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Credit Guarantee Fund Scheme for Education Loans
CGFSEL, also referred to as CGFEL, is a trust fund established by the Government of India. The National Credit Guarantee Trustee Company Limited manages it as trustee. NCGTC itself was set up by the Department of Financial Services under the Ministry of Finance.
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- Credit Guarantee Fund Scheme for Education Loans
What is the Credit Guarantee Fund Scheme for Education Loans (CGFSEL)?
The Credit Guarantee Fund Scheme for Education Loans backs 75% of any default on education loans up to ₹7.5 lakh. It is not an interest subsidy. It is a guarantee that allows banks to lend without collateral or a third-party guarantor. NCGTC manages the fund on behalf of the Government of India.
The scheme addresses a specific problem. Without the guarantee, a bank would bear the full credit risk on an unsecured education loan. By sharing a portion of the lender's default risk, the scheme is intended to improve access to education loans for eligible students who cannot provide collateral or a third-party guarantee.Â
Key Features of Credit Guarantee Fund Scheme for Education Loans
The table below sets out the scheme parameters.
| Feature | Detail |
| Benefit Type | Credit guarantee for the lending institution; not an interest subsidy |
| Guarantee Cover | 75% of the eligible amount in default |
| Maximum Loan Covered | Eligible education loan up to ₹7.5 lakh |
| Collateral Security | Not permitted/required for a CGFSEL-covered loan |
| Third-Party Guarantee | Not permitted/required; parent/guardian may still be co-borrower |
| Loan Scheme Required | IBA Model Educational Loan Scheme |
| Interest Rate Ceiling | Maximum 2% p.a. above Base Rate under the current NCGTC CGFSEL FAQ; the Fund may revise the ceiling from time to time. |
| Moratorium Period | Course period plus one year |
| Interest Servicing During Study/Moratorium | Optional for the student until repayment begins |
| Annual Guarantee Fee | 0.50% p.a. of the applicable outstanding amount, subject to scheme calculation rules |
| Guarantee Fee Paid By | Member Lending Institution, not the student |
| Study Location | India or abroad |
| Eligible Borrower | Indian national satisfying IBA Model Education Loan eligibility |
| Managed By | NCGTC as trustee |
| Current Government Framework | PM-USP CGFSEL, implemented by the Department of Higher Education |
| Student Application Portal | PM-Vidyalaxmi portal for education-loan applications |
| Guarantee Application | Submitted by the Member Lending Institution to NCGTC; no separate student application to NCGTC |
Eligibility Criteria of Credit Guarantee Fund Scheme for Education Loans
The criteria are given below.
- The applicant must be an Indian citizen.
- Admission must be secured at a recognised institution for higher education.
- The loan must be taken under the IBA Model Education Loan Scheme from a member lending institution.
- The loan amount must not exceed ₹7.5 lakh for guarantee coverage.
- The loan must be sanctioned without collateral security and without a third-party guarantee.
- The lending institution must be registered with NCGTC as a member lending institution.
CGFSEL guarantee coverage is available for eligible education loans up to ₹7.5 lakh. For a larger amount, many build a corpus in advance through a mutual fund child plan or other investment instruments to keep the loan within the covered limit.
How to Apply for Credit Guarantee Fund Scheme for Education Loans
The application process is given below.
- Apply for an eligible education loan through the PM-Vidyalaxmi portal and select a participating lender.
- The bank evaluates the loan under its applicable IBA Model Education Loan product.
- The total eligible loan must be within ₹7.5 lakh and sanctioned without collateral security or third-party guarantee to come under CGFSEL coverage.
- Once the eligible loan is sanctioned/disbursed, the Member Lending Institution applies to NCGTC for guarantee coverage within the prescribed time.
- The bank pays the applicable annual guarantee fee to NCGTC; the student does not separately apply for or pay for the guarantee.
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Conclusion
CGFSEL is a credit guarantee, not an interest subsidy. It helps eligible students access education loans of up to ₹7.5 lakh without collateral security or a third-party guarantee, subject to the scheme conditions. Planning ahead through savings and suitable investment instruments like child education plans can also help families manage future education expenses.Â
FAQs
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Does CGFSEL give money to students?
No. CGFSEL does not pay money directly to the student. It guarantees a portion of the lender's loss if an eligible education loan defaults. By reducing lender risk, the scheme is intended to facilitate collateral-free education lending. However, a particular student's loan application approval is not guaranteed. -
Is CGFSEL the same as an interest subsidy?
No. CGFSEL is a credit-guarantee scheme for the lender. PM-USP CSIS provides interest subsidies to eligible borrowers. PM-Vidyalaxmi separately provides collateral-free and guarantor-free education loans to eligible students at designated QHEIs and includes a 75% credit guarantee for loans up to ₹7.5 lakh. Where the respective eligibility conditions are met, the applicable benefits can operate alongside each other. -
When can a bank claim under the guarantee?
The lender can invoke CGFSEL after an eligible covered education loan becomes an NPA and the scheme's other claim conditions are satisfied. A 12-month lock-in period applies from the later of the end of the interest moratorium or commencement of guarantee cover. The lender must also recall the loan and initiate recovery proceedings. -
Is it better to rely on a guarantee or save in advance?
The guarantee does not guarantee loan approval. It provides credit protection to the lending institution against a specified portion of the amount in default. The borrower remains responsible for repaying the education loan. However, a family may also benefit from a corpus created along with this, using methods such as PPF, Sukanya Samriddhi, equity mutual funds, children’s gift fund, etc.
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˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar Insurance Brokers Private Limited does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
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^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.