Overseas education has become a bridge to global opportunities and an increasing number of Indian students are taking that leap to study at top universities abroad. As the cost of higher education abroad continues to rise, many aspirants choose education loans as their funding choice.
India’s central bank and regulatory body, the Reserve Bank of India (RBI) is responsible for making financial support for education clear and secure for every aspiring student. To streamline the process of taking an education loan in India, RBI recommends all the Scheduled Commercial Banks to follow the Model Education Loan Scheme (MELS). This scheme was developed by the Indian Banks' Association (IBA), and it follows common guidelines across all eligible banks.
By constantly refining its education loan guidelines, the RBI aims to keep up with changing global education trends and provide the clarity that students and families need. Our latest article elaborates more on the key RBI guidelines for education loans that every prospective loan applicant should know. So, without any further delay, let’s begin.
The Reserve Bank of India (RBI) has continued with some regulations, modified a few and introduced something new. To put it all together in one place, given below are the guidelines for this year and beyond.
The RBI has provided clear guidance for banks issuing education loans for studies abroad. These guidelines create a standard across banks, ensuring transparency and a fair process for all students.
Types of Security Accepted: For loans over Rs. 7.5 lakhs, banks may require collateral security unless they have a specialised collateral-free education loan scheme. Usually, property, FDs, LIC Policy, or a third-party guarantee is accepted as collateral security.
Interest Rates: Banks calculate interest rates based on the Marginal Cost of Funds-Based Lending Rate (MCLR). Many banks offer favourable rates for loans for prestigious institutions. The RBI encourages banks to keep these rates competitive, helping make study-abroad financing manageable.
Margin Money: Margin money or the applicant’s contribution to the loan varies depending on the loan amount. For loans under INR 4 lakhs no margin money is required. For larger loan amounts, a 5-15% contribution is required depending on the bank. Scholarships and assistantships are also considered loan margins by the banks.
Guidelines for applicants are in place to help students understand what to expect in terms of education loan eligibility, financial benefits, and repayment.
Eligibility: Indian citizens between 18 and 35 years are eligible. They must have admission to a recognized foreign institution as a requirement.
Tax Benefits: Under Section 80E of the Indian Income Tax Act, loan applicants can claim tax deductions on interest paid for up to eight years of repayment. This tax benefit can also be claimed by the loan co-applicants.
Repayment Terms & Tenure: The RBI mandates a moratorium period of course duration plus an additional six months to one year before repayment begins. Repayment tenures commonly range from 10 to 15 years, depending on the loan amount and specific bank policies.
In a progressive step towards financial inclusivity, the RBI recently announced that Overseas Citizens of India (OCI) cardholders can now apply for education loans in India to fund their studies abroad. This is a great initiative as OCI cardholders are now treated on par with Indian citizens in terms of eligibility and access to education loans.
Additionally, there will be no restrictions on the remittance of funds for paying higher education expenses under the Liberalised Remittance Scheme (LRS).
The Indian Government provides interest subsidies on education loans, especially for economically disadvantaged students. Two major schemes that currently exist under RBI’s control:
Dr. Ambedkar Scheme of Interest Subsidy on Educational Loan for Overseas Studies for OBCs & EBCs: This scheme benefits students from economically weaker sections with annual family income up to INR 4.5 lakhs. Under this scheme, eligible students get full interest subsidy during the moratorium period on education loans.
GUEEDC Education Loan Scheme: Under the Gujarat Unreserved Educational & Economic Development Corporation (GUEEDC), economically weaker students from Gujarat belonging to unreserved categories are eligible for interest subsidies on their education loans. The rate of interest for GUEEDC foreign education loans starts at 4% per annum.
Both schemes significantly reduce the financial burden on students from low-income families, making overseas education more achievable.
Loan settlement norms allow students facing genuine financial hardship to restructure or settle their loans. The RBI has introduced the following options:
Loan Restructuring: Borrowers unable to meet their repayment obligations due to unforeseen circumstances can apply for restructuring. Banks may offer revised repayment terms based on the borrower’s current income capacity.
Interest Concessions: In certain cases, banks may reduce the interest rate or provide partial waivers to ease repayment.
Beyond this, RBI instructs banks to perform case-by-case analyses of each settlement request to ensure that concessions are granted fairly, aiming to avoid defaults while supporting students facing financial difficulties.
For applicants facing issues with their loan application, disbursement or education loan repayment, the RBI has created a strong Grievance Redressal system. Applicants can escalate unresolved complaints to the bank’s Grievance Redressal Officer. If issues persist, applicants can approach the Banking Ombudsman. This person is an RBI-appointed official tasked with addressing complaints impartially.
Under the Banking Ombudsman Scheme, complaints are resolved efficiently without applicants needing to resort to lengthy litigation. This system strengthens trust in India’s education loan framework by ensuring accountability.
Bringing it all together, these are the evolving guidelines from the RBI. As you have already read, these updated policies include a strong push for transparency, inclusivity, and subsidies for low-income applicants.
If you are ready to take the first step towards studying abroad and need guidance on financing options, Élan Overseas Education Loans can offer comprehensive support. Reach out to our Experts today to understand how these RBI guidelines can positively contribute to your loan-taking experience.
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