgraduate degree, there’s likely a loan option available for you.
For students planning to study abroad, RBI has specific guidelines that allow banks to offer loans for recognized foreign institutions. The loan amount usually covers tuition fees, travel expenses, and even living costs. However, be sure to check if the institution and course you’re applying to are recognized by the bank for loan approval.
Applying for an education loan is simple. You can approach your bank either in person or through online portals. You’ll need documents like admission proof, fee structure, and KYC details of both the student and co-applicant. Ensure you meet the eligibility criteria and submit all required documents for a hassle-free process.
To know more about international scholarships, the loan application process, the best international bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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