Education Loan Subsidy

Education Loan Subsidy Schemes

Education loans are availed by many students to be able to afford the expenses related to higher studies, whether in India or abroad. Rising education costs often make it impossible to afford higher education without the help of an education loan. This loan is provided to students by both public and private sector banks in India. The loan is repaid by the student after the course is completed and, in many cases, after getting gainfully employed. There are several interest subsidies and tax benefits offered on education loans in order to make it more affordable for students from even economically weaker sections of society.

Benefits and Features

• Concession on the interest rate charged by banks on education loans
• Rebate on interest paid towards repayment of education loan
• Collateral waiver for education loans below certain ranges
• Reimbursement of processing charges and additional expenses
• Waiver of education loan principal amount (conditional)
• Taxation benefits based on Section 80/E under Income Tax Act

Types of Education Loan Subsidy Schemes

• Interest Reimbursement

Government Education Loan Subsidies generally feature interest reimbursement benefits only. Such schemes help the students by reimbursing the interest they pay as EMIs for their education loan. Education Loan EMIs comprise of interest rate component and loan principal amount component. Under interest reimbursement subsidy schemes, the interest component paid against the education loan for a certain period of time is refunded, just like a cashback benefit.

• Interest Concession

Banks providing education loans to students generally provide such interest rate subsidies. This variant of education loan subsidy provides a concession or discount on interest rate charged on the loan amount. This means that the effective rate of interest on education loan will decrease immediately. These type of benefits are generally time-invariant, which means they last for the complete duration of education loan repayment.

• Loan Principal Waiver

Under some seasonal government schemes, students are provided with the loan waiver schemes to help with their education. Such schemes provide a complete waiver of pending education loan provided the students adhere to the scheme conditions. General conditions of such schemes include community-based eligibility, income-based eligibility, record of previous loan repayments, etc.

PadhoPardesh Scheme

The PadhoPardesh Scheme is offered by the Government of India under the Ministry of Minority Affairs for the educational advancement of students who belong to minority communities. The interest payable by the students during the period of the moratorium of the education loan will be borne by the Government of India.

Features

The features of this scheme are as given below:

• The government will pay the interest rate on the education loan for course period + one year or 6 months after getting a job, whichever is earlier
• Loans are provided for studies overseas
• For students belonging to communities declared as a minority under Section 2 (c) of the National Commission for Minorities Act, 1992
• For Master’s, M.Phil, and Ph.D. levels
• Interest subsidy shall not be availed from other state or central government schemes for educational purposes

Eligibility

The eligibility criteria for this scheme is as given below:

• Indian citizens
• Should have secured admission in approved courses at the Master’s, M.Phil, and Ph.D. levels
• For loans availed from a scheduled bank under the Indian Banks Association Education Loan Scheme
• The application should be made during the first year of the course
• The total income of the applicant and guardian/parent should not exceed Rs.6 lakh per annum

Central Sector Interest Subsidy Scheme for Education Loan

The Central Sector Interest Subsidy Scheme was launched by the Ministry of Human Resource Development in 2009.

Features

The features of this scheme are as given below:

• The interest on the education loan during the moratorium period is borne by the government
• Moratorium period is the course period plus one year
• No collateral required
• No third-party guarantee required
• For professional and technical courses within India only
• The maximum loan amount is Rs.7.5 lakh

Eligibility

• For education loans taken under the Indian Banks Association Education Loan Scheme
• Parental income not exceeding Rs.4.5 lakh per annum
• Professional or technical courses from NAAC accredited institutions
• Professional or technical programs accredited by NBA
• Courses or institutions which do not come under the NBA or NAAC should get approval from respective regulatory bodies
• For undergraduate, postgraduate, and integrated courses
• Based on the economic index and not on the social background

Dr.Ambedkar Central Sector Scheme of Interest Subsidy for Educational Loans

This scheme provides interest subsidy on education loans for Other Backward Classes (OBC) and Economically Backward Classes (EBC). This scheme is provided by the Ministry of Social Justice and Empowerment, Government of India.

Features

The features of this scheme are as given below:

• The scheme can be availed for courses in India and abroad
• For education loans taken under the Indian Banks Association Education Loan Scheme
• An MoU between the National Backward Classes Finance & Development Corporation and banks makes this possible
• Interest subsidy is provided by the government during the course duration or loan moratorium period
• For courses at the Masters, M.Phil, and Ph.D. levels

Eligibility

• The total income of candidate or their parents/guardians shall not exceed Rs.8 lakh per annum for the OBC category and Rs.2.5 lakh per annum for the EBC category
• Indian citizens