The Reserve Bank of India (RBI) is the Central Bank of the country and holds the responsibility of regulating commercial banks and non-banking financial companies (NBFCs) in India. It plays a crucial role in controlling the money supply and credit regulation in the Indian economy. Additionally, it provides guidelines for various sectors, including education loans. In this blog post, we will delve into the latest RBI guidelines for education loans to help you understand what you need to know. Let's get started.
Maximum Loan Limit
When it comes to education loans, one of the most important aspects borrowers look at is the maximum loan limit. The RBI has set guidelines regarding this limit based on whether the loan is availed for studying in India or abroad.
For pursuing higher education in India, students can avail education loans up to INR 10 lakhs from Scheduled Commercial Banks under the Priority Sector Lending category. On the other hand, if you plan to study abroad, you can avail education loans up to INR 20 lakhs under Priority Sector Lending. It's worth noting that certain banks like State Bank of India offer education loans of up to INR 1.5 crores for studying abroad, depending on factors such as academic background, family income, credit score, and security mortgage.
Benefits to Meritorious Students and Prestigious Colleges
The RBI guidelines also take into consideration merit-based benefits for students with exceptional academic backgrounds and admission into prestigious colleges. According to these guidelines, students who have excellent grades and entrance examination rankings, along with records of academic excellence, are eligible for additional benefits. These benefits may include higher education loan limits and lower interest rates.
Collateral Requirements
Another important aspect covered by the RBI guidelines for education loans is collateral requirements. Depending on the amount granted by banks or financial institutions, education loans can be categorised into secured and unsecured loans.
- For education loans up to INR 4 lakhs, no collateral or security deposit is required.
- For education loans between INR 4 lakhs and up to INR 7.5 lakhs, a guarantor is required.
- For education loans exceeding INR 7.5 lakhs, collateral security in the form of property, bonds, or other assets is required.
Public banks like State Bank of India and Bank of Baroda offer collateral-free education loans up to INR 7.5 lakhs, while private banks like HDFC, ICICI, and Axis provide collateral-free education loans up to INR 40 lakhs. However, these limits are subject to factors such as credit score, co-applicants/guarantor's financial income, and exceptional academic performance.
Moratorium Period
As per the RBI guidelines for education loans, there is a moratorium period provided to students after completing their course degree. This period allows students to have a break from loan repayments as they start arranging the funds for repayment. The moratorium period can range from 6 months to one year depending on the course duration.
Tax Benefits
One of the significant advantages of availing an education loan is the tax benefits it offers. As per Section 80E of the Income Tax Act, borrowers can claim income tax deductions on the interest paid towards their education loan.
This deduction can be claimed for a maximum of 8 years or until the loan is fully repaid, whichever occurs earlier. It's important to note that this benefit can only be availed by individuals who have taken an education loan for themselves or their spouse/children.
Rates on Education Loans
The interest rates on education loans are determined by several factors such as the maximum loan amount, repayment period, collateral provided, credit history, etc. Generally, the interest rates on education loans range from 9% to 14%. However, individual banks calculate the interest rate based on the External Benchmark Lending Rate (EBLR) and spread.
The EBLR is calculated by adding the repo rate and the spread. For example, let's consider the education loan interest rate offered by State Bank of India (SBI). If the repo rate is 6.50% and the spread is 2.65%, then the EBLR would be 9.15%. SBI also adds a Credit Risk Premium (CRP) of 2% above the EBLR, making the effective interest rate 11.15%.
Grievance Redressal
In case of any issues or grievances related to education loans, borrowers can approach the RBI Ombudsman Scheme. If a borrower is not satisfied with the services provided by commercial banks or if their complaints are not resolved within 30 days, they can file a complaint with the RBI Ombudsman. The complaint can be lodged online through the Complaint Management System of RBI or by physically visiting the centre or sending a complaint letter/post.
Conclusion
Understanding and adhering to RBI guidelines for education loans is essential when planning to pursue higher education in India or abroad. These guidelines cover various aspects such as maximum loan limits, collateral requirements, moratorium periods, tax benefits, and grievance redressal mechanisms. By knowing these guidelines, you can make informed decisions regarding your education loan and ensure a smooth borrowing experience.
If you're looking for an education loan that meets your needs, Tata Capital offers competitive options designed to support your educational pursuits. Visit the Tata Capital Appfor more information about education loan offerings.
Remember to make use of online tools like Tata Capital's Education Loan EMI Calculator to estimate your monthly payments and plan your finances effectively.
17 April 2024
5 mins read
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