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
Maximum Loan Limit
One of the most frequently asked questions is about the maximum education loan that banks can offer. Thus, one of the top RBI guidelines for education loans on the top is the limit of education loans. The loan limit of the education loan depends if it is availed for pursuing higher education in India or abroad.
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).
| For India | INR 10 lakh |
| For abroad | INR 20 lakh (under Priority Sector Lending) |
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.
Benefits to Meritorious Students and Prestigious College
Students who have an exceptionally good academic background with complimentary work experience and skills to show for themselves, secure higher chances of getting admission to prestigious colleges are eligible for further benefits in the form of education loan limits and interest rates, as per RBI guidelines.
Accordingly, students who have better grades, entrance examination rankings; records of academic excellence; and admission letters from a reputed higher education institution with the potential for employment; along with parents or guardians with a solid financial history, are known to have higher chances of obtaining an education loan.
Collateral Requirements
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 |
| Up to INR 7.5 lakhs | Guarantor required |
| More than INR 7.5 lakhs | A security deposit in the form of collateral is required |
It means that if a student is to avail of an education loan of less than INR 4 lakhs, then there is no requirement for collateral. If the education loan availed is between INR 4 lakhs and up to 7.5 lakhs, then a guarantor is required. Education loans of more than INR 7.5 lakhs require one form of collateral security in terms of property, bonds, or others.
- Public Banks like SBI, Bank of Baroda and others offer collateral-free education loans up to INR 7.5 lakhs.
- Private Banks like HDFC, ICICI, Axis and others provide collateral-free education loans up to INR 40 lakhs.
However, this is only subject to excellent credit score, co-applicants/ guarantor’s financial income, and exceptional academic performance.
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.
Moratorium Period
As per RBI guidelines for education loans, there must be a moratorium period of 6 months or one (1) year after the completion of the course degree of the student, for the student to start repaying the amount. This period is for the student to start arranging the funds for repayment.
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.
Interest Rates on Education Loans
Moreover, the interest rates can also be determined whether the loan is for an institution in India or abroad. The interest rates are also determined by factors like the maximum amount of loan taken, repayment period, collateral provided, credit history and many more. Usually, the education loan interest rates are between 9-14%.
However, individual banks calculate the interest rate based on EBLR and Spread.
- EBLR is the External Benchmark Lending Rate, which is the sum of the repo rate and spread. For more information, let’s consider the example from the SBI education loan interest rate.
EBLR = Repo Rate + Spread
Currently,
Repo rate = 6.50% and Spread = 2.65%
Thus, the EBLR = 9.15%
Now, the bank also adds CRP (Credit Risk Premium) above EBLR, which is 2% in SBI. Hence, the effective interest rate is EBLR + CRP = 9.15% + 2% = 11.15%.
Grievance Redressal
This is another important RBI guideline for education loans in 2024. If an applicant is not satisfied with the services of commercial banks or the banks fail to resolve their complaints within 30 days, the complaints can be filed under the RBI Ombudsman Scheme. A customer can lodge their complaints with the Ombudsman. It includes applying online on the Complaint Management System of RBI, by physically visiting the centre or by sending a complaint letter/ post.
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.
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 is no mistakes from your side as the loan rejection are done on multiple grounds.
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.
To know more about international scholarships, the loan application process, the best 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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