What Are Education Loan Interest Subsidies And Their Key Benefits For Students?

Although at present, India’s education sector has reached a size of US$ 101.1 billion (according to sources at IBEF), it is yet to saturate. Considering the immense prospect of further expansion due to increased inflow of FDI and steady contribution of start-ups, the Gross Enrolment Ratio (GER) is expected to increase by 30% by 2020.

However, this steep increase in the cost of pursuing higher education poses a financial burden for aspirants. In an attempt to bridge this widening financial gap, multiple advances are being offered that ensures convenient enrolment and completion of education, both in India and abroad. Subsequently, education loan against property interest subsidy is being provided that eases the repayment structure of such advances.

Higher education highlights - In India and abroad

• 25.2% - Current Gross Enrolment Ratio for higher education.

• 12% - Per year increase in overseas education enrolment.

• 59% - Percentage of employers considering overseas education valuable.

• Rs. 80,000 Crore - an Existing portfolio of loans for education.

• 44% - Increase in spends on overseas education from 2014 to 2018.

1. What is an education loan interest subsidy?

With a prediction of an even higher GER of 50% by 2030, there is a growing trend to pursue higher studies abroad. It is primarily due to an increased amount of education and job exposures. However, there has been a simultaneous increase in the cost of pursuing higher education in India and abroad leading to increased loan availability.

Following this, the education loan disbursal has undergone a steep rise from Rs. 16,800 Crore in FY16 to Rs. 22,500 in FY19 according to the Times of India. This 34% rise in loan disbursal is a result of several education credit subsidy schemes that aim to lower the rate of interest offered on such advances.

Types of schemes offered

While education loan involves a substantial credit amount, lenders are comparatively lenient with the required eligibility criteria when offering credits like loan against property for education. It is because they have the reassurance to recover the outstanding loan amount via liquidation of an asset in case of defaults. However, borrowers must know a few things before applying for a loan against property for education.

Additionally, such secured loans also come with a lower rate of interest, which can further be reduced upon availing subsidies mentioned below.

• Central Scheme of Interest Subsidy – This education loan interest subsidy scheme announced by the Ministry of HRD offers subsidized interest on education loans during the moratorium period. This scheme caters to the financial requirements of students –

• Belonging to the Economically Weaker Section.

• Pursuing their technical or professional courses in India.

• Having an annual family income of up to Rs. 4.50 Lakh.

• Padho Pradesh – While India has a substantial minority population, the Government strives to enhance the employability of eligible students by providing them with adequate exposure to quality study. In an attempt to make it feasible, this education loan interest subsidy - Padho Pardesh scheme was launched to offer interest subsidies on the educational advances. For example, eligible borrowers can choose the best American universities to pursue their undergraduate degrees with the help of this scheme.

• Dr. Ambedkar Central Sector Scheme of Interest Subsidy – Under this scheme, qualified candidates from Economically Backward Classes (EBC) and Other Backward Classes (OBC) can enjoy subsidization of their interest rate on the availed study loan for abroad.

These government schemes offering subsidies are especially beneficial. It is because these loans availed to pursue higher studies abroad are long term ones and involve a higher cost of the loan. Under such circumstances, going for lenders and availing Loans Against Property for Education can further help lower the rate of subsidies. 

They also come with pre-approved offers that ease the application process to avail of financial aid. These offers are available for numerous financial products that include both secured and unsecured advances. You can check your pre-approved offer by providing your name and contact number.

2. What are the key benefits of education loan subsidies?

While the size of education loans jumped to 47% in the FY18 (according to Money Control), the availability of various subsidies on the same took a steep flight. Such high accessibility and availing of education loan against property interest subsidy can be attributed to its benefits.

1. Reduced cost of the loan

Rate of interest plays a significant role in the amortization process to calculate the EMI of loans, and hence in the total cost of credits. Considering that these advances are availed in large amounts, keeping a low total cost of credit is a preferred benefit. One can qualify for such advances by meeting simple eligibility criteria and furnishing the required documents.

2. Convenient repayment structure

The subsidized rate of interest eventually reduces the monthly installments. Hence, it allows for creating a repayment structure suitable for the current financial capacity of borrowers.