Thinking about opting for the IBA model education loan scheme?
This scheme was first prepared, as recommended by a Study Group, back in 2001. It was advised to banks to be implemented by the Reserve Bank of India, and was modified a little by the Government of India. The scheme has seen multiple modifications over the years.
Misinterpretations of the scheme’s provisions could cause confusion. We at FundRight attempt to present you with practical information. This way, you get to know all the facts and then make an informed decision.
IBA Model Education Loan Scheme: The Objectives
The main objective of this IBA Model Education Loan Scheme is to provide financial support to students in need; to the students, who are in financial need, who are meritorious and hoping to study in India and abroad. The banking system puts across affordable, reasonable terms and conditions, so that students can receive the education they deserve.
IBA Model Education Loan Scheme: Applicability
All financial institutions and banks as advised by the Reserve Bank of India can adopt the IBA student loan scheme. The scheme features guidelines that the banks can implement. They can then even make certain modifications wherever necessary.
IBA Model Education Loan Scheme: Eligibility Criteria
Students are eligible to apply for the IBA educational loan scheme if they meet some requirements:
Student Eligibility:
- Must be an Indian National
- Must have secured admission to a course in a recognized institution abroad or in India. This would have to either be through a merit based selection process after the student completes his/her HSC, or an entrance test. You should note that the selection of a student based purely on their grades might not be the main criterion for securing an admission to some of the universities.
Course Eligibility:
For studies in India:
- Courses like CA, CFA, ACWA, etc
- Approved and recognized courses conducted by Government universities
- Diploma courses and regular degrees approved by Director General of Civil (like aeronautical engineering, shipping, etc)
- Courses carried out by IIM, IISC, IIT, NIFT, etc
The above list is indicative. Banks could certainly approve of other courses that do lead to professional degrees or technical degrees or post graduate degrees and diplomas offered by recognized universities and institutions.
For studies abroad:
- Graduation: For professional or technical courses offered by recognized universities
- Post graduation: MBA, MCA, MS, etc
- Courses offered by CPA in USA, CIMA London, etc
- Aeronautical, shipping, pilot training courses recognized by reputed bodies in India for the purpose of employment abroad and in India
Expenses considered for IBA educational loan scheme:
- Payable fees to hostel or college or school
- Library, laboratory and exam fee
- Passage money for studying abroad or travel expenses
- Premium on insurance if applicable
- Building fund and caution deposit
- Purchase of equipment, books, instruments, and uniforms
- Purchase of a computer if it’s needed to complete the course (must be reasonably priced)
IBA Model Education Loan Scheme: Financial Requirements
As per the IBA Student Loan Scheme, for studies in India, students will need a maximum of ₹10 lakhs, and for studies abroad, students will need a maximum of ₹20 lakhs.
If you’re anxious about studying abroad, you’re not alone. We found this article on “A troika of challenges is making it difficult for Indian students to study abroad”. It says that with the right loan, you can manage your financial needs to an extent. That’s where FundRight comes into the picture!
IBA Model Education Loan Scheme: Margin
| For upto ₹4 lakhs, the margin money is: | Nil |
| For above ₹4 lakhs for studies in India, the margin money is: | 5% |
| For above ₹4 lakhs for studies abroad, the margin money is: | 15% |
IBA Model Education Loan Scheme: Security
| Upto ₹4 lakhs | No security, parents are joint borrowers |
| Between ₹4 lakhs to ₹7.5 lakhs | Parents would have to execute necessary documents as joint borrowers, A third party must offer a guarantee. (If satisfied with the worth of the parents who are executing the documents, banks might waive this off) |
| Above ₹7.5 lakhs | Parents are joint borrowers, Tangible assets (of an ideal value decided by the bank) will be used as collateral, Future income of student will also be assigned to the bank in installments |
IBA Model Education Loan Scheme: Rate of Interest
These will be charged at rates that are linked to base rates decided by every bank. Simple interest will be charged during the course of the student’s higher education and up to the start of repayment.
IBA Model Education Loan Scheme: Sanction/Appraisal/Disbursement
You can avail the IBA Model Education Loan scheme by directly going to the bank or applying online. Once applied, a receipt of acknowledgement and a reference number will be issued. This receipt will consist of the contact details of the bank who would be contacted if there’s a delay in the application process.
Once the application is sent out, it usually doesn’t take more than 15 days for the bank to either sanction or reject your loan.
It should be noted that while evaluating the loan, only the student’s future income will be observed.
The loan will be dispersed in stages as per demand directly to the vendor or institution.
IBA Model Education Loan Scheme: Repayment
Repayment of loan according to the IBA educational loan scheme would be 1 year after the course, or 6 months after getting a job; whichever happens first.
In the event that the student is unable to complete the course, they can be given a maximum of 2 years to complete it. In the event that the student discontinues altogether from the course, then relevant action will be taken by the bank.
The interest accrued during the repayment period will be added to the principal, and repayment can be made in fixed EMI.
Repayment of the loan can be made in installments for the following periods:
| Upto ₹7.5 lakhs | Upto 10 years |
| Above ₹7.5 lakhs | Upto 15 years |
IBA Model Education Loan Scheme: Insurance
Banks might arrange for students to get life insurance upon them availing the loan. There could be an interaction or agreement between banks and insurance companies for this purpose.
IBA Model Education Loan Scheme: Monitoring
As per the IBA student loan scheme, banks can contact universities and follow up on the student’s performance. They may obtain a progress report or a Unique Identification Number to monitor the student.
IBA Model Education Loan Scheme: Processing Fee
Loans sanctioned under the IBA student loan scheme shouldn’t come with a processing fee. However, a processing fee may be charged to students when they consider loans to study abroad. Once the student takes the course, the fee would be refunded.
IBA Model Education Loan Scheme: Capability Certificate
Banks can issue this certificate for students wanting to study abroad. Some universities may require banks to show relevant documents of the student that show their financial capability. This is so that they know the students can meet their expenses until the completion of their course.
IBA Model Education Loan Scheme: Other Conditions
Some other conditions of the IBA model education loan scheme include the following:
- Loans for more than one child of the family: If a loan has already been sanctioned to one child, his/her brother or sisters are still eligible to apply for the same loan.
- Minimum age: No restriction is set by the bank on the age of the student. They can apply for the loan at any age.
- Top up loans: Banks could provide top up loans if the student chooses to study further, during the first loan period. Students can repay the loan after the completion of their second course and second moratorium period.
- Joint borrower: The joint borrower should be the parent of the student. If the student is married, it should be their spouse or parents-in-law.
Before you take an education loan, watch out for common mistakes, such as borrowing more than needed and not doing the research.
Read this article on “5 mistakes people make while taking an education loan” to learn more.
No Dues Certificate:
Banks won’t insist on this, but they may ask for an affidavit stating that the student hasn’t availed loans from any other banks.
Loan Application Disposal:
Within 15 days to 1 month, loan applications must be disposed of.
We hope this information tells you all that you need to know to avail the IBA educational loan scheme. Once you’ve got all the facts, you can access banks that can offer you loans, via Fundright.
IBA Educational Loan Scheme: Frequently Asked Questions
Question 1: What happens if a student is not able to get accommodation in the university hostel?
Answer: The bank can arrange for reasonable lodging and boarding. This is in order to fix the loan limit under the educational loan scheme.
Question 2: Can the student education loan repayment period be extended?
Answer: If the repayment period needs to be extended, it would require the entire loan to be restructured as per RBI guidelines.
If the student studies further immediately after completing their course, then the repayment period automatically gets extended for 6 months from employment or 1 year after completing the course.
Question 3: Are incentives provided for girl students?
Answer: Yes, banks do provide 0.5% or more concession in interest rate to those girls who are studying abroad or in India.
Question 4: What if, after sanction of loan, the joint borrower becomes the defaulter?
Answer: No matter what changes are carried out in asset classification, it won’t affect the student loan.
Question 5: If the student is an NRI, will the bank consider the loan request?
Answer: Yes, they will, as long as the student is an Indian passport holder and meets other necessary eligibility requirements.
Question 6: Would skill development courses and off-campus programs be eligible for student education loans?
Answer: No, they aren’t eligible under the IBA model education loan scheme.
