An education loan is a huge boon for students looking to pursue higher education in prestigious institutions in India or overseas. With the cost of higher education increasing year-on-year, it's becoming challenging for parents to fund their child's higher education using their savings.

This is where education loans come into play. These loans extend financial support to students to pursue higher education in India or overseas.

Overview of Education Loans in India

Besides college scholarships for deserving students, education loans have emerged as a popular way to secure higher education funds. The process of obtaining education loans in India has been simplified over the years.

Today, families can apply for education loans online and receive the funds quickly, without any hassles.

In India, a large number of banks and NBFCs offer education loans. Students and parents can compare and analyse various education loan products and choose the best deal. 

Benefits of Education Loans

  • Long moratorium period

  • Easy online application 

  • Tax benefits under Section 80E

  • Long moratorium period

  • Flexible repayment terms 

Collateral Requirements for Education Loans in India

Banks and NBFCs ask for a collateral/third-party guarantee to reduce the risk of the loan. If the student fails to repay the loan, the lender uses the collateral to recover the cost of the loan. Some common collateral securities include property – house, flat, bungalow, a plot of land, or other assets like life insurance, fixed deposit, etc.

According to RBI guidelines, small education loans up to Rs. 4 lakhs do not require collateral. When the loan amount exceeds Rs. 4 lakhs, most lenders require a third-party guarantee, which in most cases, is provided by the parent(s). Besides the guarantee, lenders also require students to submit collateral when the loan is of a higher value.

Loan Amount

Collateral Requirements
Up to Rs. 4 lakhs

No collateral needed.
Rs. 4 lakhs to Rs. 7.5 lakhs

Usually, no collateral is needed but lenders ask for a third-party guarantor.
Above Rs. 7.5 lakhs

Collateral is needed.

 

How to get an education loan without collateral? 

  1. Apply for an Education Loan under the CGFSEL Scheme 

The majority of lenders require borrowers to pledge collateral while applying for an education loan over Rs. 4 lakhs. However, when borrowers apply for education loans under the CGFSEL (Credit Guarantee Fund Scheme for Education Loans), they can avail of the loan without providing collateral.

The central government of 1st April 2019 launched the CGFSEL for disbursing education loans to students without collateral. The scheme offers a guarantee to education loans disbursed by the IBA (Indian Banks Association). 

Generally, education loans up to Rs. 4 lakhs do not require collateral. However, loans taken under the CGFSEL offer loans up to Rs. 7.5 lakhs without collateral and a third-party guarantee.  

Features of Education Loans Guaranteed by the CGFSEL

The IBA (Indian Banks Association) has formulated a Model Education Loan Scheme to help deserving students pursue higher education in India or overseas. The features of education loans under this scheme are:

  • Under the model education loan scheme, the maximum loan amount for higher education in India is Rs. 10 lakhs. For overseas education it is Rs. 20 lakhs.

  • Education loans up to Rs. 7.5 lakhs do not require collateral. The fund has the right to revise this loan limit, as needed.

  • No margin for loans up to Rs. 7.5 lakhs. 

  • The maximum repayment tenure is 15 years. 

  • The interest of loans disbursed under this scheme is a maximum of 2% over the base rate. If the interest charged by the lender is over this limit, that loan does not fall under the purview of the CGFSEL.

  • Students are provided a one-year moratorium period for repayment after the completion of studies.

  • All education loans issued to eligible borrowers by the IBA (Indian Banks Association) are covered under this scheme. The IBA provides broad guidelines for education loans under this scheme. However, note that the actual implementation of the project is left to individual banks.

  • Under this scheme, loans issued must be in agreement with the terms of the NCGTC (National Credit Guarantee Trustee Company).

  • All major lenders, including SBI, HDFC, PNB, Axis Bank, ICICI, offer education loans covered by the CGFSEL.

  • The government has issued a list of educational institutes and courses for which this guarantee of collateral-free education loans are provided. 

Which education loans are not covered under this scheme? 

  • Any education loan that is inconsistent and doesn't follow the rules and regulations of the central government and RBI is not eligible.

  • If the interest rate of the education loan is 2% over the base rate, then it is not eligible for this scheme. 

  • If the case is considered risky for the government, then it is not eligible for guarantee under this scheme. 

 

  1. Apply for an Education Loan with a Private Lender 

Recently, several private banks like Axis Bank, ICICI Bank, and NBFCs have started offering education loans to meritorious students without collateral. Here are some of the top private lenders who provide education loans in India:

  1. Axis Bank Education Loan 

Axis Bank offers education loans starting from Rs. 50,000 to Rs. 75 lakhs for students to pursue their higher education in India or overseas. Speedy disbursals, online loan applications, and flexible repayment make this an attractive option.

Interest rates of education loans at Axis Bank

Loan Amount

Effective Interest Rate
Up to Rs. 4 lakhs 15.20%
Loans above Rs. 4 lakhs but lesser than Rs. 7.5 lakhs 14.70%
Loans above Rs. 7.5 lakhs 13.70%

 

  1. ICICI Bank Education Loan

ICICI Bank offers education loans up to Rs. 1 crore for overseas higher education and Rs. 50 lakhs for higher education in India. The salient features of education loans from ICICI Bank are:

  • No margin for loans up to Rs. 20 lakhs 

  • The loan amount covers tuition, student accommodation, and other miscellaneous expenses like travel costs, laptop costs, visa costs, etc.

  • Interest rates for PG courses start from 11.25% per annum, and for UG courses, it starts from 11.75% per annum.

However, one major drawback of approaching a private lender is the high-interest rates (starting at 11%). Borrowers can reduce the interest rates charged by providing a collateral. 

Alternatively, borrowers can also provide a third-party guarantee while applying for an education loan without collateral. However, note that the repayment risk falls on the third-party guarantor if the primary borrower fails to repay on time.  

EndNote

If you’re taking an education loan up to Rs. 7.5 lakhs, then you can opt for loans under the CGFSEL scheme without collateral. For education loans above Rs. 7.5 lakhs without collateral, you can approach a private lender. Take the right education loan and make your child's higher education dreams come true.