Credit Guarantee Fund Scheme for Educational Loans

We all are aware Education is very important. The long-term impact of a good education is multifaceted and herculean.Education is highly necessary to be at par in today's competitive world. Education is a weapon that can guide you and nation at large to the path of growth and progress. Importance of education is rising in recent times as people understand the need of education as it can change and help in developing the nation. We all are aware Education is very important. The long-term impact of a good education is multifaceted and herculean.But with rise in inflation, education loan has become must for person to pursue his or her dream of getting good education. But, the sorry state is that the number of defaulters of student loan is also rising aggressively.With the increase in number of education loan defaulters, Banks and financial institution are becoming strict with their rules and regulations with regard to various education loan schemes to study in India or abroad. The government or rather ministry of finance, HRD ministry and Indian Banks' Association, proposes to set up a Credit Guarantee Fund with a capital sum of Rs. 2,500.00 crore to address the cases of education loan defaulters and provide a safety net to the banks. The fund will provide guarantee to educational loans up to Rs 7.5 lac. The education loan amount between Rs. 4 to 7.5 lac will be guaranteed up to 75% of the amount outstanding with interest as on the date the account is declared non- performing asset (NPA). A HRD official said, "The new scheme helps banks with guarantee. It will encourage them to lend more and bring down the interest rate because of guarantee.The education loans which require collateral property as a security will not come under this scheme. Also, education loans in which interest is not more than 2% of the base lending rate will be eligible to take advantage of this scheme. Banks giving out education loans will have to pay a one-time guarantee at a specified rate upfront to the Credit Guarantee Fund Trust within 30 days from the date of first disbursement of education loan or 30 days from the date of demand advice of guarantee fee whichever is later or such date as specified by the Trust.After bank receives the amount of guarantee, the education loan borrower will become the debtor of the government. Though banks still have to do follow up for repayment of the loan and share with the government recoveries proportionally, the government will also track the students and recover their own dues.