CGFSEL Education Loan Scheme

The Credit Guarantee Fund Scheme for Education Loans (CGFSEL) ensures that the National Credit Guarantee Trustee Company Ltd. (NCGTC) will cover 75% of the defaulted amount if a borrower defaults on their loan. This provides a safety net against default.

Additionally, interest rates on these loans are set at 2% above the base rate, further reducing the financial burden on students. Moreover, loans up to ₹4,00,000 require no margin.

However, for loan amounts exceeding ₹4,00,000, a 5% margin is required for studies within India and a 15% margin for studies abroad. In simpler terms, borrowers must contribute 5% or 15% of the loan amount for domestic or international studies, respectively, for loans above ₹4,00,000. The scheme applies to loans obtained under the Indian Banks’ Association (IBA) Model Education Loan Scheme.

Base Rate: A benchmark used to calculate interest rates on loans. Lending institutions add a margin to the base rate to determine the final interest rate for a loan.

In simple terms, the base rate is the minimum interest rate a bank can charge on loans. The Reserve Bank of India (RBI) sets this rate. When an individual applies for a loan, the bank adds a margin to the base rate to determine the final interest rate payable. This margin represents the bank's profit. For example, if the base rate is 5% and the bank's margin is 2%, the borrower will pay a final interest rate of 7%.

_Margin refers to the portion of the loan amount that the borrower must finance independently. When taking out an education loan, the bank does not provide the full amount. Instead, the borrower must contribute a specified percentage of the loan amount. This is the margin. For instance, if an education loan of ₹10,00,000 is needed, the bank might require a 10% margin. This means the borrower must contribute ₹1,00,000, while the bank lends the remaining ₹9,00,000._

The following expenses will be covered under this scheme:-
• Education loans typically cover tuition, hostel, examination, library, and laboratory fees
• For students studying abroad, travel expenses and passage fares may be included
• Insurance premiums for the student borrower can be covered (if applicable)
• Caution deposits, building funds, or refundable deposits supported by institutional bills or receipts may be considered.
• Purchasing books, equipment, instruments, and uniforms can be included in the loan amount.
• If a computer is essential for the course, its reasonable cost can be incorporated into the loan.
• Other expenses necessary for course completion, such as study tours, project work, and thesis, may also be covered.
• Scholarships or fee waivers received by the student borrower can reduce the loan amount.
• Fees for management quota seats will be considered if approved by the State Government or a government-approved regulatory body, subject to repayment feasibility.
• Reasonable lodging and boarding charges may be considered for students living off-campus.
• Certain expenses might be capped at a percentage of total tuition fees, such as 10% for specific items and a maximum of 20% for books, equipment, and other unlisted college fees.

Security Amount:-
• Loan amount up to ₹4,00,000:
• Parents must be joint borrowers.
• No collateral security or third-party guarantee is required.
• Loan amounts above ₹4,00,000 and up to ₹7,50,000:
• Parents must be joint borrowers.
• Collateral security in the form of a suitable third-party guarantee is required.
• In exceptional cases, the bank may waive the third-party guarantee requirement if satisfied with the net worth or means of the parent(s) who will be joint borrowers.
• Loan amount above ₹7,50,000:
• Parents must be joint borrowers.
• Tangible collateral security of suitable value, acceptable to the bank, is required.
• The student's future income will be assigned for instalment payments.

Note:-
• The student and parent/guardian must sign the loan documents as joint borrowers.
• Collateral security can be in the form of land, buildings, government securities, public sector bonds, units of UTI, NSC, KVP, life insurance policies, gold, shares, mutual fund units, debentures, bank deposits, or any other tangible security acceptable to the bank with a suitable margin.

Below are the specific repayment guidelines for loans under the Credit Guarantee Fund Scheme:
• Moratorium Period: This covers the course duration plus one year or six months after securing employment, whichever is earlier.
• Course Extensions: Students unable to complete the course on schedule may be granted extensions of up to two years.
• Course Discontinuation: If a student discontinues the course, the bank will determine a suitable repayment plan in consultation with the student and parent.
• Interest Concession: Banks may offer a 1% interest reduction if borrowers pay interest during studies and the moratorium period.
• Repayment Period: The repayment period for loans up to ₹7,50,000 is a maximum of 10 years, while for loans exceeding ₹7,50,000, it is a maximum of 15 years.
• Repayment Mode: Repayment is through equal monthly installments (EMIs). There is no penalty for prepaying the loan at any time.

_Note:– To read the complete information regarding the Credit Guarantee Fund Scheme, please visit the official notification released by the Indian Banks’ Association._

For the List of Banks, please refer to the official notification.