Credit cover for collateral-free education loans may be raised at inter-ministerial consultations

New Delhi: The government is weighing enhancing the credit guarantee cover for collateral-free education loans, which could enable banks to lend beyond the current limit of Rs 7.5 lakh without requiring securities.

At present, 75% of the loan amount is covered under the Credit Guarantee Fund Scheme for Education Loans (CGFSEL), set up by the National Credit Guarantee Trustee Company for loans up to ₹7.5 lakh under existing programmes, including the model education loan scheme.

"Preliminary discussions have been held.... Any final decision will be taken after inter-ministerial consultations," a government official said. The ministries of finance and education are holding discussions on it, he said.


Enhancement of the limit is expected to encourage banks to increase the flow of credit to the sector, bank executives said.

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The move is part of a larger government effort to make education financing easier and accessible. There have been representations to the government making a case for raising the limit in view of the rising cost of higher education.

As per latest data available, more than 1.18 million loan accounts amounting to ₹46,674 crore have been guaranteed under the CGFSEL till March 2025. The amount of loans guaranteed grew 9.35% in fiscal 2025.

More than 380,000 education loan applications were sanctioned in FY26.

Some other proposals being examined include removing the requirement of a co-applicant in the loans that get the guarantee cover, and extending such loans to all students who secure admission on the basis of merit in higher education institutions which are accredited by professional bodies including the National Assessment and Accreditation Council.

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In 2024, the government launched the PM-Vidyalaxmi scheme, a special loan product of collateral-free and guarantor-free education loans for up to ₹7.5 lakh. This education loan is available to students who get admission on their own merit in 952 identified quality higher education institutions in India, and interest rates charged under the scheme are capped at the individual bank's externally benchmarked lending rate plus an additional 50 basis points (0.5% percentage point).

According to the the scheme, students from families with an annual income of up to ₹8 lakh are eligible for a 3% interest subvention on loans up to ₹10 lakh in 860 higher education institutions.

In December 2025, a parliamentary standing committee had recommended that due to a rise in education fee inflation, the resultant increased cost of education and the requirement for collateral-free loans, the CGFSEL guarantee cover be enhanced to ₹20 lakh.