Education Loan Under Priority Sector

A country’s development depends on its youth and education can empower individuals. Therefore, categorizing education loans under the priority sector. To promote holistic development and propel economic growth. This classification requires banks to allocate some of their funds to provide affordable education loans to students who want to pursue higher education. It is observed that INR 5,531 billion from a total of INR 236,023 billion in the priority sector is allocated to the education loan category. In this blog, you will learn about priority sector lending meaning and the education loan under priority sector eligibility, loan limits, and some useful tips for student loans. 

What is Priority Sector Lending?

The priority sector definition says, that the Reserve Bank of India and the Government of India mandate the lenders to invest some part of their funds in the sectors that are crucial for the development of the country. Banks are instructed to provide sufficient and timely credit.

Education loan is also listed under the priority sector lending category. Other sectors included in the priority sector lending are agriculture, micro and small enterprises, renewable energy, housing for the underprivileged, and education. As per priority sector norms, scheduled commercial banks are required to allocate 40 percent of their Adjusted Net Bank Credit or the credit equivalent amount of Off-Balance Sheet Exposure, whichever is greater, to the sectors identified as priority sectors.

Why are Education Loans Part of Priority Sector Lending?

The education loan priority sector ensures that students from weaker sections or those who are unable to afford funds for their higher education. They can pursue their education with the help of education loans. This initiative by the Reserve Bank of India reduces social inequalities and aims to promote holistic development across the country. Educational loans include loans and advances granted to individuals for educational purposes up to INR 10 lakh for studies in India and INR 20 lakh for abroad studies. 

Education Loan Under Priority Sector Eligibility

In order to secure an education loan, students are required to be eligible for the education loan scheme. However, eligibility criteria differ from lender to lender but, you can refer to the general eligibility criteria:

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  Must be an Indian citizen.
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  Must have secured admission through merit or entrance tests.
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  Must be enrolled in career-oriented courses (UG/PG).
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  Must have at least 50% marks in the last qualifying exam.
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  For secured loans, collateral might be required.
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  For unsecured loans, a co-applicant with a strong financial background may be necessary.
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  University and course reputation (STEM and professional courses are preferred).

How Do You Apply for an Education Loan Under Priority Sector Lending?

To apply for an education under the priority sector, start by researching the available loan options. Below are some of the steps that are required to apply for an education loan.

Eligibility Check:

Ensure you meet the bank's eligibility criteria.

Collect Required Documents:

Required documents usually include proof of admission, fee structure, academic records, and income proof of the co-applicant.

Choose a Bank:

Choose a bank that offers competitive interest rates under the education loan priority sector. 

Submit Application:

Visit the nearest branch of the chosen bank or you can also apply online. Fill out the loan application form, provide all the necessary details, and attach the required documents.

Benefits of Education Loan Priority Sector

The priority sector lending targets students with a weaker financial background and makes quality education affordable. The priority sector in banking offers various benefits like providing financial support with affordable interest rates and flexible repayment options.

Interest Rates:

Under the education loan priority sector, banks offer lower interest rates as compared to the non-priority loans SBI offers. For instance, Under the SBI scholar loan scheme, you can secure an education loan at a low interest rate starting at 8.15%.

Improved Access for Economically Weaker Sections:

Priority sector lending targets people from economically weaker sections of society and makes quality education more accessible, fulfilling the financial inclusion goal of the Government of India. It aims to bridge the gap between the weaker section of societies and financial institutions. 

Flexible Repayment Terms:

Education loans allow you to enjoy a moratorium period and flexible repayment options. Students can choose from various repayment schedules like simple interests (SI), partial simple interests (PSI), and equated monthly installments (EMIs).

Higher Loan Amounts:

Education loan under priority sector covers the costs of studying abroad and India. It covers a wide range of costs like tuition fees, living expenses, travel costs, etc. Students can avail loan amounts of up to INR 10 lakhs for domestic education and up to INR 20 lakhs for studies abroad. 

Government Subsidies

Many priority sector lending linked loans are eligible for schemes like the Central Sector Interest Subsidy Scheme (CSIS) which helps in reducing the interest burdens for students hailing from economically weaker sections. 

Tax Benefit:

Students can also avail the benefit of Section 80E of the Income Tax Act 1961 which provides big relief by allowing students to claim deductions on the interest paid towards education loan repayment.

Tips for Students Looking Out for Education Loan Priority Sector

If you're seeking an education loan under the priority sector, try to choose a lender that best suits your financial needs. Check the lender which provides the best interest deals. Here are the expert tips that you should know while applying for an education loan.

Understand Eligibility:

Understand your requirements and finalize your loan type. Ensure that it goes well with your profile, and you meet the eligibility criteria for the education loan priority sector

Compare Interest Rates:

Choose the lender that offers you the best interest rates and repayment terms. Public sector banks generally offer lower interest rates and better terms if you have collateral to pledge. 

Calculate Total Cost:

Before filling out the application form calculate the total costs that you require to support your education. It includes expenses such as tuition fees, living expenses, and travel expenses.

Prepare Your Documents Early:

Collect all your documents that are required beforehand like identity proof, proof of admission, academic record, co-applicant’s income, CIBL score, and collateral documents. Early application will help you get the approval early, therefore, giving you time for other preparations.

Challenges Involved in the Education Loan Priority Sector

The education loan priority sector framework aims to make higher education within the reach of students hailing from weaker sections of the societies but it comes with several challenges. Below are some of the challenges generally faced by students who are willing to take education loans for higher studies and their solutions. 

Limited Awareness:

Many students and parents are unaware of the fact that education loans are part of priority sector lending, which comes with lower interest rates, easier approval, and government-backed benefits. Understanding these advantages can make higher education more affordable.

Strict Eligibility Criteria:

Education loans are offered by various lenders (public banks and private banks, NBFCs, and international lenders. Different lenders have different eligibility criteria, depending upon the type of loan (secured or unsecured loan), co-applicant requirements, CIBL score, and family income. 

Complex Documentation:

When students apply for education loans, their loan application often includes strict documentation and lengthy paperwork, failing to provide the required documents can lead to the rejection of the loan application. 

Difficulty in Repayment:

Students who fail to secure a job after graduation struggle with loan repayment due to financial instability. The burden of EMIs, accumulating interest, and lack of income can make it challenging. Exploring repayment options and moratorium benefits can help ease the pressure.

Thus, obtaining an education loan for studying abroad can be quite challenging, but with the right planning and guidance, it is definitely possible. The GyanDhan team helps you understand your financial requirements, eligibility criteria, and the various terms and conditions to recommend the most suitable loan program for you. Moreover, we provide a tailored list of documents to ensure your application is complete.
 

If you're looking for a smooth student loan process along with expert support, consider reaching out to GyanDhan. We're dedicated to helping you reach your academic aspirations without the burden of financial worries. To begin your education loan journey with us, check your eligibility for an education loan.

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