Panel Urges Ration Card for Education Loans; PM Vidyalaxmi Approvals at 54%

A parliamentary panel on Tuesday highlighted declining accessibility of education loans across India, despite rising higher education costs. The panel, led by Congress MP Digvijaya Singh, recommended significant reforms, including replacing income-based eligibility criteria with a ration card system and implementing income-based repayment models for students.

The Standing Committee on Education, Women, Children, Youth and Sports presented its report in parliament. It reviewed several key education loan schemes: the PM Vidya Lakshmi Scheme, Pradhan Mantri Uchchatar Shiksha Protsahan Central Sector Interest Subsidy (PM-USP CSIS), Pradhan Mantri Uchchatar Shiksha Protsahan Credit Guarantee Fund Scheme for Education Loans (PM-USP CGFSEL), and the Model Education Loan for higher education.

Declining Loan Access Amid Rising Costs

Government figures presented to the panel show a drop in active student loan accounts. Between 2014 and 2025, active loans fell from 23.36 lakh to 20.63 lakh . Conversely, the total credit amount for education loans significantly increased, rising from Rs 52,327 crore in 2014 to Rs 1,37,474 crore in 2025. This reflects a Compound Annual Growth Rate (CAGR) of approximately 9.46% over 11 years, as confirmed by the RBI in a September meeting with the committee. These figures show declining loan accessibility amid rapidly increasing educational costs.

The committee recommended the Department of Higher Education and Department of Financial Services prioritize educational loans for maximum students, especially those Below Poverty Line (BPL).

PM Vidyalaxmi Scheme: Low Approvals and Disbursements

The panel raised specific concerns about the PM Vidyalaxmi scheme, launched on November 6, 2024. This scheme provides collateral-free and guarantor-free education loans for merit-based admissions. It offers a 3% interest subsidy on loans up to Rs 10 lakh for students with an annual family income up to Rs 8 lakh, with a total outlay of Rs 3,600 crore for interest subvention from 2024-25 to 2030-2031.

However, the scheme shows low sanction and disbursement rates. Data from February 25 to August 31, 2025, revealed:

• Total applications received: 55,887
• Applications sanctioned: 30,442 ( 54% of received)
• Amount sanctioned: Rs 4,427 crore
• Loans disbursed: 21,967
• Amount disbursed: Rs 688.27 crore (approximately 15% of the sanctioned amount)

The committee noted private banks, cooperative banks, and Regional Rural Banks (RRBs) were “not friendly” to PM Vidyalaxmi applicants. It highlighted significant pendency, with 32% of applications in private banks and 41% in cooperative/RRBs pending beyond 10 days. Several banks sanctioned no loans under the scheme.

The panel recommended the Department of Financial Services ensure sanctioned loans are not curtailed or rejected and maximize the number of applications sanctioned. It called for strict guidelines on sanctioning, rejection, and pendency of loans.

Proposed Reforms: Eligibility, Repayment, and Collateral

The parliamentary panel proposed several key reforms to improve education loan accessibility:

Ration Card for Eligibility

The panel called income-based criteria “arbitrary” and difficult to implement. It recommended using parents’ ration cards as the primary eligibility criterion for all education loan schemes, including PM Vidyalaxmi and PM-USP CSIS. The committee proposed reserving at least 20% of loans for families holding ration cards and those receiving free rations, with the government acting as guarantor for these loans.

Extended Moratorium and Income-Contingent Repayment

Amid difficulties in students securing jobs, the panel recommended extending the loan repayment moratorium period to two years after course completion , up from the current study period plus one year. It also urged the introduction of income-contingent repayment models to prevent defaults and manage Non-Performing Assets (NPAs). RBI and relevant departments should develop alternate evaluation criteria, such as parental occupation or school certification, to assess repayment capacity.

Revised Collateral Limit

The committee recommended revising the collateral-free loan limit, which has remained at Rs 4 lakh since 2010. This limit is outdated given high inflation and rising educational costs. The RBI should align this limit with “creamy layer” criteria to ensure students from SC/ST/OBC/EWS and the poorest sections can access loans without collateral security.

Other Recommendations

The panel also recommended:

• Issuing uniform policy guidelines for all types of financial institutions in consultation with the Indian Bank Association (IBA).
• Creating a district-wise dashboard for transparent monitoring of education loans, including reasons for rejection and avenues for appeal.
• Revising the beneficiary limit for PM Vidyalaxmi beyond the current approximately one lakh.
• Advertising the PM Vidyalaxmi scheme at Kendriya Vidyalayas, Jawahar Navodaya Vidyalayas, and secondary schools, instead of primarily IITs and IIMs.
• Extending the PM Vidyalaxmi scheme to students from higher education institutions beyond the current 902 covered institutions.

Education Loan Accounts Over Five Years