Looking for Education Loan – Know these New Rules

The IBA (Indian Banks’ Association) has come-up with new guidelines regarding Education Loan named as “Model Education Loan Scheme” and would be followed by all its member Scheduled Commercial Banks- which means all big private and public banks like SBI, ICICI, etc.

The idea is to provide financial support to meritorious students for pursuing higher education in India and abroad. We list down the salient features:

Education Loan – Limit, Margin and Repayment Period

Students can borrow loan up to Rs 10 lakh for study in India and up to Rs 20 lakh for study abroad.

Collateral free loans up to Rs 7.5 Lakh under the Credit Guarantee Fund Scheme for Education Loans (CGFSEL).

No Margin for loan up to Rs 7.50 Lakh – which means 100% education cost can be covered through education loan without any contribution from self.

Repayment period of 15 years – The maximum repayment tenure for loan would be 15 years which would means lower EMIs but remember more the tenure more is the interest outgo.

Read: Tax Benefit on Education Loan u/s Sec 80E

Moratorium period

One year moratorium for repayment after completion of studies in all cases – this is great for students who do not get job immediately after completion of their course. You need not pay anything in the moratorium period.

Moratorium considering spells of unemployment/under-employment, say two or three times during the life cycle of the loan.

Moratorium for the incubation period if the student wants to take up a start-up venture after graduation.

Read: 15 Personal Finance Tips for your First Job

Interest Rate

Simple interest for loan is calculated from the date of disbursement of loan up to the end of moratorium period i.e. course period plus one year and therefore the interest is never risen to principal amount.

At the start of repayment period, the interest accrued is clubbed with principal & EMI is calculated accordingly. The servicing of interest during study period and the moratorium period till repayment commences is optional for students.

Also Read: How to Pay 0 Income Tax on Rs 20 Lakh Salary?

Concession on Education Loan

The Model Educational Loan Scheme of IBA provides for certain concessions on educational loans which inter-alia includes

  • 1% interest concession if interest is serviced during the study period and subsequent moratorium period prior to the commencement of the repayment
  • 0.5% concession in the interest rate to the girl students

For the students belonging to economically weaker sections, an interest subsidy scheme on educational loans is in place. Under the scheme full interest subsidy is available during the period of moratorium on educational loans up to Rs 7.50 Lakh disbursed on or after 1st April, 2009.

Education Loan - Rules
Education Loan – Rules


The Model Education Loan Scheme by IBA is good initiative. It will standardize a lot of terms and conditions across major banks for education loan. The only differentiating factor would be interest rates on offer. Additionally, collateral free loan and no margin requirement for loans up to 7.5 lakhs is great initiative and would help students from poor income group. As the admission season draws near, a good understanding about these education loan rules would help you in making right choice.

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