Credit Guarantee Fund Scheme for Education Loan (CGFSEL) has been launched by the Government of India to provide a guarantee for education loans under the Model Education Loan Scheme of Indian Banks’ Association. All Education Loans up to INR 4 lakhs are collateral-free but under this scheme, a student can avail an education loan up to INR 7.5 Lakhs without any collateral and a third-party guarantee. However, if there is a requirement to revise the loan limit, the fund has the right to do so. Disbursal of an education loan under this scheme is comparatively simple.
There will be a maximum of up to 2% interest rate over the base rate and if the interest rate is above that, then that education loan will fall outside the mandate of CGFSEL. However, this may change with respect to the prevalent interest rate scenario, base rates of Bank and RBI’s Credit Policies.
- Up to INR 4 Lakhs – Nil
- Above INR 4 Lakhs- 5% for study in India and 15% for study abroad.
There is no specific restriction regarding the age of a student in order to be eligible for an education loan. Age of joint applicant / co-borrower / guarantor should be minimum 21 years at the time of loan origination and maximum age at the time of loan maturity can be 70 years.
Academic records (10th, 12th, Graduation (if applicable), entrance exam result through which admission is obtained. Proof of admission: Admission letter or offer letter from the educational institution. Loan account statement of the previous 1 year, if loan has been taken from another lender. Passport size photographs.
Which Education Loans are covered under this scheme?
The following Education loans will be considered eligible under this scheme:
- The loans that are given by the bank to an eligible borrower according to the scheme of IBA ( Indian Banks Association ) without any collateral security and third-party guarantee. They must be in an agreement with NCGTC (National Credit Guarantee Trustee Company). The procedures prescribed by NCGTC must be followed and the guarantee cover in respect of education will be applied by the bank.
- Loans that are disbursed in a quarterly manner prior to the expiry of the following quarter are eligible for the application of guarantee cover in respect of education loan by the Banks like PNB, Axis Bank, HDFC, etc.
- “Material Date” basically means the date on which the guarantee fee, which has been covered previously in respect of the eligible borrower, becomes payable by the Bank to the respective trust. On the material date, the following criteria should satisfy:
- Overdue in respect of the account to the banks should not be there and in the books of the bank, the loan should not be classified as an NPA (Non-Performing Asset). An asset is classified as a non-performing asset on the basis of the guidelines given by the RBI (Reserve Bank of India).
- The purpose for which the loan has been granted to the borrower should not have been ceased.
- Without obtaining any consent from the NCGTC, the credit facility should not be utilized for adjustments of any debts.
- There will be a list of educational institutes and their courses or the categories of educational institutes for which the guarantee cover will be available.
Which Education Loans are NOT covered under this scheme?
The following Education loans will not be considered eligible under this scheme:
- Any Education Loan which is inconsistent in any way and does not follow the provisions, laws, and instructions issued by the central government or the Reserve Bank of India.
- If an Education Loan is sanctioned by the bank with an interest rate of more than 2% over the base rate of the banks.
- A case where the risks are additionally covered by the Government or any external authority.
Thousands of students are applying for Education Loan nowadays. To ensure fast and efficient disbursal of Education Loans the government of India launched CGFSEL. This scheme has definitely been useful for many students and the Cabinet Committee on Economic Affairs (CCEA) has approved the continuation of the CGFSEL with an aim to provide loans to around 10 Lakh students.