Constitution of India lists Right to Education as one of the fundamental rights. Tough this only covers education till the age of 14 years, but over the year number of students graduating from various institutes have increased. Infact, educational loan is one of the most crucial loans that one avails throughout their lives. As per the Ministry of Finance directives, education comes under the priority sector. So the government makes sure that the interest of the students is always preserved at the same time keeping the interest of the lenders intact.

To meet this ever growing demand for educational loans the Indian Banks Association (IBA) devised Model Educational Loan Scheme in 2001. The scheme was conceptualized by a recommendations of a study group of IBA, which was approved by RBI and given to banks for accepting and implementing in their education loan products.

Model Educational Loan Scheme

The prime motive of the scheme is to benefit the "meritorious" students irrespective of their economic background. The IBA defines meritorious students as " If the student has obtained admission to an eligible course through a merit based selection process, he/she could be considered a meritorious student." The banks have also enlisted the courses for which the loans would be available, though the list is not all inclusive , the bank reserves the right to sanction or reject the loan based on employability of the course. There has been a debate going off-late on whether the students getting admission under management quota be given education loans or not.

Apart from eligibility of student and course, norms pertaining to important facets of loan such as security/collateral, guarantee, interest rates, moratorium period, repayment tenure, margin et al are all covered under the scheme.