The Reserve Bank of India (RBI) is the head of the Indian banking system. It is a regulatory body that resides at the center of the functioning of the banking world of India. The central bank of India regulates the operations of commercial banks and non-banking finance 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 and has recently prioritized the education sector to lend from banks. Furthermore, the ‘Model Education Loan Scheme’, which Indian Banks Association (IBA) formulated in 2001 is to be adopted by all commercial banks such as Bank of Baroda, SBI Bank, etc, per RBI orders and guidelines. But that’s not all, there are other RBI guidelines for an education loan that all banks have to comply with. Read below to know more. 

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	NA
More than INR 4 lakhs	A security deposit equal to 100% of the loan amount in the form of collateral

What this means is that if a student is granted an education loan of less than INR 4 lakhs then there is no requirement for collateral, but if it is more than INR 4 lakh then there is a need for one form of collateral security.

Also Read: LIST OF UNSECURED LOANS FOR STUDY ABROAD

The Limit of Education Loans 

Another one on the list of RBI guidelines for education loan is the limit of education loan. The loan limit of the education loan depends if it is for India or abroad. 

For India	INR 10 lakh
For abroad	INR 20 lakh

Also Read: MAXIMUM EDUCATION LOAN AVAILABLE FOR STUDY ABROAD and SBI EDUCATION LOAN FOR STUDYING ABROAD WITHOUT COLLATERAL

Moratorium Period

As per RBI guidelines for education loans, there must be a moratorium period of one(1) year for all after the completion of the course degree of the student, for the student to start repaying the amount. This time period is for the student to start arranging the funds for repayment. 

Also Read: WHAT IS MORATORIUM PERIOD AND HOW DOES IT WORK?

Tax Benefits 

Student loan tax deduction is another aspect of the RBI guidelines for education loan. According to Section 80E of the Income Tax Act, the interest rate of the education loan can be claimed while filing for income tax. Moreover, the interest rates can also be determined whether the loan is for an institution in India or abroad. RBI guidelines for education loan also includes the repayment procedure. The education loan EMIs cannot be greater than 50% of the salary of the person. Furthermore, the loan amount has to be paid within 8 to 15 years. Also, for economically underprivileged sections, there’s The CSIS (Central Sector Interest Subsidy) scheme which helps provide full interest subsidy. 

Benefit to Meritorious Students and Prestigious College

Students who have an extremely well academic background with complimentary work experience and skills to show for themselves, helping them to get 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 examinations rankings; records of academic excellence; 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!

Also Read: WHAT ARE THE REASONS FOR EDUCATION LOAN REJECTION? READ TO KNOW THEM ALL!

FAQs

That was about the RBI Guidelines for Education Loan 2023. Learn more about finance-related queries on our Fly Finance blog.