PM Vidyalaxmi education loans: How the new scheme can help students pursuing higher studies

PM-Vidyalaxmi education loan scheme to offer concessional terms, interest subvention for funding higher studies

Soon, students pursuing higher studies at quality Higher Education Institution (QHEIs) will be eligible for collateral-free loan from banks and financial institutions to cover full amount of tuition fees and other expenses related to their higher studies.

On November 6, the Union cabinet approved the PM-Vidyalaxmi scheme that aims to cover over 22 lakh students a year. The scheme will “provide financial support to meritorious students so that financial constraints do not prevent anyone from pursuing higher studies,” the government said in a statement.

For students looking at loans of up to Rs 7.5 lakh, the government will provide credit guarantees to the tune of 75 per cent of the outstanding defaults. The credit guarantees are meant to support banks in making education loans available to students under the scheme.

State Bank of India (SBI) chairman C.S. Setty said that the initiative will dismantle barriers to higher education. “This programme is a crucial step toward fostering educational equity and unlocking the potential of India's future leaders,” he said in a statement.

Also read: PM Vidyalaxmi scheme to offer collateral and guarantor free loan to over 22 lakh students: Key details

Here's all that you need to know about the scheme:

Who can apply for loans under PM-Vidyalaxmi scheme?

Any student who gets admission in a QHEI will be eligible to seek loans under the scheme from banks and financial institutions to cover tuition fees and other expenses related to their higher studies.

Besides the credit guarantee for loans of up to Rs 7.5 lakh, students belonging to economically-weaker families — with an annual income of up to Rs 8 lakh — will be entitled to a three per cent interest subvention on loans of up to Rs 10 lakh. They can avail of the scheme, if they are not eligible for benefits under any other government scholarship or interest subvention schemes. “This scheme will enable students to reduce financial constraints that could prevent them from pursuing their studies,” said Adhil Shetty, Chief Executive Officer (CEO), BankBazaar.com.

Are there any conditions that students need to be aware of?

Yes, the government will extend the interest subvention to one lakh students every year. Students, who are from government institutions and have opted for technical or professional courses, will get a preference over others, according to the official communique.

It refers to the part of the loan interest that the government will take on in a bid to ease the burden on students and their parents. In the case of PM-Vidyalaxmi, interest subvention payouts will be made through e-voucher and Central Bank Digital Currency (CBDC) wallets.

The subvention will be extended until the end of the moratorium period, which refers to the timeframe when the repayment is to begin. For example, in the case of SBI’s education loan, moratorium period ranges from six months to a year. So, the repayment will start one year after the completion of the course, or six months after securing a job, whichever is earlier.

What are the current rates of interest that education loans carry?

As per Bankbazaar.com's data, interest rates of education loans of Rs 10 lakh start at 8.1 per cent, with SBI, Punjab National Bank Union Bank of India offering this rate for education loans with a tenure of seven years. Private banks such as ICICI Bank (10.25 per cent) and Axis Bank (13.7 per cent) charge comparatively higher rates.

Which are institutions that eligible under the scheme?

The scheme will be applicable to the top QHEIs of the nation, as defined by National Institutional Ranking Framework (NIRF) rankings. These ratings, which were last released in August 2024, are a culmination of the ministry of education’s annual exercise that evaluates the top institutions across categories such as medical, engineering, law, management and pharmacy.

According to the government’s press statement  such HEIs — both state-run and private — that are ranked within the top 100 in NIRF, as also category-specific and domain specific rankings, will qualify for this scheme. State government HEIs ranked in 101-200 in NIRF and all central government-governed institutions will also be eligible. “This list will be updated every year using the latest NIRF ranking, and to begin starts with 860 qualifying QHEIs, covering more than 22 lakh students to be able to potentially avail benefits of PM-Vidyalaxmi…,” the release said.

Also read: Inconsistencies in NIRF rankings? 5 important points about the latest study

How can students apply for loans under the scheme?

The ministry’s department of higher education will set up a unified portal, PM-Vidyalaxmi, which will allow students to apply for the education loan as well as interest subvention to  all the banks.