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The IBA Model Education Loan Scheme: A Guide

Pareeshti
August 2, 2022
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Last Updated: December 26, 2023

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The cost of education has risen in recent years, and because students carry the bulk of the expenses, there is a strong rationale for institutional funding in this area. Having said that, attempts have been made to subsidise these exorbitant costs. For example, the IBA Model Education Loan Scheme is an attempt to devise a successful and sustainable bank lending scheme to match the ambitions of Indian society. This essay will elaborate on everything you need to know about this scheme.

IBA Model Education Loan Scheme: Overview

The IBA (Indian Bank Association) Model Education loan assists students who wish to pursue higher education in India or abroad in meeting the cost of the course and associated fees. The loan amount is determined on a case-by-case basis, subject to a cap. The loan amount is significantly higher for international education than for domestic education, in particular. It is crucial that banks and other financial organisations create a lending mechanism that can make loans for higher education abroad accessible and subject to fair terms.

As a result of a coordinated effort from all the interested parties, banks are now competing on the basis of some shared standards that will provide students access to loans with acceptable conditions regardless of the lender they select. The IBA Model Education Loan Scheme was developed by the IBA in 2001 in light of all of the aforementioned factors, and banks adopted it in accordance with guidelines provided by the Reserve Bank of India.

Perks Of The IBA Model Education Loan Scheme

With the involvement of governmental and financial institutions, India’s credit culture has been renewed. The Indian Banking Association (IBA) has been a trailblazer in introducing borrower-friendly regulations that would boost the number of students who are eligible for student loans.

The IBA Model Education Loan Scheme is intended to assist students in following their ambitions of pursuing higher education in India or abroad.
The loan is paid back in instalments over the appropriate number of years, rather than in one single sum.
Can be used to pay for all institution costs as well as connected expenses such as the purchase of books, computers, and so on, or to pay for dormitory fees, lab fees, examination fees, and so on.

Maximum Loan Amount

The maximum loan amount is determined on a case-by-case basis based on the student’s needs, subject to a limit. The limitations are set by the Indian Bankers Association Model Education Loan Scheme, which sets the maximum limit for studying in India at Rs. 10 lakh and Rs. 20 lakh for studying overseas.

Many Public Sector Banks (PSBs) lend more for overseas education loans, while others may maintain a low barrier. As a result, it is the bank’s prerogative to determine the maximum loan amount available for overseas study. Banks have also been granted the authority to change the maximum loan amount based on the institution’s reputation, placement history, or other relevant circumstances.

Interest Rates

Different banks provide different interest rates. Through the introduction of interest rates that are correlated to base rates, the IBA Model Education Loan Scheme has attempted to close the gap. The base rates are set by individual lenders, and the banks are free to change them in accordance with the nature and value of the collateral. For both collateralized and uncollateralized loans, banks are permitted to charge different interest rates. Simple interest shall be charged in accordance with the plan during the study term and up until the beginning of the payback period. When they are studying or even during the moratorium period before the repayment procedure begins, students are not required to pay the interest rate.

Eligibility Criteria

The eligibility criteria for the IBA Model Education Loan Scheme are not severe, and banks are granted a significant amount of leeway. Here is a list of the prerequisites:

The candidate must be an Indian national and should have stayed in the country for over 180 days in the last financial year.
The student must have passed an entrance exam to get admission to a university overseas.

Eligible Courses

Graduate, postgraduate, and technical courses from reputable colleges and universities that have been accredited by the UGC, the State or Central Government, the AICTE, the Department of Electronics, the IMC, and independent schools like the IIM and IIT, among others.
Any degree- or diploma-granting programmes offered by reputable Indian universities, colleges, or institutes
Courses leading to graduate, postgraduate, PhD, or other degrees are eligible for study abroad.

Documents Required For IBA Model Education Loan Scheme

To apply for the IBA Model Education Loan Scheme, please ensure that you have the following documents in order:

Application Form: A fully filled-out application form, duly signed, providing comprehensive information about the applicant, guarantor, and family.
Passport-sized Photos: Two recent passport-sized photos of the applicant, guarantor, and/or student.
Student’s PAN Card: A photocopy of the student’s PAN card is to be submitted either at the time of application or while enrolled in the course.
Personal Identification Documents: Any one of the following personal identification documents should be provided – Electoral I-Card, Passport, Driving Licence, PAN Card, or Aadhaar Card.
Proof of Residential Address: Any one of the following documents can be submitted as proof of residential address – The electricity bill, landline phone bill, voter registration card or passport, electoral ID card, admission letter, and prospectus.
Fee Details: Provide detailed information about the fee structure and the institution’s demand for payment.
Academic Performance Proofs: Mark sheets and certificates demonstrating the applicant’s previous academic performance are acceptable proofs.

By ensuring you have these documents ready and accurately filled out, you can smoothly proceed with your IBA Model Education Loan Scheme application.

Collateral Security Requirements

There is no need for collateral security for loans up to Rs. 7.5 lakh. Subject to the terms, the loan will be secured by the Credit Guarantee Fund Scheme for Education Loans (CGFSEL).
Tangible collateral security covering at least the loan amount is required for loans exceeding Rs. 7.5 lakh.

Margin Money

Margin money is the sum that the borrower adds to the total amount needed. For the IBA Model Education Loan Scheme, here’s the expected margin loan amount –

Loans up to Rs. 4 lahks: To obtain the loan, the applicant is not required to provide any margin money.
Loans beyond Rs. 4 lahks for Indian Students: To obtain the loan, the borrower must provide a margin equal to 5% of the loan amount.
Loans for Study Abroad beyond Rs. 4 lahks: To obtain the loan, the borrower must provide a margin equal to 15% of the loan amount.

Repayment Terms

Up to 15 years following the end of the moratorium period, the loan amount for each year is repayable in equal monthly payments. This indicates that you only pay interest during the moratorium period before making monthly payments until the loan is fully repaid.

FAQs

1. What is the Indian Banks’ Association (IBA) model education loan scheme?

The IBA model education loan scheme is a standardised education loan scheme offered by all Indian banks. It is designed to make education more affordable for students and their families. Under the scheme, students can borrow up to Rs. 10 lakh for undergraduate studies and Rs. 20 lakh for postgraduate studies without collateral. The interest rate for the loan is linked to the bank’s prime lending rate (PLR) and is currently around 7.5%.

2. What is the repayment period for the IBA model education loan?

The repayment period for the IBA model education loan is up to 15 years, including a moratorium period of up to 7 years. The moratorium period is the period during which the student does not have to make any repayments on the loan. The repayment period begins after the moratorium period ends.

3. What is the limit of the IBA education loan?

The limit of the IBA education loan is Rs. 10 lakh for undergraduate studies and Rs. 20 lakh for postgraduate studies without collateral. However, the actual loan amount that a student can borrow will depend on their creditworthiness and the financial situation of their family.

4. How do I check if my institution is eligible for the IBA Model Education Loan Scheme?

To check if your institution is eligible for the IBA Model Education Loan Scheme, you can contact your bank or visit the IBA website. The IBA website maintains a list of all the institutions that are eligible for the scheme.

5. What is the interest rate for the IBA Model Education Loan?

The interest rate for the IBA Model Education Loan is linked to the bank’s prime lending rate (PLR) and is currently around 7.5%. The PLR is the rate at which banks lend to their most creditworthy customers. The interest rate on the loan may vary depending on the bank and the borrower’s credit profile.