Education Loan Settlement

It is in between you and the Bank and you can not dictate the terms with the Bank.  Depending on the financial background of guarantor and security available, it is a bank that has to agree for your proposal.  Banks may be depending on the entire situation of recovery for the bank as a whole may conduct such OTS months and may release such terms.  You may use such a scheme.   Banks never cared even for Mallayas Public offer for 100% repayment of principal alone, after several years.  There is no use in crying over spilled milk, as you ought to have considered all this before availing a loan, and anticipating if something goes wrong....how that amount can be refunded.  In this forum, there are hundreds of this type of queries.  Wait for the Bank's offer or action.

What is the loan amount? Is it less than 4 lakhs?

My question is what was the amount of loan sanctioned, not the amount due at present. If it was below 4 lakhs, no guarantee was required.

Irrespective of the amount, the parent must stand as co-obligant as per norms.  Though the rules stipulate guarantee is not necessary, but when the guarantee has been taken, can guarantor pray the bank not to take any action against him at this point of time, saying bank violated the norms?  Sincerely I have no idea.  If the banker wanted to refuse a loan, he can state a number of reasons, but if he wanted to sanction it to save his skin from accountability, he insists not only for a guarantor but equitable mortgage and insurance policy dully endorsed in their name, as loans for this sector are mostly in NPAs for some reason or oher.

My suggestion has been based on the prevailing norms. In my understanding any suggestion in this Forum cannot be based on the norms having the force of law. Rule of Law is certainly beyond the whims and fancies of individuals, whatever their authority be.

Educational Loan Scheme
April 28, 2001
RPCD.PLNFS.BC.NO.83/06.12.05/2000-01
The Chairman/Managing Director
All scheduled commercial banks
Dear Sir
Educational Loan Scheme
The Finance Minister in a meeting with the Chief Executives of the public sector banks on 13 June
2000 had highlighted the role of commercial banks in facilitating pursuit of higher education by
poor, but meritorious students. In pursuance thereof the Indian Banks’ Association constituted
a Study Group under the chairmanship of Shri R.J.Kamath, Chairman and Managing Director of
Canara Bank to examine the issue in detail. Based on the recommendations of the Study Group,
a comprehensive model educational loan scheme was prepared by the Indian Banks’ Association
for adoption by all banks. The Scheme aims at providing financial support from the banking
system to deserving/meritorious students for pursuing higher education in India and abroad.The
scheme was announced in the Union Budget for 2001-2002 and discussed in the meeting the
Finance Minister had with the Chief Executives of banks on 7 April 2001.
2. Government of India, Ministry of Finance, Department of Economic Affairs [Banking Division]
has considered and decided to accept the Model Scheme prepared by IBA for implementation,
subject to the following modifications :
(i) The condition of minimum qualifying marks in the last examination may be dropped.
(ii) No margin may be insisted upon for loans upto Rs.4 lakh. However, for loans of
higher amounts, the margin requirement may be 5% for inland studies and 15% for
studies abroad.
(iii) No security may be insisted upon for loans upto Rs.4 lakh. However, for loans above
this amount, collateral security of suitable value or co-obligation of
parents/guardians/third party alongwith the assignment of future income of the
student for payment of instalments may be obtained.
(iv) Loans upto Rs.4 lakh may be advanced at interest rate not exceeding PLR of the
bank. Above Rs.4 lakh, the interest rate may be PLR + 1%.
3. We accordingly, forward herewith a copy of the model scheme prepared by IBA for
implementation by banks after effecting the modifications indicated at [i] to [iv] of para 2 above,
at the earliest so that its benefits are available to students from this academic session itself.
4. It is clarified that this Scheme is separate and in addition to and not in supersession of the
scheme earlier circulated by RBI under Supreme Court orders vide our circular
RPCD.SP.BC.10/09.07.01/99-2000 dated 31st July 1999 issued to public sector banks.
5. Please acknowledge receipt.
2
Yours faithfully
[Varughese John]
General Manager
Encl : As above

Guidance Notes on Model Educational Loan Scheme for pursuing Higher Education in India and Abroad
I. Introduction
Educational Loan Scheme is a socially and economically relevant loan scheme from the Indian banking industry. Rightly, the RBI has included education loans as part of the priority sector lending of banks. It aims to provide need-based finance to meritorious student for taking up higher education.
In any commercial lending decision, credit worthiness of the borrower and the viability of the scheme are important. The student borrower has no credit history and as such he is assumed to be creditworthy as this is a futuristic loan. However, it is likely that the co-obligant for the loan has a credit history and any adverse features could have a bearing on the assessment of credit risk. If the co-obligant has a loan account with the bank and the loan is treated as non-performing asset, the bank runs the risk of having to consider the student loan also as NPA ab-initio. To overcome this, the bank may, as a prudent measure insist on a co-obligant acceptable to the bank, in case of adverse credit history of the parent/guardian of the student.
II. Objectives of the scheme
The educational loan scheme is meant to provide need-based assistance to meritorious students in pursuing higher education. Since the word “meritorious” is a relative term it would be necessary for banks to specify parameters for defining the term meritorious. The following approach is suggested:
If the student has obtained admission to an eligible course through a merit based selection process, he/she could be considered a meritorious student. Generally, admission to professional and technical courses are through common entrance tests and those who get admission through this process could be considered meritorious. Where the admission is purely based on the marks scored in qualifying examinations, the bank may fix cut-off marks (percentage) for loan eligibility .
Very often enquiries are made whether the model scheme covers students who are getting admission against management quota. Management seats or management quota refers to the seats in private education institutions for which the management has discretion to give admission on factors other than merit. Usually, out of permitted seats for the batch, a certain percentage is earmarked to be filled from State level merit list and the rest are allowed to be filled by the management at their discretion.
______________________________Guidance Notes_____________________________
IBA Model Educational Loan Scheme Indian Banks’ Association
Usually for the management seats the only requirement would be passing of the qualifying examination with certain minimum stipulated marks. It is logical to interpret that these seats do not qualify for being called “meritorious”
Banks have reported certain cases where the employment potential would not justify
the fee structure for management seats from the point of repayment of the loan being sought. Hence, any loan considered by banks for students getting admission under management quota would be outside the model scheme. Banks may fix appropriate terms and conditions for such loans.
III. Applicability of the Scheme
The Model Scheme has been developed for the benefit of the member banks of the Association. However, other banks and financial institutions can also adopt the model without reference to the Association.
IV. Eligibility Criteria
IV.i. Student Eligibility
For the purpose of this scheme higher education is defined as studies taken up after completion of higher secondary school i.e. Ten plus two stage. The need for bank loan scheme came for discussion in the country for meeting higher levels of fees charged by private managements for technical and professional courses consequent to ban on capitation fee. However, in the model scheme a generalized definition has been adopted for higher studies for wider coverage. It is expected that the banks will decide on the courses for which they will be giving student loans based on employability and consequent ability to repay the loan.
References are often made about the eligibility of students pursuing employment oriented courses like teachers training courses and 3-year technical diploma courses in polytechnic institutions after completion of 10th standard. It is clarified that banks are free to include such employment-oriented courses as eligible course provided they are offered by approved/recognized colleges/institutions.
It need to be noted that while the Central Sector Interest Subsidy Scheme of MoHRD is based on IBA Model Educational Loan Scheme, the subsidy is applicable only for loans given for Professional and Technical courses(after 12th standard) in India.
______________________________Guidance Notes_____________________________
IBA Model Educational Loan Scheme Indian Banks’ Association
IV. ii. Courses eligible
a. Studies in India
The list of courses given in the model scheme is purely indicative in nature. The important thing is that the course is approved/recognized by the designated academic authority/regulatory body for the stream of study concerned.
Links to the web sites of the University Grants Commission (UGC), All India Council for Technical Education (AICTE) and the Ministry of HRD (MoHRD)
have been provided in the model scheme to serve as guidance on courses and approving authorities for various courses, which fall within the definition of higher studies.
It is a usual practice for the banks to prepare list of courses for which they would consider sanction of student loans. Sometimes they do specify eligible colleges/ institutes etc. Some of the factors which go into selection of eligible courses/institutions are : employability/placement history of the institutions, rating of the colleges/universities/institutions, repayment position of loans given to the students for the course etc. Infrastructure facilities in the colleges could also be a factor influencing the decision of the bank.
It is suggested that the banks do their evaluation of courses and institutions before the commencement of academic year.
b. Studies Abroad
Diploma courses and certificate courses have not been included as eligible courses for the scheme. Post graduate studies leading to PG degrees and PG diplomas offered by reputed institutes/universities only will be covered by the scheme. Assessment of employment potential or future prospects is very important criterion considering the higher cost of studies involved. The web link given in the scheme is for guidance and there could be other links/sources giving such useful information.
c. Expenses considered
The Model scheme is aimed at meeting all genuine study expenses of a student required to complete the study undertaken. It needs to be noted that sometimes, the fee structure varies with type of college/institution within the same State for a given course. The fees charged by the government colleges/ institutes are generally the lowest, with higher fees permitted in aided private colleges/institutions; fee structure being highest in unaided private colleges/institutes. Sometimes the difference between the lowest and highest fee structure levied for the same course by different colleges/institutions is too high
______________________________Guidance Notes_____________________________
IBA Model Educational Loan Scheme Indian Banks’ Association
to give comfort to a banker in taking credit decision as employment prospects
remain same. A practical approach would be to consider approved fee structure for merit quota seats in all colleges/institutions, provided banks are satisfied about repayment prospects on employment.
Note: Considering demand for pursuing nursing courses, banks are free to consider loans for students getting admission through management quota also. However, the fee reimbursement is restricted to fee structure as approved by the State government or regulatory body. Banks may ensure that the student has financial resources to meet the funding gap.
V. Quantum of finance
The ceilings fixed for studies in India and Abroad correspond to the limits fixed by the RBI for treatment as priority sector lending. It would, however, be open to banks to consider higher quantum of loan on case to case basis ( eg: courses in IIMs, ISB etc). It may also be noted that even loans in excess of `10 lakhs qualify for interest subsidy under Central Sector Interest Subsidy Scheme for loans up to `10 lakh.
VI. Margin --
VII. Security --
VIII. Rate of interest
In the past, interest rates were linked to the BPLR of banks. With effect from 1st July 2010, the banking system has switched over to base rate linked product pricing for loans and advances. The new system is more transparent and expected to result in better risk based pricing of loans in the country. Also, market competition is expected to bring down interest spreads. Hence it is proposed to leave the interest rates free for banks to decide at their end. However, it is proposed to retain 1% interest concession for servicing of interest during study/moratorium period. It is also expected that the banks will charge relatively lower rates for loans up to ` 4 lakhs and continue concessions hitherto being given to girl students.
IX. Appraisal/Sanction/Disbursement
The model scheme does not look at the financial position of parents while evaluating loan to a meritorious student. Repayment possibilities have to be based on projected future earnings of the student on employment after education. To avoid subjectivity in assessment, it is suggested that the banks may fix from time to time earning potential for
various courses, percentage of income to be considered for repayment etc. A well laid appraisal procedure will ensure that the decision to sanction an education loan is based on sound commercial logic, besides serving a noble social cause.
IBA Model Educational Loan Scheme Indian Banks’ Association
______________________________Guidance Notes_____________________________
The suggestion that bank branches nearest to the residence of parents to consider the loan application was given for better tracking of students during and after study period. Banks are, however, free to adopt different norms to suit their business plans.
X. Repayment
Repayment period has been increased to give greater comfort to the student borrowers to
repay the loan out of their future earnings. Prepayment options are also provided for persons who would like to clear the loan faster out of better than anticipated earnings. No prepayment charges are to be levied in such cases.
XI. Insurance Policy
Insurance policy should be obtained only with the prior consent of the student borrower. This is more so relevant in case of loans up to ` 4 lakhs where the bank loans are without any security. The clause regarding insurance has been included in the scheme to provide a life cover to the student.
XII. Follow Up/Tracking --
XIII. Processing Charges --
XIV. Capability Certificate --
XV. Other Conditions --
IBA Model Educational Loan Scheme

Take care man, I am sure everything will be OK!
It's not a reproach, but everyone know that there are a lot of useless classes at universities, so when I was studying, I skipped those to go to work and accumulate some money so I could ask someone to write my essay for me cheap and also to pay back my education loan as fast as possible. Think ahead!