Indian Banks’ Association
MODEL EDUCATIONAL LOAN SCHEME FOR PURSUING HIGHER EDUCATION IN INDIA AND
ABROAD
(September, 2012)
1. INTRODUCTION:
Education is central to the human resources
development and empowerment in any country. National and State level policies
are framed to ensure that this basic need of the population is met through
appropriate public and private sector initiatives. While government endeavour
to provide primary education to all on a universal basis, public funding of
higher education is not considered
feasible. Cost of education has been going up in recent times and since the
student has to bear most of the cost, there is a clear case for institutional
funding in this area. This model education loan scheme is an attempt to bring
out a viable and sustainable bank loan scheme to meet the aspirations of our
society.
Knowledge and information would be the driving force
for economic growth in the coming years. The current rate of economic growth of
the country demands technically and professionally trained man power in large
numbers. In this backdrop, loans for education is seen as investments for
economic development and prosperity. The model Education Loan Scheme was
developed by the Indian Banks’ Association to help meritorious students pursue higher education in technical and
professional courses. As the focus is on development of human capital,
repayment of the loan is expected to come from future earnings of the student
after completion of education. Hence the assessment of the loan will be based
on employability and earning potential of
the student upon completion of the course and not the parental
income/family wealth.
Based on recommendations made by a Study Group, IBA
had prepared a Model Educational Loan Scheme in the year 2001 which was advised
to banks for implementation by Reserve Bank of India vide circular
No.RPCD.PLNFS.BC.NO.83/06.12.05/2000-01 dated April 28, 2001 along with certain
modifications suggested by the Government of India. In line with the
announcement made by the Hon'ble Finance Minister in his Budget Speech for the
year 2004-05, IBA had communicated certain changes in the security norms
applicable to education loans with limits above ₹ 4 lakhs and up to ₹ 7.5
lakhs. The scheme was further modified in the year 2007-08 based on experience
gained in the operation of the scheme over the years.
With
increased public awareness about the benefits of the education loan scheme,
bank branches are receiving more and more applications for loans every year. This has also resulted in cases of customer grievances due to
misinterpretation of the provisions of the scheme. This review exercise has
been taken up to make the scheme more transparent and minimize scope for
multiple interpretations leading to disputes.
2.
OBJECTIVES OF THE SCHEME
The Educational Loan Scheme outlined below aims at
providing financial support from the banking system to meritorious students for
pursuing higher education in India and abroad. The main emphasis is that a
meritorious student, though poor, is provided with an opportunity to pursue
education with the financial support from the banking system with affordable
terms and conditions.
3.
APPLICABILITY OF THE SCHEME:
The scheme detailed below could be adopted by all
member banks of the Association or other banks and financial institutions as
may be advised by the Reserve Bank of India. The scheme provides broad
guidelines to the banks for operationalising the educational loan scheme and
the implementing bank will have the discretion to make changes as deemed fit.
The scheme details are as under:
4. ELIGIBILITY
CRITERIA:
4.1 Student eligibility:
·
The student should be an Indian National.
·
Should have secured admission to a
higher education course in recognized institutions in India or Abroad through Entrance Test/
Merit Based Selection process after completion of HSC(10 plus 2 or equivalent). However, entrance test or selection purely
based on marks obtained in qualifying examination may not be the criterion for
admission to some of the post graduate courses or research programmes. In such
cases, banks will have to adopt appropriate criteria based on employability and
reputation of the institution concerned
Note: It would be in order for banks to consider a meritorious
student (who qualifies for a seat under merit quota) eligible for loan under
this scheme even if the student chooses to pursue a course under Management
Quota.
4.2 Courses
eligible
a. Studies in India: (Indicative
list)
·
Approved courses leading to graduate/
post graduate degree and P G diplomas
conducted by recognized colleges/ universities recognized
by UGC/ Govt./ AICTE/ AIBMS/ ICMR
etc.
·
Courses like ICWA, CA, CFA etc.
·
Courses conducted by IIMs, IITs, IISc,
XLRI. NIFT,NID etc.
·
Regular Degree/Diploma courses like
Aeronautical, pilot training, shipping, degree/diploma
in nursing or any other discipline approved by Director General
of Civil Aviation/Shipping/Indian Nursing
Council or any other regulatory body as the case may be, if the
course is pursued in India.
·
Approved courses offered in India by
reputed foreign universities.
Note:
1. The above list is indicative in
nature. Banks may approve other job oriented courses leading to
technical/ professional degrees, post graduate degrees/diplomas offered by recognized institutions under this
scheme.
2.
Courses other than the above offered by reputed
institutions may also be considered on the
basis of employability.
(b)
Studies abroad :-
· Graduation : For job oriented professional/ technical courses offered by reputed universities.
·
Post graduation: MCA, MBA, MS, etc.
·
Courses conducted by CIMA- London, CPA
in USA etc.
·
Degree/diploma courses like
aeronautical, pilot training, shipping etc provided these are recognized by
competent regulatory bodies in India/abroad for the purpose of employment in
India/abroad.
Reference: www.webometrics.info (indicative only)
4.3
Expenses considered for loan
:
i.
Fee payable to college++/
school/ hostel*
ii.
Examination/ Library/ Laboratory fee
iii.
Travel expenses/ passage money for
studies abroad
iv.
Insurance premium for student borrower,
if applicable
v.
Caution deposit, Building
fund/refundable deposit supported by Institution bills/receipts. **
vi.
Purchase of books/ equipments/
instruments/ uniforms***
vii.
Purchase of computer at reasonable cost,
if required for completion of the course***
viii.
Any other expense required to complete
the course - like study tours, project work, thesis, etc.***
ix.
While computing loan required,
scholarships, fee waiver etc., if any available to the student borrower may be
taken into account.
Notes:
++ For
courses under Management quota seats considered under the scheme, fees as
approved by the State Government/Government approved regulatory body for
payment seats will be taken, subject to viability
of repayment.
* Reasonable lodging and boarding charges will be
considered in case the student chooses / is required to opt for outside
accommodation.
** These expenses could be considered subject
to the condition that the amount does not exceed 10% of the total tuition fees
for the entire course.
*** It is likely that expenditure under Item Nos.
vi, vii & viii above may not be available in the schedule of fees and
charges prescribed by the college authorities.
Therefore, a realistic assessment may be made of the requirement under
these heads. However, the maximum
expenses included under vi, vii & viii may be capped at 20% of the total
tuition fees payable for completion of the course.
5.
QUANTUM OF FINANCE:
Need
based finance to meet the expenses worked out as per para 4.3 above will be
considered taking in to account margins as per para 6 subject to the following
ceilings:
- Studies in India - Maximum
upto ₹ 10 lakhs.
- Studies Abroad - Maximum
upto ₹ 20 lakhs.
Note:
The ceilings fixed for studies in
India and Abroad correspond to the limits fixed by the RBI for treatment as
priority sector lending. Banks may consider higher quantum of loan on
course to course basis (eg: courses in
IIMs, ISB etc). It may also be noted that even
loans in excess of ₹ 10
lakhs qualify for interest subsidy under Central Sector Interest Subsidy Scheme
for loans up to ₹ 10 lakhs.
6.
MARGIN:
|
Upto ₹ 4 lakhs Nil
Above ₹ 4 lakhs Studies in India 5%
Studies Abroad 15%
|
- Scholarship/ assistantship to be included
in margin.
-
Margin may be brought-in on year-to-year
basis as and when disbursements are made
on a pro-rata basis.
|
7.
SECURITY :
Upto ₹ 4 lakhs
Parents to be joint borrower(s).
No
security
Above ₹ 4
lakhs
and upto ₹ 7.5 lakhs Besides the parent(s) executing the
documents as joint borrower(s)
, collateral security in the form of suitable third
party guarantee will be taken. The bank may, at its discretion, in
exceptional cases, waive third party guarantee if satisfied with the
net-worth / means of parent/s who would be executing the document as joint
borrower(s).
Above ₹ 7.5 lakhs Parent(s) to be joint borrower(s) Tangible
collateral security of suitable value acceptable to bank, along with the assignment of future income
of the student for payment of instalments.
|
Note:-
·
The loan documents should be executed by
both the student and the parent/
guardian as joint-borrower.
·
The security can be in the form of land/
building/ Govt. securities/ Public Sector Bonds/Units of UTI, NSC, KVP, life
policy, gold, shares/mutual fund units/debentures, bank deposit in the
name of student/ parent/ guardian / any other third party or any other tangible security acceptable to
the bank with suitable margin.
·
Wherever the land/ building is already
mortgaged, the unencumbered portion can be
taken as security on second
charge basis provided it covers the required loan amount
8. RATE OF INTEREST :
Interest to be charged at rates linked to the Base
rate as decided by individual banks
·
Simple interest to be charged during the
study period and up to commencement of repayment.
Note:
Servicing of interest during study period and the moratorium period till
commencement of repayment is optional for students. Accrued interest will be
added to the principal amount borrowed while fixing EMI for repayment.
9.
APPRAISAL
/ SANCTION/ DISBURSEMENT :
·
Applications will be received either directly at
bank branches or through on-line mode. Upon receipt of application,
standard acknowledgement giving a
reference number will be issued. The acknowledgement will contain contact
details of the bank official who, could be contacted in case of delay in
disposal of application.
·
Normally, sanction/rejection will be
communicated within 15 days of receipt duly completed application with
supporting documents.
·
In the normal
course, while appraising the loan, the future income prospect of the student
only will be looked into.
·
Rejection of loan application, if any,
shall be done with the concurrence of the controlling authority of the branch
concerned and conveyed to the student stating reason for rejection.
·
Students may submit their loan
applications either at the bank branches near to the residence of parents or to
the educational institution. However,
after the loan is sanctioned, the cases be transferred to the bank branch near
to the institution for follow up with student / institution. The KYC compliance for the purpose has to be
done by the branch nearest to the residence of
parents.
·
The loan to be disbursed in stages as
per the requirement/ demand directly to the Institutions/ Vendors of equipments/ instruments to the extent
possible.
10. REPAYMENT:
|
Repayment holiday/Moratorium
|
Course period + 1
year or 6 months after getting job, whichever is earlier.
|
If the student is not able to
complete the course within the scheduled time, extension of time for completion
of course may be permitted for a maximum period of 2 years. If the student is
not able to complete the course for reasons beyond his control, sanctioning
authority may at his discretion consider such extensions as may be deemed
necessary to complete the course. In case the student discontinues the course
midway, appropriate repayment schedule will be worked out by the bank in
consultation with the student/parent
·
The accrued interest during the repayment
holiday period to be added to the
principal and repayment in Equated Monthly Instalments (EMI) fixed.
·
1% interest concession may be provided
by the bank, if interest is serviced during the
study period and
subsequent moratorium period
prior to commencement of
repayment. Repayment
of the loan will be in equated monthly instalments for periods as under:
For loans upto ₹ 7.5 lakhs - upto 10 years
For loans above ₹ 7.5 lakhs -
upto
15 years
·
While
EMI based repayment is the generally accepted practice, many times the salary
levels at the start of the career may not facilitate comfortable payment of EMI
in certain cases (e.g. professionals like Doctors). Telescoping of repayment
with stepped up instalments with passage of time may be considered in such
cases.
Note:
No prepayment penalty will be levied for prepayment of loan any time during the repayment
period.
11.
INSURANCE
Banks may, with the
consent of the student, arrange for life insurance policy on the students
availing Education Loan. Individual Banks may work out the modalities
with insurance companies.
12.
FOLLOW UP/MONITORING:
Banks to contact college / university authorities to
obtain progress report on the student at
regular intervals in respect of those who have availed loans. In case of
studies abroad, bank may obtain the SSN/Unique Identification Number (UIN)/Identity
Card and note the same in the bank’s records. The UID number issued by UIDIA
may also be captured in bank’s system as and when available. Banks to enter
into Memorandum of Understanding (MoU) with the educational institutions to
provide the educational loans to the students.
There should be an annual review of the asset quality of educational
loans between banks and educational institution.
13.
PROCESSING CHARGES :
No processing / upfront charges may be levied on
loans sanctioned under the scheme. (Banks may charge processing fee for considering
loans for studies abroad. The fee would however, be refunded upon the student
taking up the course)
14.
CAPABILITY
CERTIFICATE:
Banks can also issue the capability certificate for
students going abroad for higher studies. For this purpose financial and other
supporting documents may be obtained from applicant, if required.
(Some of the foreign universities require the
students to submit a certificate from their bankers about the sponsors'
solvency/ financial capability, with a view to ensure that the sponsors of the
students going abroad for higher studies are capable of meeting the expenses
till completion of studies.)
15.
OTHER CONDITIONS:
15.1 Sanction of loan to more than
one child from the same family
Existence of
an earlier education loan to the brother(s) and/or sister(s) will not affect
the eligibility of another meritorious student from the same family obtaining
education loan as per this scheme from the bank.
15.2 Minimum Age
There is no specific restriction with
regard to the age of the student to be eligible for education loan. However, if
the student was a minor while the parent executed
documents for the loan, the bank will
obtain a letter of ratification from him/her upon attaining majority.
15.3 Top up loans
Banks may consider top up loans to
students pursuing further studies within the overall eligibility limit, if such
further studies are commenced during the moratorium period of the first
loan. The repayment of the loan will
commence after the completion of the second course and further moratorium
period, as provided under the scheme.
15.4 Joint Borrower
The
joint borrower should normally be parent(s)/guardian of the student borrower.
In case of a married person, joint borrower can be either spouse or the
parent(s)/parents-in-law.
No Due
Certificate
No due certificate will not be insisted upon as a
pre-condition for considering education loan. However, banks may obtain a
declaration/ an affidavit confirming that no loans are availed from other
banks.
Disposal of loan application
Loan applications have to be disposed of in the
normal course within a period of 15 days to 1 month, but not exceeding the time
norms stipulated for disposing of loan applications under priority sector
lending.
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