Quality education is crucial to creating a successful life for a student. However, with increasing college fees every year, it becomes difficult for a student to have a quality education. Education in India, especially in premier educational institutions, is quite expensive. And in many cases, even if a student is qualified to get admission purely on merit, it becomes difficult to study in such institutions due to financial constraint. Cost of education in India is anywhere between Rs.5 lakhs and Rs.12 lakhs for undergraduate engineering courses. For medical courses in India, the fees can rise up to 50 lakhs in private colleges. Business schools in India charge more than Rs.10 lakhs. In abroad, cost of higher education is much higher. Again, fees in private colleges are always more than the government colleges. Under such circumstances, students look for education loans in India. With so many banks offering education loans, it is also very confusing for parents and students to choose the best one. We give below a brief idea on how to get the right education loan.
- Education Loan versus Personal Loan
Many parents might feel that taking a personal loan for higher education is beneficial. But as a matter of fact, this is not true. You take personal loan at a higher rate of interest and you end up paying more. Instead, an education loan comes with a number of benefits and conveniences and is specially meant to be given for education which serves the purpose of the students.
- Comprehensive Educational Loan Scheme: Government of India
The Government of India has framed a Comprehensive Educational Loan Scheme in consultation with Indian Banker’s Association (IBA) and the Reserve Bank of India (RBI). The scheme covers all type of courses in schools and colleges in India and abroad.
Amount That can be Availed as Education Loan
An education loan covers the fees of your course and also any charges related to the education like your study material, accommodation charges, travel expenses, and, equipment costs. The amount of loan that you can avail will be based on the course fee and also your family's total income. .
Who can get an Education Loan
Any student can get an education loan with the guardians or parents as co-applicants. The repayment of the education loan will start from one year after the completion of your course, or within six months of getting a job after your course, whichever is earlier.
Documents Required to Apply for an Education Loan
- All the required KYC documents, like address proof and identity proof.
- Your college admission letter.
- The fee structure of your course.
- Income documents like salary slips, bank statements, and IT returns
A pre-admission sanction of an education loan can be availed if you need to study at a foreign university.
Margin Percentage of an Education Loan
An education loan of up to Rs.4 lakh will not require any margin. However, for an education loan of above Rs.4 lakh, there is a margin of 5% which is applicable for higher studies in India. The margin percentage is 15% for studies abroad.
Guarantee or Collateral for an Education Loan
Your bank might ask for a third-party guarantee or even a collateral, and this is based on the value of your loan. The collateral can be in the form of an insurance policy which is in the favour of the bank. The premium of your policy can be included in the education loan amount.
Key Things to Note About Education Loan
- After the loan has been availed, you are eligible for income tax benefit under section 80(E).
- In you are a girl student, you will get a concessional rate of interest for an education loan.
Benefits of Education Loans
- Applicable for all: Any student who wants to study can apply for an education loan. Even the economically backward sections of the society can take education loans under the government-sponsored subsidy schemes such as ‘Central Scheme to provide Interest subsidy’ (CSIS).
- Applicable for all courses: Education loan can be used to pursue all types of courses — graduation, post-graduation, diploma courses, vocational courses — whether in India or in foreign universities.
- Easily available: Education loans are widely and easily available. In fact, they are a priority product in all banks as per the RBI’s guidelines.
- Varied loan amounts: Banks can offer loans anywhere between Rs.2 lakhs and Rs.22 lakhs for studying in India. Of course, the size of the loan depends on the course applied for. To study abroad, the loan amount goes up to Rs.20 lakhs.
- Helps in completion of education: The expense curve of education is increasing with inflation and shifting prices. To avoid hindrances in studies, education loans become essential.
- Benefits: Education loans include many additional benefits like caution deposits, library fees, building deposits, laboratory fees, tuition, examination fees, hostel fees, money for buying books, instruments and uniform, travel expenses for studies abroad, etc.
Low interest rate for females: Usually female students are offered loans at lower interest rates.
- Easy repayment: Also, another great advantage of education loan is that the loan amount need not be repaid immediately. The repayment tenure can extend up to 5 to 7 years after the completion of the course. This makes it easy for repayment.
Conditions to apply for education loans in India
Some basic requirements need to be fulfilled while taking a loan. These conditions are as follows:
- The main determinants are the fees of the course to be pursued and the applicant’s annual family income.
- There must be a co-applicant, which can be either one of the parents or sibling or spouse.
- Loans below Rs.4 lakhs do not require a guarantor or security.
- For loans above Rs.4 lakhs, there should be a third-party guarantor.
- For loan amount more than Rs.7.5 lakh, a collateral is necessary.
- For studying abroad, a student must also look for part-time jobs or sponsorship as the loan amount itself is not sufficient.
- Insurance is compulsory for studying abroad.
- Repayment of loans
- The repayment process should immediately start after 6 months to 1 year of completion of the course, though it can be extended to 5 to 7 years.
- In case of non-repayment, the student’s own credit history as well as his co-applicant’s history gets affected.
- Interest rates of education loan
In India, interest rates for education loans vary according to banks. However, it can be anywhere between 12.00 % and 16.00 %, which of course depends on the bank’s base lending rate and other factors. The base lending rate for banks in India, as directed by the RBI, is around 9- 10%.
Important tips before applying for education loan
- You should carefully consider the financial capabilities and liabilities of your family and then opt for an education loan, with the intention of repaying it on time so as to not to include you and your parent’s name in the defaulters list.
- Education loan is more like an investment. Low interest rate, even of it is 0.5% less, along with a longer repayment period is more helpful. So, it is very essential that you should carefully study and understand the conditions for applying in different banks before choosing the most favorable bank.
- When the bank is finally chosen, make sure you read all the terms and conditions and checklists of the loan application form because there might be some hidden costs as well.
- You should usually choose a bank which provides the facility for extension of the repayment tenure in case of delay under unforeseen circumstances.
- Students from the economically weaker strata of society should opt for government-controlled banks as they offer some benefits in the form of interest-subsidy for students.
- Also, know in details what does your education loan cover? The loan amount does not come to you. It goes directly to the institution where you want to study, at the beginning of each semester. Hence, it should cover all the benefits and services offered so that you do not have to incur any additional costs.