**Executive Summary:**
This document addresses questions raised in Lok Sabha regarding education loan rejections, security requirements, and benefits provided by banks. It references the Model Education Loan Scheme (MELS) 2022, Reserve Bank of India (RBI) guidelines, and the PM Vidyalaxmi scheme. The document clarifies creditworthiness assessment, collateral requirements, and interest subsidy benefits available to students.
**Key Points / Main Content:**
* **Creditworthiness Assessment:**
* Banks should follow the MELS, 2022 guidelines when assessing education loan applications.
* Applicants without credit history are assumed creditworthy; adverse credit history allows banks discretion based on risk appetite.
* Loan rejections require approval from a higher authority.
* Banks use credit reports as part of the overall evaluation process.
* **Security Requirements:**
* RBI advises against mandatory collateral for education loans up to ₹4 lakh.
* MELS stipulates no collateral or third-party guarantee for loans up to ₹7.50 lakh if eligible for CSIS and Credit Guarantee Fund Scheme.
* Public Sector Banks (PSBs) may provide collateral-free loans beyond ₹7.50 lakh on a case-by-case basis.
* PM Vidyalaxmi scheme provides collateral-free loans for meritorious students admitted to the top 860 Quality Higher Educational Institutions (QHEIs).
* **Benefits for Students:**
* The Central Sector Interest Subsidy Scheme provides full interest subsidy during the moratorium period for loans under MELS for technical/professional courses, for students with parental income up to ₹4.5 lakh.
* The PM Vidyalaxmi scheme offers a 3% interest subvention during moratorium for loans up to ₹10 lakh to a maximum of one lakh students annually (family income less than ₹8 lakh) who do not receive other scholarship/interest subvention benefits.
**Impact Analysis:**
* **Scheduled Commercial Banks:**
* Impact: Must adhere to RBI's MELS guidelines and circulars regarding credit assessment, collateral requirements, and participation in subsidy schemes.
* Action Required: Review and update loan policies to align with MELS, RBI guidelines, and PM Vidyalaxmi scheme.
* **Students/Parents/Guardians:**
* Impact: Benefit from clarity on creditworthiness assessment, reduced collateral requirements, and interest subsidy schemes, making education loans more accessible.
* Action Required: Understand eligibility criteria for MELS, CSIS, and PM Vidyalaxmi scheme; provide accurate credit history information; and apply through the PM Vidyalaxmi portal for eligible institutions.
* **Reserve Bank of India (RBI):**
* Impact: Responsible for providing guidelines and circulars to banks regarding education loans.
* Action Required: Ensure banks are compliant with the MELS and other circulars related to education loans.
* **Indian Banks Association (IBA):**
* Impact: Formulates the Model Education Loan Scheme (MELS) and advises banks on implementation.
* Action Required: Periodically review and update MELS to align with current educational and financial needs.
Key Entities Referenced
Reserve Bank of India: The central bank of India, which advises banks on education loan schemes.
Model Education Loan Scheme (MELS), 2022: A scheme formulated by the Indian Banks Association (IBA) for education loans, last amended on 21.3.2024.
Indian Banks Association (IBA): An association of banks that formulated the Model Education Loan Scheme (MELS).
Credit Guarantee Fund Scheme for Education loan: A scheme that provides a guarantee for education loans, influencing banks to take a favourable view on loans up to 7.50 lakhs.
Credit Information Companies (CICs): Companies that provide credit reports used by banks to assess the creditworthiness of loan applicants.
Central Sector Interest Subsidy Scheme (CSIS): A scheme providing interest subsidy during the moratorium period on education loans for students pursuing technical/professional courses in India, with specific income criteria.
PM Vidyalaxmi scheme: A scheme launched on 06.11.2024 to facilitate education loans to meritorious students in top Quality Higher Educational Institutions (QHEIs).
Sh. Pankaj Chaudhary: Minister of State in the Ministry of Finance.
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF FINANCIAL SERVICES
LOK SABHA
UNSTARRED QUESTION NO. 23
ANSWERED ON MONDAY, 21st JULY, 2025/ 30 ASHADHA 1947 (SAKA)
REJECTION OF EDUCATION LOAN
23 ADV DEAN KURIAKOSE
Will the Minister of FINANCE be pleased to state:
(a) whether the Banks check the CIBIL score of parents and reject the educational loans to their
children;
(b) if so, the details thereof;
(c) whether the Banks are taking any other form of security like land documents or gold to
process the educational loans;
(d) if so, the details thereof; and
(e) the details of benefits which the Banks are providing to students to achieve education as a
part of the priority sector lending?
ANSWER
MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SH. PANKAJ CHAUDHARY)
(a) to (b) All Scheduled Commercial Banks have been advised by Reserve Bank of India (RBI)
to adopt Model Education Loan Scheme (MELS), 2022 (last amended on 21.3.2024),
formulated by Indian Banks’ Association (IBA). The scheme inter-alia provides that if the
Student / Parent / Guardian has no credit history, they are assumed to be creditworthy.
However, in case of an adverse credit history, banks at their discretion may frame a suitable
criterion based on their risk appetite. For loans up to ₹ 7.50 lakhs, generally banks take
favourable view as these loans are backed by Credit Guarantee Fund Scheme for Education
loan. Moreover, rejection of loan application, if any, shall be done with the concurrence of the
next higher authority. Further, IBA submitted that, in cases where credit history is available,
banks use credit reports from Credit Information Companies (CICs) while appraising
Education Loan applications as part of the overall evaluation process for loan applications. The
creditworthiness of the applicant/co-applicant is a crucial factor in determining loan eligibility
and terms. A favourable credit report generally facilitates a smoother approval process.
(c) to (d) With respect to taking security, RBI vide circular RPCD.SME&NFS.BC.No.
69/06.12.05 /2009-10 dated April 12, 2010, on Collateral Free Loans - Educational LoanScheme, has advised that banks must not, mandatorily, obtain collateral security in the case of
educational loans upto ₹ 4 lakh.
Further, the IBA’s MELS provides that, no collateral security or third-party guarantee is
required for loans amount up to ₹ 7.50 lakhs, provided they are eligible for Central Sector
Interest Subsidy Scheme (CSIS) / Credit Guarantee Fund Scheme for Education loan.
Public Sector Banks (PSBs) also provide collateral free loans beyond ₹ 7.50 lakhs, on case to
case basis as per their Board approved policies.
Moreover, PM Vidyalaxmi scheme has been launched on 06.11.2024, which enables loans
through banks to meritorious students so that financial constraints do not prevent any youth of
India from pursuing quality higher education. The scheme facilitates and enables education
loans to meritorious students who get admission in the top 860 Quality Higher Educational
Institutions (QHEIs) in the country and enables meritorious students of these QHEIs to take
collateral free, guarantor free education loans through a simple, transparent, student-friendly
application process.
(e) With respect to providing benefits by banks to students, the Central Sector Interest Subsidy
Scheme provides full interest subsidy during the moratorium period on loan availed under
IBA’s MELS for pursuing technical/professional courses in India. Students whose annual gross
parental/ family income is up to ₹ 4.5 lakh are eligible under the scheme.
Further, the PM Vidyalaxmi scheme also provides for 3% interest subvention, during
moratorium period, on loans up to ₹ 10 lakhs to a maximum of one lakh needy students in a
year, who do not get benefit of any other scholarship/ interest subvention on education loans
and whose annual family income is less than ₹ 8 lakhs.
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