The PM Vidyalaxmi Scheme is a collateral-free and guarantor-free loan scheme designed in consonance with the NEP 2020 to support meritorious students
The PM Vidyalaxmi Scheme is an education loan scheme that offers collateral-free and guarantor-free loans to students for their education. The Union Cabinet approved the scheme on November 6, 2024, with an aim to provide financial support to meritorious students. The scheme is in consonance with the National Education Policy 2020 (NEP 2020), which highlighted the need to provide financial support to students for higher education.
Under the PM Vidyalaxmi Scheme, the beneficiary students would be those who secure admission to the higher education institutions (HEI) ranked in the National Institutional Ranking Framework (NIRF).
“The scheme will apply to the top quality higher educational institutions of the nation, as determined by the NIRF rankings – including all HEIs, government and private, that are ranked within the top 100 in NIRF in overall, category-specific and domain specific rankings; state government HEIs ranked in 101-200 in NIRF and all central government governed institutions,” states the notification.
The scheme’s benefits include guarantor-free and collateral-free loans, credit guarantee, and interest subvention.
Collateral-Free, Guarantor-Free Loan: Says Ankit Mehra, co-founder and CEO, GyanDhan, a non-banking financial company (NBFC) that provides a platform to students to assess their loan eligibility: “Under the PM Vidyalaxmi Scheme 2024, the benefit of a collateral-free, guarantor-free loan is available for the full loan amount. It includes the entire tuition fee as well as other related course expenses. There is no specific limit mentioned for the loan amount, as it covers the full financial requirement for students pursuing higher education at recognised institutions.”
Credit Guarantee: The government will provide a credit guarantee of 75 per cent of outstanding amount for loans up to Rs 7.5 lakh. Credit guarantee means coverage against loan default risk.
Prashant A Bhonsle, Founder, Kuhoo Edufintech, explains, “When a student defaults on their loan (up to Rs. 7.5 lakh), the government commits to covering 75% of the outstanding amount. This guarantee acts as a safety net for banks, significantly reducing their risk exposure in providing education loans."
Interest Subvention: A 3 per cent interest subvention will be provided for loans up to Rs 10 lakh, with the condition that the student’s family income is not more than Rs 8 lakh, and they are not eligible for any other interest subvention scheme or government scholarship. Interest subvention benefit will be extended to 100,000 students every year.
It will apply during the moratorium period, which is the period between finishing the course and securing a job and usually ranges between a few months and a year. Interest subvention means that the government would pay 3 per cent interest to make it less burdensome for students. The payment will be in the form of an E-voucher and central bank digital currency (CBDC) wallets.
Education costs have been rising significantly for the last few years, and against the 4-5 per cent inflation, education inflation is much higher in two digits. While the scheme is beneficial only to those getting admission to the NIRF-listed education institutes, the subsidised-interest loan may not be sufficient for all courses.
Says Mehra: “The average cost of higher education in NIRF-listed management, engineering, and medical institutions, vary widely. For instance, Jawaharlal Nehru University (JNU) and Jamia Millia Islamia charge about Rs 20,000 to Rs 40,000 annually for undergraduate programs, with additional hostel and administrative fees. Institutes like the Manipal Academy of Higher Education and the Vellore Institute of Technology typically have tuition fees ranging from Rs 2 lakh to Rs 10 lakh per year for engineering and management courses. SRM Institute of Science and Technology and Anna University also fall in a similar fee range for undergraduate programs.”
So, the fees could differ vastly from one to the other institution and for different courses. But if the course fee is within the subsidised loan amount limits, one may explore this scheme to understand the best loan option.
Adhil Shetty, CEO, BankBazaar.com, says, “According to the BankBazaar Aspiration Index, the No. 1 aspiration of salaried Indians is to save and invest for their children’s education. The importance of this aspiration hasn’t changed over many years. Since education is highly inflationary, any help that comes for the families is useful. This scheme should be beneficial for students from families with annual incomes up to Rs 8 lakh and studying in top-ranked institutions. With options for collateral-free loans and interest subvention, the scheme provides meaningful financial support. It will help students pursue quality education without undue financial stress.”
"The credit guarantee provision makes banks more willing to offer collateral-free loans to students, particularly those from economically weaker sections who might otherwise struggle to secure educational funding", adds Bhonsle.
Mehra opines that the scheme is particularly beneficial for students from the economically-disadvantaged backgrounds with an annual family income of up to Rs 8 lakh. It is especially advantageous for those, who are unable to access traditional bank loans due to a lack of collateral or high rate of interest. Through this scheme, they can secure education loans at flexible repayment terms.
Vidyalakshmi Portal: According to the government notification, a unified portal ‘PM-Vidyalakshmi’ is available to students to apply for loans from different banks.