EDUCATION LOAN : STUDY IN INDIA OR ABROAD : HOW TO AVAIL

Education is an important aspect for a complete and successful life. For many, it is equivalent to graduating from a top and best institution. The cost of education is, however, increasing rapidly. In fact, the cost of studying at reputed institutions is already quite high.

Keeping this in mind, parents, who want to provide their children with the best possible education, invest their money in mutual funds, fixed deposits, properties (for resale) etc for long term. According to studies, the cost of education is increasing at an average of 15% per annum.

Read also: Get your Home Loan

But despite all this, one may still encounter shortage of funds. An education loan, therefore, plays a vital role in such a scenario by helping to bridge the gap between the shortfall and the required amount.

Why we opt for educational loan?

Mentioned below are a few important reasons why you should opt for an education loan:

Easily available: Most banks in India provide education loans as a priority product. Availing education loans is comparatively less complicated as you only have to establish your repayment capacity to get approval.

Specialised help: Education loans take care of the additional expenses that are associated with most courses like hostel fees, library fees, etc.

Prevents exhaustion of resources: By opting for an education loan, the applicant or his/her parents can keep their savings intact. Such loans prevent the exhaustion of one’s savings and helps them meet their financial needs comfortably.

And It covers the basic course fee and other related expenses such as (college) accommodation, exam and other miscellaneous charges (almost all charges connected to course).

In Educational loan, Government sponsored subsidies available for minority students and Repayment period also begins after the completion of the course

Who can apply educational loan in India or abroad?

Below are the general eligibility criteria for education loans in India or abroad:

Student must be a resident of India and must have a secured admission into a recognized course in India or abroad.

For abroad educational loans, the student must have a valid Indian Passport and applicant must provide collateral enforceable in India

A student is the main borrower. A parent, spouse or sibling can be the co-applicant.

Read also: Avail personal loan instead

Whom is the loan offered to?

It is offered to students who want to study in India or pursue higher education overseas.

In India or overseas, courses eligible to avail educational loan are

Mentioned Undergraduate programs
Postgraduate programs
Doctoral courses and PhDs
Certificate courses with 6 months or longer duration
Job-oriented courses
Technical courses

Based on institution:

Recognized institutions and government colleges
Private institutes aided by government
International colleges and universities
Professional institutions

The loan amount offered for studies in India and overseas are different and varies from one bank to another.

Expenses covered by education loans are:

Course Fees
Hostel fees
Exam fees, laboratory and library fees
Cost of books, uniforms, projects, etc.
Travel expenses for overseas education
Deposits required by the educational institute
Laptop / computer (depend course requirement)

As per the Reserve Bank of India (RBI) guidelines, there are no restrictions on the upper age limit, but some banks may have it.

Documents required for educational loan:

Documents	For Study abroad loans	For Domestic loans
Proof of Identity and age	· PAN Card (For both student and parent) · Aadhar card · Any government issued identity card
Proof of Address	· Voter ID · Aadhaar card · Driving license
Income proof	· Salary statements and Form 16 of parent · IT returns of parents and guarantor, if any · 6 months bank statement
Education proof	· Marks card starting from 10th standard · Rank Card and admission confirmation · Estimation of fees from institution
Other documents	· Completed loan application form · Passport size photo of applicant · Passport, Visa copy (for studies abroad)	· Completed loan application form · Passport size photo of applicant

Collateral security requirement:

An education loan can be both secured and unsecured based on the bank or NBFC offering it. Usually lenders do not require collateral for smaller loan amounts. However, if the loan amount exceeds the limit specified by lenders, the applicant may have to provide security.

Read also: Guide to Mutual Funds

Securities may vary based on the kind of loan, for instance some loans can be taken with collateral securities like immovable properties, fixed deposits, gold, Mutual funds, Insurance Bonds, Third party guarantee etc

The banks can finance up to 100% of the loan depending on the amount.

Currently, for loan up to Rs 4 lakh, there is no margin money required.

For studies in India, 5% of the required money has to be financed by the applicant.

On the other hand, for studies overseas, the required margin money increases to 15%.

Presently, the banks do not ask for any collateral or third-party guarantee for loan up to Rs 4 lakh.

For loans above Rs 4 lakh up to Rs 7.5 lakh, a third-party guarantee is required.

A collateral security is asked for loan exceeding Rs 7.5 lakh.

Some banks offers educational loan upto 30 lacs without any collateral security for students who got admission in some top institutions like IIT, IIM, BITS etc.

Once the loan is sanctioned, the banks disburse the amount directly to the college/university as per the given fees structure and living expenses will be given to applicant account directly as per estimation submitted by him.

Interest rate:

The banks uses the Marginal Cost of Funds based Lending Rate (MCLR), plus an additional spread to set an interest rate. Spread will be around 2.00 % to 7.00% (depends on the lender)

State bank of India and some public sector banks offers at lower interest rates. But Private sector banks also offers educational loan with speedy disbursal.

Some banks offers around 0.50% interest rate concession for girl student (For example SBI).

Read also: Control frauds on SBI ATM Card

Repayment :

The loan is repaid by the student. Generally, the repayment starts when the course is completed. Some banks even provide a relaxation period of 6 months to 12 months after securing a job or a year after the completion of studies for repayment.

The repayment period is generally between 5 and 15 years, it differs from one bank to another.

During the course period, the bank charges simple interest rate on the loan. The payment of simple interest during the course period lessens the equated monthly installment (EMI) burden on the student for future repayments.

some banks offers interest concession, if the interest is serving during the course period (For example SBI).

Charges:

While applying for a loan, one should also look out for bank charges such as those related to processing, pre-payment, late payment of EMIs, etc. Most lenders charge processing fee of around 0.15 percent of the loan amount. Some banks offer loan with Nil processing fee (SBI is offering)

Benefits under Income-tax Act:

Section 80E of the I-T Act allows for deduction on the interest paid on the repayment. This deduction is allowed only for the individuals paying interest on the loan for himself, spouse or children or for the student to whom you're a legal guardian. You can deduct the entire interest amount paid from your taxable income. This deduction is allowed for a maximum of 8 years. The principal amount does not qualify for any tax deduction.

Read also: 45 best ways to reduce your tax

Others:

Indian government offers interest subsidy on educational loans where parent income is less than Rs. 4.50 Lacs (approx), during the course period and moratorium period.

Now each and every educational loan should be routed through VIDYA LAXMI PORTAL developed by indian governement, to any bank.

If your educational loan application is rejected?

While rejecting a loan application, banks usually provide a reason why it has been rejected. You can rectify the error and re-apply. However, if the bank did not provide any valid reason for the rejection, you can file the complaint with lender's customer grievance cell / RTI petition.

If you discontinue the course but you did not get an employment within the grace period?

In case you choose to discontinue the course mid-way, you must start repaying the loan immediately after getting a job. if you did not get job, then immediately approach your lender and request them to extend the moratorium period. Don't leave your loan unattended / unpaid, it will reflects your credibility / credit score.

If you not get job within moratorium period provided by lender?

Approach the lender and submit your request to extend the moratorium period for some extent like 6 month to 12 months.

If you want do Post graduation after your graduation, For which loan availed?

Approach the lender, submit your request by enclosing admission copies of post graduation, to extend the moratorium period for course period of post graduation.

Taking an education loan helps you in building a good credit score as this is the first loan in a person's life. If you repay the loan on time without any defaults then it also makes easier for you to get home loan, car loan, etc., in future.

Read also: Improve your credit score

I hope this article gave you, enough information about Educational loan.

Please post your queries in comments below, if any

ALL THE BEST....