Meritorious students intending to pursue higher studies will be sanctioned loans by banks based solely on their assessment of employability and earning potential to repay the loan, and not parental income/family wealth, as per the revised bank-wide ‘model education loan scheme'.
Non-merit students, getting admission in technical and professional courses under management quota, will be ineligible to get loans under the model scheme for pursuing higher education in India and abroad. So, banks will have to formulate separate schemes for such students.
As loans for education are an investment for development of human capital, resulting in economic development and prosperity, the focus of the model scheme is on repayment of the loan from future earnings of the student after completion of education.
In this regard, banks may consider introducing a system of assessing the employability of students through campus placements, according to the revised scheme put together by the Indian Banks' Association.
“To avoid subjectivity in assessment, it is suggested that banks may fix from time to time the earning potential for various courses, percentage of income to be considered for repayment, and so on.
“This will ensure that the decision to sanction an education loan is based on sound commercial logic, besides serving a noble cause,” the association said.
The model scheme has been revised and simplified to ensure that disputes at the ground level arising out of differing interpretations, among others, about the scope of the scheme and student eligibility are minimised.
repayment period
Recognising the fact that not all students get remunerative jobs after completion of higher studies and also to prevent slippages, the new scheme has extended the repayment period to 10 years for loans up to Rs 7.5 lakh and 15 years for loans above Rs 7.5 lakh.
As per the earlier model scheme, education loans had to be repaid in five to seven years after commencement of repayment.
Under the new scheme, banks can charge processing fee for considering loans for studies abroad. The fee, however, has to be refunded upon the student taking up the course.
Further, in the case of those student-borrowers who would like to clear the education loan faster on account of better-than-anticipated earnings, banks will not levy penalty for prepayment.
loan to siblings
The model scheme says that collateral-free loan of up to Rs 4 lakh per student is student-specific and not family-specific. So, there is no restriction on giving a second or a third collateral-free loan to other siblings when one of the siblings has already taken a collateral-free loan.