Belonging to a small village, gaining admission to the prestigious Indian Institute of Management (IIM) Ahmedabad had always been Riya’s ultimate goal. She dedicated herself to rigorous preparation for the Common Admission Test (CAT), hoping to achieve the scores necessary for acceptance into her dream institution. Her relentless hard work paid off when she cleared CAT with exceptional marks, securing her place at IIM Ahmedabad. However, her joy was soon overshadowed by the staggering tuition fees that threatened to stand in her way.
Riya’s parents, being humble farmers, could not afford the hefty costs associated with her education. As she began reconsidering her decision due to financial constraints, her parents felt a deep sense of helplessness. Determined to support their daughter’s aspirations, they explored various financial aid options, focusing particularly on education loans. Their research led them to discover the latest government policies designed to provide financial assistance to students. These policies offered low-interest rates, flexible repayment plans, and subsidies tailored for economically weaker students. With newfound hope, Riya applied for an education loan and successfully secured the necessary funding. Thanks to the government’s initiatives, she was able to pursue her studies without the constant worry of financial stress.
While Riya’s story had a positive outcome, it raised an important question in her mind: Are these policies truly accessible to all deserving students with aspirations like hers? This essay delves into the most recent government policies on education loans, analyzing their effectiveness and evaluating whether they genuinely address the needs of ambitious students across the nation.
Recent Government Policies on Education Loans
The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, brings welcome relief to Indian students seeking education loans for studies abroad by revising the Tax Collected at Source (TCS) on foreign remittances. This change aims to ease the financial burden on scholars by lowering their tax liabilities.
What exactly is TCS? Tax Collected at Source (TCS) is a tax collected by the seller from the buyer at the time of sale of certain goods or services. It is not an additional tax but an advance payment of tax made upfront.
The government has revised TCS rates specifically for educational remittances, particularly benefiting students who secure loans from recognised financial institutions and approved charitable organisations under Section 80E of the Income Tax Act. The updated provisions are:
- No TCS on remittances up to ₹7 lakh per financial year for education-related expenses.
- No TCS on remittances exceeding ₹7 lakh if the education loan is obtained from an institution covered under Section 80E.
- For students financing their education through personal savings, non-recognised loans, or loans not covered under Section 80E, a TCS rate of 5% applies to amounts exceeding ₹7 lakh per financial year.
These changes are designed to make overseas education more accessible and affordable for Indian students, particularly those relying on recognised educational loans.
Updated Government Schemes of Education Loans
The government of India has designed various schemes aiming to ease the financial burdens of students belonging to the economically weaker section. Below is the updated information of each scheme.
- Pradhan Mantri Vidya Lakshmi Scheme (PM-Vidyalakshmi): The Union Cabinet, chaired by PM Narendra Modi, has approved PM Vidyalaxmi, a Central Sector program ensuring financial constraints don’t hinder higher education. This scheme enables students admitted to Quality Higher Education Institutions to secure collateral-free, guarantor-free loans covering tuition and course expenses from banks or financial institutions.
- Collateral-Free Loans: Students admitted to Quality Higher Education Institutions can avail collateral-free and guarantor-free loans to cover full tuition fees and related expenses.
- Credit Guarantee: For loans up to ₹7.5 lakh, a 75% credit guarantee is provided by the Government of India to support banks in extending these loans.
- Interest Subvention: Students with an annual family income up to ₹8 lakh, not benefiting from other government scholarships or interest subvention schemes, are eligible for a 3% interest subvention on loans up to ₹10 lakh during the moratorium period.
- Central Sector Interest Subsidy Scheme (CSIS): The CSIS aims to provide financial relief to students from economically weaker sections by offering full interest subsidy on education loans during the moratorium period (course duration + one year). The scheme is applicable for professional and technical courses in India.
- Eligibility: Students from economically weaker sections, with a family income below ₹4.5 lakh per annum.
- Coverage: Applicable for education loans up to ₹7.5 lakh for recognized courses in India.
- Interest Subsidy: The government covers the full interest during the moratorium period, ensuring students only repay the principal amount after completion of their course.
- National Scheduled Castes Finance and Development Corporation (NSFDC) Educational Loan Scheme: The NSFDC offers financial assistance to students from Scheduled Castes (SC) for pursuing higher education in India and abroad, aiming to promote educational advancement among SC communities.
- Loan Amount: Up to ₹30 lakh for studies in India and up to ₹40 lakh for studies abroad, covering up to 90% of the course fee, whichever is less.
- Interest Rate: Concessional interest rates are offered to make higher education more affordable for SC students.
- Coverage: The loan covers tuition fees, books, living expenses, and other related costs, ensuring comprehensive financial support.
- Education Loan e-Voucher Scheme: Announced in the Union Budget 2024-25 by Finance Minister Nirmala Sitharaman, this scheme aims to provide financial assistance to students pursuing higher education in domestic institutions. It introduces e-vouchers for education loans, directly benefiting one lakh students annually.
- Loan Amount: Eligible students can obtain loans up to ₹10 lakh for higher education in India.
- Interest Rate: An annual interest subvention of 3% is provided, reducing the financial burden on students.
- Beneficiaries: The scheme targets students not covered by existing government schemes, ensuring broader financial inclusion in higher education.
- Implementation: Details regarding the application process and official portal was released by October 2024, with the scheme becoming operational thereafter.
Read more: How to get a Subsidy on an Education Loan?
Comparison with Previous Policies
In the past, education loans had several limitations that made them less accessible to students. The recent policies have introduced significant improvements:
- Higher Interest Rates Previously: Earlier, interest rates were comparatively higher, making repayment burdensome. The latest policies have introduced reduced interest rates, especially for students from economically weaker backgrounds.
- Limited Interest Subsidy: The previous policies provided interest subsidies only for a small segment of students. The updated schemes have expanded eligibility criteria, benefiting a larger number of students.
- Cumbersome Loan Process: Previously, students had to approach multiple banks individually, leading to delays and rejections. Now, with the Vidya Lakshmi Portal, students can apply to multiple banks through a single online application.
- Rigid Repayment Terms: Earlier, repayment terms were more rigid, with shorter tenure and high EMIs. The new policies allow up to 15 years for repayment, making it more manageable.
- Collateral Requirement for Smaller Loans: Before, even smaller loans required collateral, making it difficult for students from low-income families to secure loans. The recent policies have removed collateral requirements for loans up to ₹7.5 lakh.
FAQs
1. What is Section 80E of the Income Tax Act?
– Section 80E provides tax deductions on the interest paid for education loans taken for higher studies. Loans must be secured from recognised financial institutions or approved charitable organisations to qualify.
2. Who benefits the most from the revised TCS policy?
– Students taking education loans from recognised financial institutions or approved charitable organisations under Section 80E benefit the most, as they are exempt from TCS on remittances exceeding ₹7 lakh per year.
3. What is Subsidy?
– A loan subsidy is a financial aid that is usually provided by the government. In a subsidy the interest is paid by the government or another institution to lower the cost for the borrower, making loans more affordable, especially for specific groups like low-income individuals or businesses.
4. Is TCS refundable?
– Yes, TCS can be claimed as a refund when filing income tax returns if your total tax liability is lower than the tax already paid, including TCS.
5. What is TCS, and how does it affect education loans?
– Tax Collected at Source (TCS) is a tax collected by the seller from the buyer during the sale of specified goods or services. It is an advance tax, not an additional charge. Under the revised policy, students securing loans from recognised institutions will face reduced tax liabilities on remittances for education.