Education Loans in India:
With more and more Indians choosing to pursue their education abroad, lending institutions are keen on providing the best possible financing options to suit every student’s needs. Financing higher education in a foreign country is generally a mammoth task for any middle-tier family in India. Along with regular tuition fees, families also have to bear boarding and lodging costs, books, travel and other related expenses for the student. Proving to be a saviour in this case, is an education loan which is generally given out by banks at attractive interest rates to finance higher studies in reputed institutions abroad. Education loans generally cover a vast number of expenses inclusive of fees, equipment, books, hostel fees, travel, examination fees, etc., for students. Education loans also cover studies in India as well, with students opting for either graduation or post-graduation courses. Generally, education loans are offered in specific slabs: a) Below Rs. 4 lakhs, b) Between Rs. 4 lakhs and Rs. 7.5 lakhs and c) Above Rs. 7.5 lakhs.
While availing any kind of loan, the most important aspect that has to be considered by the borrower is the interest rate offered by the chosen bank. The interest rate for any type of education loan differs according to the loan amount availed, the loan tenure, educational institution chosen and can be a fixed or floating rate. The interest payment for an education loan varies depending on the borrower. Interest rate payments are generally done immediately after the loan disbursal. Most banks offer a moratorium period after the sanction of the loan, during which the borrower does not have to repay the principal portion of the education loan. The scheduled repayment can start after this period, which is generally after the completion of the course. But borrowers can also pay the interest beforehand during the time of disbursal to avoid the burden of repaying higher amounts later.
Another key point to be considered while looking into the interest rate given by any lender is whether the bank is calculating the interest on a quarterly reducing balance basis or on a daily reducing balance basis. The Central Government provides a full Interest Rate Subsidy Scheme to the economically weaker segments of the society, during the moratorium period of the education loan. Some banks also provide concessions for women applicants and offer a slightly lower interest rate.
In India, there are a plethora of private and public sector financial institutions offering education loans to aspiring students wishing to continue their studies in premier institutions within the country or abroad. Here is a comparative table on the interest rates provided by lenders in India.
Public Sector Banks:
|State Bank of India||9.70% - 13.45%|
|Bank of Baroda||9.90% - 12.40%|
|United Bank of India||9.90% - 13.50%|
|Central Bank of India||11.45% - 11.95%|
|Bank of Maharashtra||11.25% - 12.50%|
|Canara Bank||11.60% - 13.60%|
|Dena Bank||11.25 %|
|Indian Overseas Bank||11.45 - 12.95%|
|Punjab National Bank||10.00% - 13.00%|
Public Sector Banks / Other Financial Institutions:
|Avanse Financial Services||Avanse Base Lending Rate (11.5%) + Spread|
|Credila||Based on Credila’s Benchmark Lending Rate (12.35%) + Spread|
|Axis Bank||15.00% - 16.50%|
|HDFC Bank||12% - 13%|
|IDBI Bank||10.75% - 13.25%|
Listed below are some of the key features and benefits of any education loan offered in India.
Processing fees: Most banks do not charge any processing fee when a student avails an education loan. Though some lenders might levy a processing fee of 1% or an upfront fee, depending on the type of loan availed.
Moratorium Period: Generally, all lending institutions give a moratorium or holiday period ranging from 6 months to 1-1/2 years after the completion of the course. Repayment of the principal amount for the availed education loan can start after this period or after the borrower has secured a job.
Margin: For loan amounts below Rs. 4 lakhs, borrowers do not have to put in any amount and the lender will mostly sanction the entire amount. But for loan amounts higher than that, the applicant will be required to bring in a loan margin amount ranging between 5% and 15% depending on the location of the course study.
Quantum of Loan: The maximum loan amount sanctioned by banks is generally Rs. 10 lakhs for education within India and up to Rs. 20 lakhs for studies abroad. The minimum loan amount varies across different lending institutions.
Security Collateral: Most banks do not request for any security collateral to be provided for education loans taken for an amount below Rs. 4 lakhs. Third party guarantee or any other form of security has to be provided by the borrower only for amounts higher than that.
Repayment Tenure: The repayment tenure starts after the moratorium period and can usually go up to 10 years, depending on the bank from where the education loan has been availed.
Type of educational course: The sanctioning of the education loan also depends on the type of course and the institution opted by the student. Education loans given out by most banks cover specific institution types, course types and also countries. Most banks sanctions loans only for approved courses from recognized Indian and foreign institutions.
Tax Benefits: Education loan borrowers can also enjoy tax rebates for the interest they would be paying under Section 80-E of the Income Tax Act, 1961.
Insurance: Some banks also offer life insurance cover to the student availing the education loan. This facility however might not be available with all banks and might vary from lender to lender. Applicants can enquire with their lending banks to check if the insurance benefit is available, when they procure the education loan.
Pre-payment charges: The prepayment charges vary for education loans across different lending institutions. Some banks do not charge any pre-closure fees, while some might impose a prepayment penalty of up to 4%, depending on the time period during which the loan is being closed.
Other fees and charges: Banks might also levy other charges like administration fees and documentation costs, while the education loan application is being made.