The IBA Model of Education Loan Scheme

Investment in education pays off the best interest; this quote fits well, and nobody can deny the importance of quality education in life. For the overall development of society, education is the backbone to achieving this goal. However, pursuing higher education in prestigious educational institutions is a moment of pride and achievement for so many students around the world.

However, finances become a hurdle, making it difficult for students to pursue their higher education abroad. To rescue, education loans have come to the rescue. Education loans have been made possible through the joint efforts of stakeholders and financial institutions. The Indian Banking Association has played a vital role in framing borrower-friendly policies that will gain the trust of borrowers, thus increasing the number of student borrowers under these education loan schemes.

The set of guidelines provided by the IBA under education loan schemes are relevant for every bank to follow, but banks have the discretionary power to implement them as per their suitability.

For study abroad loans, eligibility criteria are one of the first things that generally come to our minds. Below are the eligibility requirements that the IBA has provided.

Eligibility criteria for an IBA education loan

The eligibility criteria mentioned in the model education loan abroad scheme are not rigid. Banks have been given lots of discretion to mould the guidelines as per their requirements. Since the eligibility criteria laid down by the IBA and banks are different, you will find variations when it comes to the sanctioning of study abroad loans.

1. A student must have secured admission to a university through the accepted tests and anything equivalent to them.
2. Must be an Indian citizen
3. Students must have secured admission to a recognised university.
4. The course must be job-oriented, professional, and technical, offered by recognised and reputed universities in which students have enrolled themselves.
5. Banks have the authority to exempt the entrance test from the eligibility criteria for sanctioning education loans.

Interest Rates in the IBA Education Loan Scheme

The rate of interest varies from bank to bank. By creating interest rates that are linked to base rates, the Model Education Loan Scheme has decided to close the gap between banks and borrowers. Private lenders and banks have the authority to modify the base rates. They are free to change interest in accordance with the value of the collateral provided as security for the education loan for abroad studies. Banks also have the discretion to change the interest rates on collateral and non-collateral loans. According to the IBA scheme, banks can charge simple interest during the study period until the repayment period starts. Prior to the beginning of repayment terms, students are not required to pay the interest during the moratorium period or their study period as well.

Loan Amount under the IBA Education Loan Scheme

The idea of a maximum loan amount moves around the expectation of providing financial help to students so they will neither remain underfinanced nor overfinanced. The loan amount sanctioned to them must be sufficient to cover all their educational expenses. An amount of 20 lakh INR was set as the maximum loan limit. However, most public sector banks sanction the loan amount more than this, as the impetus for sanctioning the loan amount is largely focused upon the loan requirements of the students. Thus, banks also have the discretion to decide upon the maximum loan amount they can provide to students for abroad education.

Based on the university's listing and its standing in the world, banks are also free to approve the loan amount that the student requests. Furthermore, it should also include placement opportunities, facilities, and other relevant factors.

Loan Repayment

Repayment of education loan for abroad studies depends on the case. You can easily find the variations in the repayment terms provided by different banks. Different scenarios have been listed below:

• Generally, repayment of education loans begins after the moratorium period.
• If the students fail to finish their study period on time, the lender may grant a two-year extension for loan repayment.
• No prepayment penalty would be imposed on the borrower if he repays the loan before the termination of the repayment period.
• The maximum time for loan repayment is 15 years under the IBA education loan scheme.
• A 1%%interest subsidy shall be given to students who have served their interest timely during the study period.

Margin Money

According to the most recent modification to the Model Education Loan Plan, there is no mortgage for loans under INR 7.5 lakh. The loan must, however, qualify for a credit guarantee in order for the margin to be NIL in this instance. Another important requirement is that the margin money must take into account any applicable scholarships and assistantships.

Collateral Requirements

There are three different scenarios, and each scenario has its own collateral requirements.

• No collateral or guarantor would be required if the loan amount was up to Rs. 4 lakh.
• Parents will be required, as the co-applicant or third-party guarantor, to borrow overseas education loan amounts between 4 and 7 lakh INR. However, collateral is still not a requirement here.
• Collateral would be required for borrowing the loan amount greater than 7.5 lakh INR. Tangible and liquid assets are acceptable as collateral for loans.

Expenses Covered

We cannot miss this relevant point about the expenses covered by overseas education loan. Important expenses like tuition fees, the cost of living, and travel are some of the expenses that are expected to be covered under the education loan. Students are required to discuss with their lenders what expenses are included in the student loan for study abroad they are borrowing.

Expenses listed below are usually covered under the education loan scheme of the IBA.

• Examination or library fees
• Tuition fees for the course are payable to the university or college.
• Travel expenses
• Loan insurance: It is the choice of the students if they have decided to purchase loan insurance. If they need loan insurance, then this amount for loan insurance would also be covered under an education loan.
• Expenses related to living costs and accommodations are both included in the education loan scheme.
• If the student has secured a scholarship, then the amount of the scholarship will be deducted from the amount of the student loan for study abroad.
• Stationary expenses, including books, instruments, and equipment required for study, will be included as part of the loan. However, the total expense for other materials should not exceed 20% of the loan amount.

Other relevant conditions

• Check with the lender; if your siblings are the beneficiaries under the loan scheme, then will it impact the terms of a new loan?
• No age bar is mentioned for taking the loan. Minor-age students can also apply for the loan under the IBA education loan scheme.
• Availing top-up loans is possible under this scheme. But the borrower will be required to prove their credentials.
• Banks will allow the parents or legal guardians of the student to become co-applicants for the loan. If the applicant is married, then their wife or spouse can also become a joint borrower on the education loan.

In case, an individual wishes to study abroad but the finances become a hurdle for them, then contact the Education Loan Guru.