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Education loan in India: Here's All You Need To Know Research Team | Posted On Tuesday, October 16,2018, 04:05 PM

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Education loan in India: Here's All You Need To Know



Pursuing higher education is one of the main aspirations of crores of citizens in India. Over the years, cost of education is increasing rapidly. A quality education in India or at a foreign institution can leave a huge hole in your pocket. Parents who want to provide their children with the best education either save money or make long term investments. But, even after this, an individual may face shortage of money for a quality education. In this scenario, an education loan comes handy in arranging funds for a quality education to help achieve a good career.

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Education Loan In India: Here's all you need to know

What is education loan?

An education loan is a type of loan, tailor made to suit the needs of students. An education loan is the money borrowed to finance and manage the costs of higher education. The amount borrowed can be repaid over time along with interest. The special benefit of education loan is that the repayment process starts after the completion of the course. You also have a moratorium period where you enjoy a repayment holiday and make repayments one year after studies or 6 months after getting a job, whichever is earlier.

What does education loan cover?

This loan covers the basic fees and other related expenses. Listed below are some expenses covered by education loan scheme:

  • Tuition and course fees
  • Caution deposit
  • Cost of book, equipments and other instruments.
  • Travel expenses and passage money for abroad studies.
  • Other expenses required to complete the course like study tours thesis or project costs.

Who can apply for the education loan?

Any individual who wants to pursue higher education in India and overseas can apply for this loan. The maximum amount that can be borrowed varies across banks and depends on the kinds of courses, the applicant enrolls for. No collateral is required for availing an education loan. However, parents, siblings or the guardian will have to execute the loan as a co-borrower.

Whom is the loan offered to?

The loan is offered to an applicant who wants to avail quality education. The applicant must be an Indian national and should have secured admission in a recognized educational institution. The amount of money sanctioned and the duration of repayment depend on the course or the program enrolled for.

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Types of courses covered under education loan:

The education loan can be availed for various types of courses. However, there are different categories of educational loan that can be availed:

1. Loans for vocational training: these are skill development courses of 2 months to 3 years run by the government or an organization supported by National Skill Development Corporation.

2. Students education loan: this kind of loan covers any graduation and post-graduation courses approved by the government of India, UGC, AICTE, and IMC. Teaching and nursing courses and pilot training and shipping courses are covered under this loan. Courses offered by the universities abroad are approved under this loan.

Educational Loan Eligibility Criteria:

Listed below are some basic criteria that qualify for an education loan:

  • The applicant must be a resident of India.
  • The applicant must secure admission in a recognized educational institution.
  • If the applicant is a non-resident Indian (NRI), then he must have a valid passport.
  • No collateral is required for a loan of up to Rs 7.5 lakhs. For a higher loan amount the applicant must provide a collateral/ security that is enforceable in India.
  • The applicant must complete his higher secondary level schooling.
  • As per RBI guidelines, there are no restrictions on the upper age limit but some banks may have it.

Documents required for educational loan:

Listed here is the basic list of the requisite documents that the applicant must submit along with the loan application:

  • Completed loan application form
  • Documents of proof of age (self-attested)
  • ID and address proof
  • Passport sized photo of the applicant and the guarantor
  • Copies of highest educational qualification.
  • Proof of income (IT returns of parents/guarantor)
  • Six months bank statement ( applicant / parent / guarantor)
  • Details of collateral security (if applicable)
  • Passport /visa-copy, airfare costs as established documents for studies abroad.

The above is a list of the basic documents required. Banks in their own capacity may request for more documentation and proof.

Interest on education loan:

In India, the banks offer education loans at a percentage above the existing MCLR. This is 1-2% above MCLR called spread. Education loans are around 11% - 15% a year.

Repayment of education loan:

Education loans come with a special benefit of repayment after the completion of the course. Banks have a moratorium period for the education loan. The repayment tenure is generally 5-7 years. Throughout the course period, the bank charges simple interest on the loan. The payment of simple interest during the course period lessens the EMI burden on the student on future repayments.

Comprehensive Educational Loan Scheme: Government of India

The Government of India and the HRD Ministry has launched certain schemes to fund the education of students in India. The schemes are aimed towards helping the meritorious students avail loans at a reasonable interest rate. There are also certain educational loans or schemes that help in funding the education of economically and financially weaker students, thus enabling them achieve educational goals.

Some of the comprehensive government educational loan schemes are as follows:

  • Vidya Laxmi Educational loan scheme: Vidya Lakshmi Portal is an education Loan Portal managed by NSDL e-Governance Infrastructure Limited, Mumbai. Under this, any student can have access to Education Loans. The Portal is linked with Scheduled Banks. The Portal is a gateway to the Banks through which the student can access loans. The portal has the facility of tracking the Education Loan right from the inception of loan application to the sanction of loan.
  • Padho Pradesh scheme: The objective of the scheme is to award interest subsidy to meritorious students belonging to economically weaker sections of notified minority communities. The scheme is aimed at providing better opportunities for higher education abroad and enhances employability.
  • Central scheme of interest subsidy for education loan: Under this Scheme, Interest Subsidy is given during the moratorium period which includes the Course period plus one year on Education Loan taken from the Scheduled Indian Banks under Model Education Loan Scheme. The scheme provides loan to students belonging to economically weaker sections whose annual parental income is up to Rs. 4.5 Lakh from all sources. The subsidy is allowed for undergoing recognised Professional or Technical courses in recognised Institutions in India.

Conditions to apply for education loans in India:

Before zeroing on any loan, the applicant must go through the various aspects of the loan. You must go through the list of all the education loans offered by different banks and financial institutions. Compare and choose the one that best suits your needs. Look out for bank charges like processing fees, prepayment charges, penalties for late payment and EMIs.

There are some basic criteria that need to be fulfilled while taking an education loan. They are as follows:

  • The main factor that determines an education loan is the fees. Therefore the factors that you should consider before applying for the loan are the fees of the course to be perused and the applicant’s annual family income.
  • There must be a co-applicant. The co-applicant executes the loan as co-borrower who can either be parent or sibling of the applicant.
  • If the borrowed amount is below Rs 4 lakhs, then the applicants do not require submitting any security to avail the loan.
  • For loans above Rs 4 lakhs there should be a third party guarantor.
  • For a loan amount of more than Rs 7 lakhs, collateral must be submitted as security against the loan.
  • For students pursuing education abroad the money sanctioned is not sufficient. A student must look for a part time job or scholarship to cover the additional costs related to the course.
  • Insurance is compulsory for students studying abroad.

Important tips before applying for education loan:

Listed below are some important tips that you should consider before applying for education loan:

  • Before applying for the education loan carefully evaluate the liabilities of your family. You should consider the financial capabilities of your family and then opt for the education loan.
  • Carefully study and understand all the conditions to apply for in an education loan. Also compare the different banks and choose the most favourable bank. It is essential to evaluate and study all aspects of the loan as it is a long term loan.
  • When you finalize the bank from which you are about to take the loan, 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 choose the bank which provides the facility for expansion of the repayment in case of delay under unforeseen circumstances.
  • Applicant belonging to economically weaker backgrounds should opt for government controlled banks as they offer certain benefits in the form of interest or subsidy for these students.

Popular banks offering education loans in India:

In India different banks and NBFCs offer varying rates of interest for availing education loans. Listed below are some popular banks offering education loan. Also listed are the education loan interest rate for the amount of loan availed.

The banks uses the Marginal Cost of Funds based Lending Rate (MCLR), plus an additional spread to set an interest rate. Presently (in 2017), the additional spread is in the 1.35% to 3% range. 
SBI Education Loan:

  • For loans up to Rs 7.5 Lakhs the rate of interest charged is 10.15% per annum.
  • Above Rs. 7.5 Lakhs the rate of interest on education loan is 10.90% Per annum.

Canara Bank Education Loan

  • For loans up to Rs 4 lakhs the rate of interest is 10.40% per annum.
  • For loans up to Rs 4.0 to 7.5 lakhs - 10.40% per annum.
  • For loans more than Rs 7.5 lakhs the rate of interest on education loan is 10.20%  per annum

Andhra Bank Education Loan

  • For loans up to Rs 7.50 Lakhs,  the rate of interest  charged are  Base rate + 2.75%
  • For loans above INR 7.50 Lakhs the applicable rates are base rate + 1.50%
  • The base rate is 10.25%

Tax benefits on education loan:

Tax benefits can be claimed on education loans under Section 80E of the I-T act that allows deductions on the interest paid on repayment. The deduction is allowed only for individuals paying the interest on for himself, spouse or children or for the student to whom you are the legal guardian. The deduction is allowed for a maximum of 8 years. The principal amount does not qualify for any tax deduction.

Education is a basic need and right of every individual. Quality education also requires a long term investment. Quality education is a privilege and is only imparted by acclaimed educational institutions, putting it out of reach of those who cannot afford to pay high fees. Education loan is the solution to such a problem as it provides the necessary funds to meet education costs.

FAQ On Education Loan

Why do you have to choose education loan rather than a personal loan?

Education loans enable students to pay for higher studies like graduation and post graduation courses, both in India and abroad. Apart from covering the tuition fees and other related expenses, the repayment of the education loan starts only after the completion of the course. The repayment period of personal loan starts immediately after the sanctioning of the loan. The rate of interest of personal loan is higher than education loan.

 Who is eligible for an education loan?

The eligibility criteria of education loan are as follows:

  • The applicant should be an Indian citizen
  • The age group should be between 16-35 years
  • There should be a co-borrower for the loan
  • The applicant should have confirmed admission in a reputed educational institute while applying for the loan.

What are the courses for which an education loan can be availed?

Education loan can be availed for all courses recognized by the UGC in case of India and all regular courses abroad. Each lender has its own list of educational institutions and courses that they would provide a loan for whether overseas or within India.

What are the expenses covered by education loans?

The education loans cover the below mentioned expenses:

  • Tuition fees and hostel charges
  • Exam, library, and lab fees if applicable
  • Any refundable caution money paid to the educational institute
  • Cost of books, uniforms, and other essentials for completion of the course
  • Travel expenses like return fare for international flights
  • Other expenses like cost incurred on study tours, thesis or projects.

Is a co-applicant for education loan needed?

Yes, for all full-time courses a co applicant is required. The co-applicant can be Parent or Guardian. For married people, spouse can be the co-applicant.

Is there a maximum limit on an education loan that a lender can disburse?

Most banks have a maximum limit of Rs 10 lakhs to Rs 15 lakhs for applicant’s pursuing education in India, while the maximum limit on education loans for overseas studies is between Rs 20 lakhs to Rs 30 lakhs.  The applicant can get a higher loan amount sanctioned provided bank-accepted collateral is provided.

What is the tenure of an education loan?

The repayment tenure for an education loan is between 5-7 years for most of the banks. However, some lenders can offer a longer repayment period of up to 15 years in case of higher loan amounts.

What is the maximum loan amount one can get for overseas studies?

Banks generally cover up to 90% of the education expenditures through loans and some banks even provide loans that cover up to 100% of education expenses. However, the exact loan amount an applicant is eligible for depends on various factors including the monthly earning of the parent, the value of collateral provided, the academic record of the applicant and other factors.

Does an education loan require security or collateral?

The collateral required to avail an educational loan varies from bank to bank. For loans up to Rs 4 lakhs no collateral is required. For loans above Rs 4 lakhs, collateral or third party guarantee is required.

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