No-Collateral Loans and Interest Subsidies: Centre Injects Rs 1,050 Crore Into Education Schemes

The funding covers three schemes: the Pradhan Mantri Vidyalaxmi Scheme, the Central Sector Interest Subsidy Scheme under PM-USP, and the Credit Guarantee Fund Scheme for Education Loans under PM-USP.

All scheduled commercial banks follow the Model Education Loan Scheme put together by the Indian Banks' Association. Under this framework, students can borrow on a need basis without having to arrange collateral or a third-party guarantee for loans up to Rs 7.5 lakh under the government's subsidy and guarantee schemes.

Loans up to Rs 4 lakh carry no margin requirement. Borrowers get a repayment holiday covering the full course period plus one additional year, and the repayment window extends up to 15 years. The RBI has separately advised banks against insisting on collateral for education loans up to Rs 4 lakh.

Launched in November 2024, the PM Vidyalaxmi Scheme focuses on students who earn admission to top-ranked higher education institutions. The scheme provides collateral-free and guarantor-free loans, with a 3% interest relief for students whose families earn up to Rs 8 lakh annually. This benefit applies to loans of up to Rs 10 lakh and is available during the moratorium period, covering the course and one year after.

Up to one lakh students can access the benefit annually, provided they are not already receiving another scholarship or interest subsidy. Banks extending loans up to Rs 7.5 lakh under this scheme receive a 75% government-backed credit guarantee. The total budgetary commitment for interest relief under PM Vidyalaxmi runs to Rs 3,600 crore between 2024-25 and 2030-31.

In operation since 2009, this scheme targets students from lower-income families with a combined annual household income of up to Rs 4.5 lakh. It covers the full interest on education loans during the moratorium period on borrowings of up to Rs 10 lakh. The scheme applies to students enrolled in eligible professional and technical programmes at NAAC-accredited institutions, NBA-accredited courses, Institutions of National Importance, and Centrally Funded Technical Institutions.

Set up in 2015, this scheme removes a common barrier for students who cannot arrange collateral or guarantors. The government provides a 75% credit guarantee through the National Credit Guarantee Trustee Company on loans up to Rs 7.5 lakh, with no income ceiling -- the benefit is open to all students regardless of family earnings.

Scheduled commercial banks disbursed Rs 40,253 crore in education loans during FY 2024-25. Provisional figures for FY 2025-26 put that number at Rs 38,934 crore. Data for the current year is not yet available.