Educational

Loans
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OBJECTIVE & PURPOSE

The Educational Loan Scheme aims at providing
financial support from the bank to deserving/
meritorious students for pursuing higher education
in India and abroad.
The main emphasis is that every meritorious
student is provided with an opportunity to pursue
education with the financial support on
affordable terms and conditions
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Scope
The education loan is expected to grow at a
rate of 44.8 per cent during the period 201213 to 2014-15.
Outward remittances for overseas education
in the year ending March 2013 was $114
million

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Market Size

It is expected that the Indian education sectors market size will increase to Rs
602,410 crore (US$ 100.23 billion) by FY 15 from Rs 341,180 crore (US$
56.77 billion) in FY 12, due to the expected strong demand for quality
education.
The present Indian higher education system comprises of about 700
universities and over 35,500 colleges. More than 85 per cent of these
students are enrolled in bachelor's degree programmes and about one-sixth of
all Indian students are enrolled in Engineering/Technology degree
programmes.
To increase the percentage of students going for higher education to 30 per
cent by 2020, India will need 800 more universities and another 35,000
colleges, according to the Ministry of Human Resource Development
(HRD).

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ELIGIBILITY CRITERIA
STUDENT'S ELIGIBILITY:
Should be an Indian National;
Secured admission to professional/technical
courses in India or Abroad through Entrance
Test/Merit based selection process.
Good academic career.
The student should not have outstanding education
loan from any other Institution.
Father/Mother should be co-borrower.
Branch nearest to the permanent residence of
student will consider the loan
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ELIGIBLE COURSE

(i) Studies in India (Indicative list):

Graduation courses : BA, B.Com., B.Sc., etc.
Post Graduation courses : Masters & Phd.
Professional courses : Engineering, Medical, Agriculture, Veterinary, Law, Dental,
Management, Computer, etc
Computer certificate courses of reputed institutes accredited to Department of Electronics or
institutes affiliated to university.
Courses like ICWA, CA, CFA, etc.
Courses conducted by IIM, IIT, IISc, XLRI, NIFT, NID and other Institutes set up by
Central/State Govt.
Evening courses of approved institutes.
Other courses leading to diploma/degree, etc. conducted by colleges/universities approved by
UGC/Govt./AICTE/AIBMS/ ICMR, etc.
Courses offered by National Institutes and other reputed private institutions with prior
approval of Head Office.
Courses offered in India by reputed foreign universities with prior approval of Head Office.
Note : 1. Professional courses not approved by AICTE and conducted by Institutes not
recognised by State Universities is outside the purview of the eligibility under the
scheme.
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 Studies abroad
Graduation : For job oriented
professional/technical courses offered by
reputed universities.
Post Graduation : MCA, MBA, MS, etc.
Courses conducted by CIMA - London,
CPA in USA, etc

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AICTE approval
There is a Public Notice on the website of AICTE, at
www.aicte.ernet.in , wherein the students are advised
not to take admission in technical education courses
run by any Institute which has not been approved by
AICTE. The students have been cautioned that
joining such unapproved programmes can have
serious consequences in employment as well as
higher studies. The website also provides list of
unapproved technical institutions including 169
Institutes running presently without AICTE
approval and another
Visit following sites also
www.ugc.ac.in,www.aicte.org.in,
www.education.nic.in

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Studies abroad
For financing studies abroad the website
www.webometrics.info/about.html is to be
referred which provides list of reputed
universities of the world.

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Time frame for disposal of

applications

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10

EXPENSES CONSIDERED
FOR LOAN

Fee payable to college/school/hostel*

Examination/Library/Laboratory fee.
Purchase of books/equipments/instruments/uniforms.
Caution deposit/building fund/refundable deposit supported by
Institution bills/receipts.
Travel expenses/passage money for studies abroad.
Purchase of computers - essential for completion of the course.
Insurance cover for the student.
Any other expense required to complete the course - like study tours,
project work, thesis, etc.
* As per brochure/ demand letter from the institution.

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QUANTUM OF FINANCE
Need based finance subject to repaying
capacity of the parents/students with margin
and the following ceilings :
Studies in India - Maximum Rs.10.00 lakh
Studies abroad - Maximum Rs.20.00 lakh

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MARGIN
Upto Rs.4 lakh : Nil
Above Rs.4 lakh - Studies in India : 5%
Studies Abroad : 15%
Scholarship could be included in margin.
Margin to be brought in on year to year
basis as and when disbursements are made

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Interest subsidy for students belonging

to economically weaker sections

The Central Government has launched a new Central Scheme to

provide interest subsidy during the period of moratorium on
educational loans for students belonging to economically weaker
sections (with parental family income from all sources up to Rs.4.5
lakh per annum). The Scheme is effective for all educational loans as
per IBA scheme, sanctioned to eligible students in respect of courses
in technical and professional streams from recognized institutions in
India, disbursed from the academic year 2009-10. The details of the
Scheme have been hosted in the website of Ministry of HRD as well
as IBA

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SECURITY

Upto Rs. 4 lakh : No security

Above Rs.4 lakh & upto Rs.7.5 lakh : Collateral security in
the form of a suitable third party guarantee.
Above Rs.7.5 lakh : Collateral security of suitable value or
at the discretion of the Bank suitable third party guarantee
alongwith the assignment of future income of the student
for payment of installments
Note : The security can be in the form of land/ building/
Govt. Securities/Public Sector Bonds/NSC/KVP/LIP/ Banks
Term Deposit etc.in the name of
Student/Parent/Guardian/Guarantor with suitable margin.
PPF account is not accepted as security as the balance in
a PPF account cannot be attached under an order or
decree of a court in the event of any legal process if
initiated in case of non payment of dues
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BANK CHARGES:
Processing/upfront charges

For Studies in India- NIL.

For Studies Abroad Rs.1000 for
issuance of sanction letter for
obtention of VISA.
Amount refundable on availing loan.

Document /Stamp Charges

At Actuals

Change of Institution

Studies in India Rs.250/Studies Abroad- Rs.500/-

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INSURANCE
All the student borrowers are offered a
specially designed Term Insurance cover
and the premium can be included as an item
of finance.

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REPAYMENT
Repayment holiday/Moratorium : Course
period + 1 year or 6 months after getting
job, whichever is earlier.
The loan is to be repaid in 5-7 years after
commencement of repayment

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LOAN SCHEME FOR VOCATIONAL

EDUCATION AND TRAINING
The Govt. has estimated that the country would
require 10 to 15 million skilled workers every year
to support the development process.
Vocational Education and Training aims at
providing financial support from the banking
system to those who, have the minimum
educational qualification, as required by the
institution / organization running the course
eligible under the scheme.
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Student Eligibility
The student should be an Indian National ,Have secured admission in a course
run or supported by a Ministry / Dept./ Organisation of the Govt. or a
company / society / organization supported by National Skill Development
Corporation or State Skill Missions / State Skill Corporations, preferably
leading to a certificate / diploma / degree, etc. issued by a Govt. organization
or an organization recognized / authorized by the Govt. to do so.
Vocational / Skill development courses of duration from 2 months to 3 years
There is no specific restriction with regard to the age of the student to be
eligible for the loan. However, if the student was a minor, while the parent
executes documents for the loan, the bank will obtain a letter of ratification
from him / her upon attaining majority.
QUANTUM OF FINANCE
Need based finance to meet expenses as worked out below will be considered subject to
the following ceilings :
For courses of duration upto 3 months
Rs. 20,000/For courses of duration 3 to 6 months
Rs. 50,000/
for courses of duration 6 months to 1 year
Rs. 75,000/for courses of duration above 1 year
Rs. 1,50,000/-

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OTHER CONDITIONS
i) Loan to be disbursed in stages as per requirement /

demand, directly to the Institution/ Vendors of

books/equipments/instruments to the extent possible;
ii) Student to produce mark list of previous term/semester
before availing next installment ;
iii) Student / Parent to provide latest mailing address, in
case of any change ;
iv) Student /Parent to inform Branch immediately on
change of course /completion of studies/termination of
studies/ any refund of fees by college /institution
/successful placement /obtention of job/change of job etc.,
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 Education loan interest is fully deductible

The cost of higher education is putting pressure on family budgets and forcing
parents to borrow for their childrens professional education. The good news is
that the interest paid on an education loan is fully deductible from taxable
income under Section 80E.

Till a few years ago, this deduction was available only to the borrower.
Now, even a parent or a spouse can avail of it. Whats more, this includes
loans taken for vocational courses. If a parent or legal guardian takes the loan,
he can claim deduction for the interest paid for up to eight successive years,
starting from the year in which the interest is first paid. So, if you take a 10
lakh education loan at 10% interest for 8 years, you can save 1.41 lakh in
tax in the highest tax bracket. This will bring down the effective cost of
the loan to 7% per annum. However, loans taken for siblings and other
relatives do not qualify. Also, the lender must be a recognised financial
institution; loans from employers or individuals do not count.

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Scheme to reduce burden of installment

Student-borrowers may soon have something to cheer

about. Banks are likely to allow extended repayment
period of upto 15 years for education loans, against 5
to 7 years now.
The extended loan repayment period is expected to
ease the burden of installments on student-borrowers,
especially those who enroll in private professional
colleges but are unable to get good job placements
Banks too will benefit from the extended period. Once
the load of high installments is taken off, loan defaults
will come down, thereby saving banks from making
provisioning.
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Repayment of loan taken for pursuing higher education (Section 80E):

While pursuing a personal goal of enrolling for higher education in order to

be competitive enough to meet your financial goals; the Income Tax Act offers
you deduction
An education loan for your wifes or childrens education or for any person
(minor) for whom you are the legal guardian. But that makes you eligible for
deduction under Section 80E of the Income Tax Act, to the extent of the
interest paid on such a loan taken.
The deduction is available for a maximum of 8 years or till the interest is paid,
whichever is earlier. the deduction is available from the year in which you
start paying the interest on the loan, and the seven immediately succeeding
financial years or until the interest is paid in full, whichever is earlier. from the
Finance Act of 2011 its scope is extended to cover all fields of studies
(including vocational studies) pursued after passing the Senior Secondary
Examination or its equivalent from any school, board or university recognised
by the Central or the State Government or local authority or any other
authority authorised by the Central or the State Government or local authority
to do so. However, no deduction is available for part-time courses

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Education loan data

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Source B.Line 02-01-14

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RBI committee recommendations

The committee, headed by Damodar Acharya,
Director on RBIs Central Board, has, among
others, made out a case for banks to organise
awareness camps on education loans at
schools/colleges at the plus-two level and to
jointly set up a central portal that will guide
students and their parents on loan sanction,
disbursement and recovery processes.
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RBI committee recommendations

Further, the committee has suggested that the
upper limit for with/without collateral
education loans should be increased and the
portal should be linked to credit information
bureaus and immigration database (to help banks
with recovery).

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 RBI committee has recommended that the cap on loans

without collateral should be increased to Rs 6 lakh from
Rs 4 lakh now once the credit guarantee fund is in place.
The loan amount with collateral and third-party
guarantee may be raised to at least Rs 15 lakh for studies
in India and to Rs 30 lakh for studies abroad.
The committee has made these suggestions as the
increasing cost of higher education is making it
impossible for students from middle- and lower-income
groups to study in reputed institutions, both public and
private

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NPA
Non-performing assets in education loans
are as high as 6%. To bring down NPA in
education loan, the government is also
considering the option of setting up a credit
guarantee trust as per the report dated
20-02-2012

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Asset quality troubles

The surge in education loans offered by state-run banks in the last
decade is coming back to haunt the lenders. Some public sector
banks have recorded gross non-performing assets as high as 15 per
cent in their education loan portfolios, in states like Kerala and
Tamil Nadu.
The gross non-performing asset ratio for the education loan segment
increased to six per cent in 2011-2012 from two per cent in 2007-08.
Four southern states Tamil Nadu, Kerala, Andhra Pradesh,
and Karnataka had close to 56 per cent of the total education
loan dues at the end of March 2012.
Education loans accounted for 2.55 per cent of the total credit in the
four southern states, compared to the India average of 1.17 per cent
in 2011-12.

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Guarantee Fund for Education loan

Finance ministry will set up a Credit

Guarantee Fund by December, which
will allow public sector and private
banks to extend advances of up to Rs
10,000 crore on education loans up to
Rs 7.5 lakh.
All banks will have to contribute one
per cent of the sanctioned loan amount
to the fund every year. For example, if
the loan is extended to a student at 12
per cent, another one per cent will be
charged as fee towards the guarantee
fund. This may neutralise the gains
from reduction in interest rates initially,
but the finance ministry is confident
that education loans will eventually
become cheaper.
Under the new scheme, banks can
claim up to 75 of the loan amount
from the credit guarantee fund in
case of default.

BS 19-10-12
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THANK YOU

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