In 2015, the Indian government launched the Credit Guarantee Fund Scheme for Education Loan (CGFSEL), an initiative to provide a guarantee for education loans as part of the Model Education Loan Scheme of Indian Banks’ Association. Under this scheme, all education loans up to Rs. 7.5 lakhs are collateral-free, as opposed to Rs. 4 lakhs that is collateral-free otherwise. Additionally, the fund can revise the loan limit if there is a need. The disbursal of an education loan under this scheme is relatively simple. This scheme was launched with an intent to ensure the fast and efficient disbursal of personal loan for education.
There can be a maximum of up to 2% over the base interest rate. If the rate is above that, the loan will fall outside the mandate of CGFSEL. As the prevalent interest rate scenario, base rates, and RBI’s credit policies change, this can also change.
Margin as under CGFSEL –
Up to Rs. 4 lakhs – Nil
Above Rs. 4 lakhs- 5% for study in India and 15% for study abroad
Which education loans are covered under this scheme?
The following education loans are eligible under the scheme:
- Loans to an eligible borrower according to the Indian Banks Association (IBA) scheme, without any collateral or third-party guarantee. The procedures prescribed by the National Credit Guarantee Trustee Company (NCGTC) must be followed
- Loans disbursed quarterly prior to the expiry of the following quarter will be eligible for the guarantee cover
- The date on which the guarantee fee, covered previously in respect of the eligible borrower, becomes payable by the Bank to the respective trust
Which education loans are not covered under this scheme?
The following education loans are not eligible:
- Any loan inconsistent in any way and that which fails to follow the provisions, laws, and instructions issued by the central government or the RBI
- A loan with an interest rate of more than 2% over the base rate
- A case of risks being additionally covered by the government
What are the responsibilities of the lender?
- The bank shall evaluate and sanction the loan in accordance with the IBA Model Educational Loan Scheme for pursuing higher studies in India and abroad
- The bank shall submit the information required by NCGTC for giving guarantee cover
- The bank should ensure that loans covered under the scheme should be non-dischargeable
- The bank must ensure every education loan is linked with Aadhar number and should register the borrower’s name with the appropriate credit information bureau
- The bank must monitor the borrower’s account and follow up for repayment
This scheme serves a useful purpose for the many students looking for financial help with their education. The Cabinet Committee on Economic Affairs (CCEA) has recently approved the continuation of this scheme to benefit over 10 lakh students. All new education loans sanctioned on or after the notification date are eligible for coverage under the scheme.
Before you apply for a personal loan or education loan under CGFSEL, check your education loan eligibility and keep the requisite education loan documents ready.