Interest Subsidy Schemes on Education Loans in India
5 features of interest subsidies offered on education loans by Government of India
Interest subsidy schemes on education loans are designed to help reduce the debt burden on students. As of October 2020, the Government of India offers three interest subsidy schemes on education loans that take care of the interest component accruing during the moratorium.
Here are the three interest subsidy schemes offered on education loans in India:
- Central Sector Interest Subsidy (CSIS) Scheme: It is meant for students belonging to economically weaker sections of society who are pursuing technical or professional education from accredited universities and institutions recognised by UGC, AICTE, etc. in India
- Padho Pardesh Scheme of Interest Subsidy for Education Loans: It is meant for students belonging to minority communities who are pursuing Masters, MPhil or PhD courses at recognised foreign educational institutions
- Dr. Ambedkar Central Sector Scheme of Interest Subsidy for Educational Loans: This subsidy scheme is designed to offer financial assistance to students belonging to Economically Backward Classes (EBC) or Other Backward Classes (OBC) who are pursuing postgraduate or higher education courses in recognised overseas educational institutions
Before you decide to apply for one of these interest subsidy schemes, here are a few things you must know about them:
#1. All eligible students are not automatically entitled to receive the benefits of an interest subsidy scheme. They have to apply for the scheme and submit the requisite documents before being approved
#2. Students can only avail of the interest subsidy once in their life for a higher education degree, diploma course or integrated graduate + post-graduate course. Please note that students are not eligible for other subsidy schemes if they have already availed one scheme
#3. The interest subsidy schemes are only available to eligible students who apply for it in their first year of studies. If they fail to do so, they cannot avail of it in the middle of the course
#4. Students have to submit relevant documents such as income proof, caste certificate issued by a certified authority and so on to prove their eligibility based on the terms of the subsidy scheme
#5. Students who give up Indian citizenship or stop pursuing studies cannot avail the benefits of the subsidy schemes. The only outlier is offered in the CSIS Scheme that allows students to avail the subsidy even if they stop pursuing studies for medical reasons and provide satisfactory documentation for the same to the Head of the educational institution
A Final Word
Each one of these subsidy schemes has different eligibility criteria and application process but also a few similar features. We have covered them in detail on our education loans section. Please check it out if you are interested.
An Additional Point – and it is important
If any is wondering whether it makes sense to apply for any of these schemes, we say it does. Here is why.
Suppose you take a loan of Rs. 2 lakh with an interest rate of 10.5% and a moratorium of 3 years.
(Note: moratoriums usually are for the study period and an additional time which is the earlier of 1 year after passing out or 6 months after getting a job).
Now, the total interest you will accrue on the loan during the 3 years is either Rs. 69,846.53 (compound interest) or Rs. 63,000 (simple interest), both of which are nearly one-third of the loan amount.
If you apply and are approved for the relevant Central Government Interest Subsidy Scheme, you get a waiver on this amount. Yes, applying does not mean you will get the subsidy but if you do, you stand to benefit significantly if you get an approval.