The Government of India again reaffirmed its commitment towards making higher education accessible, mandating all Scheduled Commercial Banks (SCBs) to adopt the Model Education Loan Scheme (MELS). The RBI has instructed SCBs to adhere to the directives stipulated in the recently modified MELS released by the Indian Banks' Association (IBA) in the year 2022, as per reports by the Minister of State in the Ministry of Finance, Pankaj Chaudhary in Rajya Sabha.
The model education loans are need-based educational loans given to assist the students financially. The scheme includes no collateral security or third-party guarantee up to loans of Rs 7.5 lakhs, provided the loan is eligible under the Credit Guarantee Fund Scheme for Education Loans (CGFSEL) or the Central Sector Interest Subsidy (CSIS) scheme. Also, no margin money is required for loans up to Rs 4 lakhs, bringing small loans within easy reach of students from more varied economic backgrounds.
To help ease the repayment process, MELS allows for a moratorium period, which is equal to the length of the study program plus one additional year. After that, students may pay for their loans over an extended period of time up to 15 years, which certainly offers flexibility in managing finances right after graduation.
The RBI has issued a directive to the banks that the collateral will not be compulsorily demanded for loans up to Rs 4 lakhs, whether the student is eligible for CSIS or CGFSEL or not, which reduces the whole process of loan sanctions further.
The government also made some guidelines for dealing with the loan applications. An education loan applicant may be rejected only at a higher authority's advice. Furthermore, the result of the rejection must be returned to the applicant so that the policy or decision-making process is revealed clearly.
The emphasis laid on accessible financing under the MELS underlines the focus of the government on education equity. Targeting the financial barriers is supposed to empower a greater number of students so that they can go through higher education without immediate financial burdens, thus eventually leading to the country's broader goal of an educated and well-skilled workforce.
