Discuss the trade-offs between merit-based institutional targeting (QHEIs) and universal access in India's education-credit policy.

Since 2024, PM-Vidyalaxmi has given collateral-free and guarantor-free loans only to students admitted on merit to Quality Higher Education Institutions (QHEIs) [2]. These now number 1,425 [3]. Over the same broad period, RBI data show that education-loan accounts fell 15.2% between 2016 and 2026, while the average amount outstanding per account rose 178.2% [1]. Targeting by institution makes loans safer and keeps costs in check, but it reaches fewer students.

Gains from merit-based targeting

• Lower default risk: A degree from a ranked institution signals that the student is likely to find work. This makes the 75% credit guarantee on loans up to ₹7.5 lakh affordable for the state [2].
• Healthier bank books: Gross NPAs on public sector banks' education loans fell from 7% (FY21) to 2% (FY25) [5]. Banks keep lending when their losses are low.
• Controlled spending: The scheme has a fixed ₹3,600 crore budget (2024–31), and the 3% interest subvention is capped at 1 lakh students a year [2].
• Quality link: QHEI status follows NIRF rankings, so public money goes to institutions with proven results [3].

What targeting costs in universal access

• Small borrowers pushed out: Accounts with loans of ₹2 lakh or less fell to about one-fourth of their 2016 number [1]. These are often students at lower-ranked state or rural colleges.
• Credit-score barrier: The 372nd Standing Committee Report found that first-time borrowers with no CIBIL history get rejected [4]. A loan can be collateral-free and still be hard to get.
• Sanctioned but not paid: The Committee found only a small share of sanctioned amounts had actually been disbursed [4].
• Safer books may not mean wider reach: Lower NPAs may partly come from banks lending only to safer students, not from reaching more students [1][5].

Balancing the two goals

• Two-tier support: Keep the QHEI incentives, but also keep the needs-based CSIS interest subsidy, which pays full moratorium-period interest for family income up to ₹4.5 lakh [2].
• Act on the Committee's advice: Use ration-card-based eligibility instead of the income test, give priority to BPL students, and set uniform rules for sanctioning and rejecting loans [4].
• Track disbursal, not just sanction, on the PM-Vidyalaxmi portal [3].

Merit-based targeting protects quality and keeps banks solvent; universal access protects equity. A layered model can deliver both: QHEI incentives on top of a needs-based minimum for every student. That would serve NEP 2020's enrolment goals and SDG 4.3 (equal access to affordable tertiary education), so that family income does not decide who gets higher education.