Model Educational Loan Scheme also talks about the maximum permissible loan amount for loan, fixing it at upto Rs. 10 lakhs for courses in India and upto Rs. 20 lakh for courses abroad. However, banks may chose to change the policy regarding maximum loans (domestic) sanctioned in special cases, but these loans would continue to be considered as priority loans and would continue to enjoy the Central Sector Interest Subsidy Scheme for loans upto Rs. 10 lakh.
Margin or the contribution made by the borrower/co-applicant has been capped at 5 % for loans upto Rs. 4 lakh and 15% for loans exceeding Rs. 4 lakh upto Rs. 20 lakh. Since scholarship and or assistance are directly given to the student, the scheme also considers this amount as margin amount.
Like any loan, education loan too is linked with the risk of default, and the banks take guarantee and collateral depending on the principal amount. For smaller loans, under Rs. 4.00 lakh, the parent or guardian, or parents-in-law or spouse (whichever is applicable) are to be co-borrower, and bank do not take any collateral. While for loans above Rs. 4.00 lakh upto Rs. 7.5 lakh, the bank require a third party guarantee backing the loan application, in addition to parents/guardians being joint-borrower. Loan amounts exceeding Rs. 7.5 lakh require the applicant to deposit a tangible asset with the bank, along with the assignment of future income of the student for the payment of EMIs.
The scheme allows banks to peg the interest rates to the bank's base rate, and also ensures that the interest is calculated on "simple interest" basis for the period of the course. Any interest paid during the interest moratorium is adjusted with the principal amount and reduces the equated monthly isntallments (EMI). Interest rates for various bank's can be compared at Rupeetimes Education Loans.