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Pursuing higher education from a top and reputed institution has become a necessity for any individual as it leads to a successful life. However, with increasing cost of quality education and evolving scenarios, it has become an uphill task to totally fund your education cost by yourself or with the help of your parents. You have to look for alternatives, such as applying for scholarships or go for an education loan.
Receiving scholarships are difficult, as you have to be extra meritorious to that’s when you stand a chance to qualify. But for an education loan, the process is a whole lot simpler and you can continue your education without the need for extra concern which we will discuss later in the article.
Education loan is given by banks and NBFCs and is applied for by students along with parents and third-party guarantors in certain cases. Education loan covers all the expenses incurred for studying the course which includes admission fees, tuition fees, library fees, exam fees, and boarding and lodging expenses, computer and other expense heads.
In India, higher education in a top institute can cost somewhere between Rs. 10 lakh and Rs. 30 lakh, while it can cost at least Rs. 30 lakhs if you are considering to study in any foreign university. A bank generally funds up to 90 per cent of the cost of the course fee, and rest 10 per cent should be paid by the loan applicant. But, there is also a limit on the maximum loan amount that a bank can approve. For studies in India, the maximum loan amount that can be availed is upto Rs. 10 lakh while for studies abroad, maximum Rs. 30 lakh is offered. However, this minimum and maximum amount might differ from bank to bank or lender to lender.
Loans from public sector banks are offered in three categories:
Loan amount up to Rs. 4 lakhs, your parents will serve as co-applicant.
Loan amount between Rs. 4 lakh & 7.5 lakh, your parent will be co-applicant and a third-party guarantor is required.
Loan amount over Rs. 7.5 lakh, banks will additionally ask for collateral.
The applicant for the loan (here the student or parent) can claim a deduction on the total interest part paid of the loan under Section 80E of the Income Tax Act, 1961.
The loan amount is released in instalments and is directly credited to the institute's bank account. The release of the loan amount is scheduled as per the due date of the payment of the fee. Through this, the interest is charged only on the amount released till date, not the sanction amount.
Having an education loan to fund your studies allows you to pay back the sum after the completion of the course. This doesn't put an extra financial burden on you or your parents and you will able to focus on your studies.
The repayment of loan can start as soon as you complete your education or you can select a moratorium period of 6 months which is generally offered by banks before you start your repayment.
You can also choose to pay the interest amount right from the disbursal of the loan which will help to keep the total loan amount fixed and you don't end up paying interest on interest.
It helps to develop a financial responsibility of the applicant at the initial stage of the career which will help in the long term. Also, regular payments of EMI will help to further improve your CIBIL credit score, thereby helping banks to lend you without any issues in the future.
There are multiple benefits associated with taking an education loan to fund your education as discussed above, but one major benefit is the sense of self-dependence. Education loan imparts responsibility upon students to take pay for their own studies.
Secondly, taking education loan strikes out the necessity to disturb your investment, retirement or retirement corpus that helps to keep your financial goals aligned. There are other multiple benefits which include:
From April 2016, RBI has implemented the marginal cost of lending rates (MCLR) regime on education loans. The bank uses a one-year MCLR plus margin (spread) to set an interest rate and the spread ranges between 1.35% to 3%.
Women borrowers are entitled to a concession of 0.50% in interest rate.
Education loan is provided by almost all public and private sector banks and select NBFCs.
Banks sanction education loans as per the guidelines set by the Indian Banking Association, but in the case of NBFC, the applicant can expect some amount of flexibility in respect to terms & conditions. Top NBFCs that offer education loan are:
HDFC Credilla is India's first dedicated education loan company providing loans to fund studies in both India and abroad. Its dedicated team helps you out at each and every step to obtain an education loan without much hassle.
Till date, it has approved loans for students studying in over 35 different countries and 2100 plus institutes covering 1000 plus courses.
Avanse offers loans on both unconventional and vocational courses like data science, new age technology, photography, music, animation, sports engineering, etc.
It approves loan amount according to the need of the applicant with no binding on the upper limit.
Tata Capital also offers customised education loan solutions with minimum documentation and a strong support team.
Complete the loan application form of the desired bank or NBFC you would want to apply for.
Two Passport size photographs of applicant, co-applicant and guarantor.
Self-attested copies of PAN Card, Aadhaar Card, Address Proof, IT Returns of co-applicant, Income Proof and all the other specified documents.
Copies of higher education qualification (Secondary, Higher-Secondary, Degree, and Post Graduation).
Letter of Admission from the institute.
Submit the filled-in loan application form with all the specified documents to the loan officer or executive of the bank or NBFC. If it matches the requirement of the bank, the officer or executive will forward it for the next stage of approval.
Who is eligible for an education loan?
To be eligible for an education loan, you must be an Indian citizen and have secured admission into an institute/college recognised by the competent authority on India (UGC, AICTE).
The age restriction differs from banks to NBFC which is generally between 18 years to 35 years with most of them.
Is a co-applicant for education loan needed?
Yes, if you don't have a steady flow of income. In most cases, your parents or guardian and spouse (if married) can become co-applicant. Co-applicant should have a steady source of income which increases the chance of successful application.
What is the tenure of education loan?
Usually, the tenure of education loan ranges between five to seven years, but can be increased to 10 years for a loan amount of up to Rs. 7.5 lakh and 15 years for a loan amount higher than Rs. 7.5 lakh.
Is there a margin on education loans?
Yes, margin money is required in education loans and the applicant needs to finance the 20 per cent of the course fee with their own funds. Rest 80 per cent can be financed from the bank
Is there a processing fee involved in the approval of education loan?
Banks and NBFCs generally don't charge processing fee on education loans, except when the loan is applied for funding studies abroad.
Can a student avail two successive loans for further studies and how will the repayment work?
Yes, a student can be availed for two successive loans, for instance, the first loan for bachelor's degree and second loan is for master's without repaying the first. In this case, the second loan can be taken as a top-up loan against the already existing loan. But the approval of the second loan is subject to the bank's discretion and internal policies.
Can NRIs apply for an Education Loan?
Yes, but this is subject to certain conditions. First, he/she needs to be an Indian passport holder meeting all the eligibility requirement. Second, the collateral which is applicable in India should be handed over to the bank.