All about Student Education Loan in India: Check Eligibility, Interest Rate, Loan Procedure, Dos and Donts While Applying for Education Loans

For a complete and successful life, quality education is must for an individual. Many students aspire to graduate from a reputed institution, but the cost of education in such institutes may turn out to be a barrier for many. The cost of education in India has been increasing rapidly. In such circumstances, education loan stand out as one of the best options for students. Most parents who want to provide the best education to their children invest their money in ULIPs (Unit-Linked Insurance Plans), Fixed Deposits (FDs) and Mutual Funds (MFs). Despite such facilities, one may face a shortage of funds. In such circumstances, education loan bridges the gap between shortfall and the required amount.

According to a recent survey, the cost of education across the globe has been increasing at an average of 15% per annum. For instance, the approximate cost of MBA course is up from Rs. 2.5 lakh to Rs. 20 lakh. Now, MBA fees in top B-Schools across India has touched Rs. 15 lakh to Rs. 22 lakh approximately. If a couple starts saving at least 2,000 per month for 15 years, they will be able to save at least Rs. 9.5 lakh. From this example, we can figure out that the cost of education is higher than parents’ income or savings.

In this article, CollegeDekho has come up with all the details associated with education loan in India such as eligibility, documents required, application process, interest rates of popular banks etc. We hope that this explanation will clarify all your doubts pertaining to education loans.

What is an Education Loan?

Money borrowed to finance education expenses is called as an education loan. In other words, education loans are issued to students for pursuing higher studies in universities or colleges. Education loan is the best way to pursue higher studies without getting your finances disturbed. Students can take up education loans for pursuing various courses in India as well as abroad.

What does an Education Loan Cover?

Usually, education loans provided by various banks in India cover the over tuition fees of the course and other related expenses. Today, the education loans offered by some of the popular banks cover almost 100% education-related expenses of students. Here are some of the expenses covered by education loans in India: -

• 100% College/ Course Tuition Fees

• Exam and Library Charges

• Books

• Education equipment such as Computer or Laptop

• Travelling expenses abroad

• Other expenses to complete the course

Eligibility to Get an Education Loan

In India, banks generally provide education loans to students who have secured admission in professional and career-oriented courses such as management, engineering, medicine, architecture, hotel management, pure sciences, arts, commerce etc. at either postgraduate level or graduate level. Students who wish to obtain an education loan must submit the admission letter or offer letter or conditional offer letter to the bank. Without admission letter, it is difficult to obtain an education loan.

Banks consider many factors before granting education loans to students. Some of the important factors are: -

Merit of the Student: Grades or percentage of students, achievements, academic background and recognitions are some of the academic factors considered by banks before processing a loan application.

Course Value: Before approving an education loan, banks consider the value of the course. The value of the course is derived from the educational institution offering the course. Educational institutes recognised/ approved by AICTE/ UGC/ Government of India are preferred by banks.

College Value: Colleges of repute or accredited colleges often hold higher value in processing education loan application of a student. It will help the banks to figure out whether the students will be able to repay the education loan on time or not.

Collateral Requirement: Collateral security is mandatory for the loans that are more than Rs. 7.5 lakh. Education loan without collateral security is only for loans that are less than Rs. 7.5 lakh. However, education loans below Rs. 7.5 lakh need a third-party guarantee. For education loans that are less than Rs. 4 lakhs, no collateral security or third-party guarantee is required.

Co-Applicant: Students applying for full-time courses must note that co-applicant is mandatory to acquire education loans. Co-applicant could be guardian/ spouse (if married)/ parent/ parent-in-law (if married).

Documents Required for Education Loan

In India, many students fail to secure education loans due to incomplete documents. Applicants with all the documents mentioned below will have 100% chance to get education loan in India.

• Admission Letter/ Admission Offer Letter/ Conditional Offer Letter

• A complete break-up of the cost of the course

• Loan Application Form

• KYC Document

• Certificates or Marksheets of Class 10/ Class 12/ Graduation

• PAN Card of Parent/ Guardian and Student

• Aadhaar Card of Parent/ Guardian and Student

• Residence Certificate or Post-paid Telephone or Mobile Bill/ Gas Document

• Bank Account Statement (at least six months) of student/ parent/ guardian/ guarantor

• Statement of Liabilities/ Assets of Parent/ Guardian/ Co-Borrower

• Proof of Income of Parent/ Guardian/ Co-Borrower

• Two Passport Size Photographs

How Many Days Do Banks Take to Approve Education Loan Application?

The timeline for approving and processing education loan application vary from one bank to another. In general, banks will take at least 15 days to convey their decision within 15 days from the date of receipt of application. The education loan will be approved only if the applicant meets all the guidelines and requirements of the bank.

Education Loan Value

• Students who wish to study in India can avail an education loan up to Rs. 10 lakhs with collateral.

• Students can avail loan up to Rs. 7.5 lakh without collateral to study in India.

• Students who wish to study overseas/ abroad can avail an education loan up to Rs. 20 lakh with collateral.

• Students can avail loan up to Rs. 10 lakh without collateral to study overseas or abroad.

Commonly Accepted Collateral by Banks for Providing Education Loans:

The guidelines for providing education loans vary from one bank to other. The approval of education loans also depends upon the creditworthiness of the applicant and past loan history (if any). The commonly accepted collaterals by banks are: -

• Residential Property such as Flat/ House/ Apartment

• FD (Fixed Deposit)

• Life Insurance (Sum assured being at least 100% of the Education Loan amount)

• Land (Non-Agriculture)

Also Read: Education in India Vs Foreign Education

Precautions to be Taken while Applying for Education Loan

While applying for an education loan, one should also make a note of bank charges relating to processing, late payment of EMIs, pre-payment etc. Most banks charge a processing fee of around 0.15% of the loan amount. It is always advisable to avail education loans from recognized banks or agencies.

Interest Rate on Education Loans Provided by Top Banks

Process of Education Loan Disbursal by Banks

Banks have their own education loan structure to disburse education loans. Usually, education loans for students are disbursed directly by the bank to the respective educational institute fully or partially or as per the fee schedule of the respective institute.

Tax Rebate for the Repayment of an Education Loan in India

Interest, which is paid on education loan per EMI (Easy Monthly Instalment), is eligible for deduction as tax rebate under RBI norms. Individuals who avail education loans in India can get an exemption on the interest paid as a part of EMI.

Repayment of Education Loan

Individuals who availed education loans will be given a moratorium period of six months to one year after the successful completion of the course. The moratorium period provided by the banks is also called as the Holiday Period. During the moratorium period, students can search for a job and secure the same.

What to Do and Not Do While Applying for an Education Loan

The most important aspect which people miss out on is what are those things which should be done and which shouldn’t be while applying for an education loan. In this section, we will try to analyse both the aspects as everyone must have an idea that saving for the higher education of the kids can be sometimes not enough even if parents plan for it since the time their kids are little.

Do’s

• Choosing the right course is very important as good courses open the doorways for a better career. It is advisable to not go for a course just because of the availability of loan

• Before taking a loan, try to check what different lenders have to offer along with several other things like repayment options and interest rates. Check out if there are some Government-sponsored loans available as well. You can easily refer to one of the loan comparison sites for the same

• Before applying for a loan, make sure to have thought about how you will repay the loan. A grace period of one year in some cases is provided which has its own advantages and disadvantages (grace period is known as the Moratorium Period)

• The guarantor must have a good credit score while applying for a loan. In this case, the guarantor of a student is usually their parents/guardians and a good credit score will ensure fewer chances of being denied for the loan

• You need to consider the assets which need to be pledged which are done by the bank for security purposes in case the borrower fails to repay the loan

Dont’s

• As mentioned earlier, taking a loan for a course or institution just because of the availability of a loan can create a lot of problems in the future

• Do not opt for “Top Up” education loans, i.e to take loans until the completion of postgraduation as in such cases, the liability increases further. It is sensible to repay the loan taken first before applying for a new one

For Students

• Try to ensure you repay the loan amount instead of your parents/guardians

• Don’t get tempted away by the “Refunds” - money in addition to the tuition fee and go on a spending spree with the refund amount

• If you are a student and want to repay the loan amount, you will have to sign a good number of papers and documents. Just make sure that you read all the terms and conditions and only after understanding every bit, sign them

• If you choose to drop a semester or planning a leave, notify the banks before they mistakenly confuse your absence with absconding

Also Read: B-Schools that are Worth the Debt

To sum up, taking an education loan will not only meet the education expenses of an individual but it also helps in building a good credit score. If an individual repays the education loan on time without any defaults, he/ she will be eligible to get a car loan, home loan etc. easily without any hassles.

All the Best!

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