Indian government is planning to protect education loans under a new credit guarantee scheme and has already send  proposal to Indian Banks’ Association (IBA).IBA chairman M V Nair said “The IBA will form a committee of experts that will formulate such schemes. We are in the initial stages”

What is New credit guarantee scheme ?

New credit guarantee scheme will be similar to the credit guarantee schemes for micro and small enterprises (MSEs), Under which Small Industries Development Bank of India (SIDBI) protects the credit worthiness of borrower in case of default.

For a marginal fee, SIDBI provides guarantee up to 85% for loan up to Rs 5 lakh, 75% for Rs 5 to Rs 50 lakh and in case of Rs 50 lakh to Rs 1 crore, the protection is at the rate of 75% for first Rs 50 lakh and 50% for the balance amount.

Education loan application should not be rejected
IBA had clear to banks that education loan application should not be rejected or passed on to the other PSU bank on flimsy grounds “In February, following IBA’s directive, some banks have started giving 50% concession in interest rates on education loans to girl students for pursuing higher education in India or abroad but most banks are still reluctant,” said a top banker.

The education loan scheme that provides financial support from the banking system to deserving meritorious students for pursuing higher education in India and abroad was introduced in 2001. Under the schemes, banks are not supposed to ask for any collateral or guarantee from the borrower for loan upto Rs 4 lakh, for loan between Rs 4- 7.5 lakh, bank may ask for guarantees or collaterals and beyond this, banks definitely ask for collaterals.