Applying For an Education Loan? Read This Before Signing Over The Dotted Line

Education Loan in India

Having a good higher education degree is imperative to a bright future. We all agree to it. Now, this term - 'good higher education' comes with a lot of clauses. And the prime among these includes getting into an Ivy League college. It is not all that difficult to grab a seat in some of the best universities in the world if you have the merit and a little perseverance to achieve it. However, a professional degree involves a lot of money, particularly when you have to sail abroad.

As per market reports, the cost of education is increasing at an average of 15% per annum that is way above any parent's annual increment. Hence, the families have to have concrete savings, and investment plans if they want their wards to pursue higher education. And even after that, they can't put together the entire amount. That is when they turn to an education loan. Most of the students get their higher education degree financed to some extent if not completely.

The Status of Education Loans in India

Every year millions of students in India opt for education loans. As per market reports, the education loan amount has seen a laudable 34% growth from INR 16,800 crore to INR 22,500 crore between 2016 to 2019. Industry watchers read this as a trend among banks to shift their preferences towards higher loan amounts. As per market records, in March 2019, 2.5 lakh students in India opted for an education loan. According to the RBI data in 2018, public sector banks provide 91% of the education loans in India while the private sector bank avoid it because of the risk involved in it.

Frequent economic crises in the past two decades have majorly affected employment and fuelled inflation all over the world. As a result, the banks have shifted their focus from volume to value for their loans. This boils down to the fact that it is easier to get an education loan if you have admission to the elite institutes. A paltry sum of INR 4 lakh collateral-free education loan is made available to the less privileged students. Apart from that, students with risks of not getting a job or parents' inability to provide collaterals are a strict no-no for the banks.

Costs covered by Education Loans

The first question that comes to the mind of a lender is what all does the education loan covers. Well, it covers the course fee, study materials, laptops, and examination fee for sure. But over and above the course fee, it also covers the accommodation, traveling, and other miscellaneous charges.

The students have to bear 5% of the total expense for the Indian universities and 15% for overseas universities.

Eligibility of the Applicants

Education loans are offered to Indian students who are pursuing higher education in India and abroad. Students are the main applicants for education loans while, the parents, siblings, or spouse can be the co-applicant of the loan. Banks take into account the credit history of co-applicants before the disbursement of the loan.

Education loan eligibility criteria require the main applicant to have passed the higher secondary examination from any of the national, international, or state boards in India. The next imperative is that the main applicant has secured admission in one of the reputed universities in India or abroad. There is no upper age limit for applying for an education loan as per the RBI directives. However, individual banks are free to set age limits for the same.

Documentations

Banks require the applicants to provide some basic documents that include the letter confirming their admission to the university, academic certificates such as mark sheet and pass certificate of the secondary, higher secondary examination and graduation (if applied for a post-graduation course). In addition to these, banks also ask for the income proof and ITR certificates of the co-applicant.

Courses Included Under Education Loan Scheme

Banks lend education loans to finance part-time or full-time vocational courses in the fields of medical, engineering, management, architecture, and hotel management, and many others. These courses could be a graduation, post-graduation, doctoral, or post-doctoral course.

All about the Collateral Required

Banks in India provide collateral-free loans up to INR 4 lakh. If your loan amount is between INR 4 - INR 7.5 lakh, you might still get a collateral-free loan with a third-party guarantee. For loan amounts equivalent to, or greater than INR 7.5 lakh, providing collaterals becomes an absolute necessity.

The banks lend up to INR 7.5 lakh to INR 10 lakh loan for Indian universities, while they give INR 10 lakh to INR 20 lakh loan for universities outside India.

The collaterals need for loan amounts of INR 10 lakh for universities outside India.

The collaterals required for availing of the education loans include residential properties, non-agricultural land, fixed deposits, and life insurance, the sum assured of which should be equivalent to the loan amount.

Education Loan Interest Rates

The interest rates may differ from bank to bank. Some banks charge the interest as per the MCLR (marginal cost of fund-based lending rates). It is the minimum rate of interest that the bank can offer. MCLR has been implemented since April 2016 replacing the erstwhile base rate system to provide a fair rate of interest to the borrower and encourage the lending rates of the banks. Indian banks that charge their interest for education loans following the MCLR system include Andhra Bank and Punjab National Bank. For other banks, the interest levied on education loans is above 10%.

How to Apply for an Education Loan?

You can visit the nearest branch of your bank or even apply online. Some of the banks and financial institutes even facilitate a callback if you put up a query on their website. Digitally upgraded websites even have chatbots who answer most of your queries. Most of the websites also have an education loan calculator which gives you an idea about how much EMI you might have to pay for the amount you borrow from them. Further, for more education loan tips and other details, you can discuss it with the Bank Manager.

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FAQs

Q. When does my education loan EMIs start?

Ans: Banks allow a moratorium of six months to one year of completion of the course before starting the EMIs.

Q. Is my education loan eligible for tax redemption?

Ans: As per RBI rules, the interest amount on each EMI paid for the education loans are eligible for tax redemption.

Q. Are banks the only education loan providers? What are the other avenues for availing of education loans?

Ans: Apart from banks, there are also some NBFCs (Non-Banking Financial Corporations) that provide education loans. These include firms such as InCred, Nomads, Avance, etc.