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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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.
This loan covers the basic fees and other related expenses. Listed below are some expenses covered by education loan scheme:
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.
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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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.
Listed below are some basic criteria that qualify for an education loan:
Listed here is the basic list of the requisite documents that the applicant must submit along with the loan application:
The above is a list of the basic documents required. Banks in their own capacity may request for more documentation and proof.
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.
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.
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:
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:
Listed below are some important tips that you should consider before applying for education loan:
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:
Canara Bank Education Loan
Andhra Bank 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.
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.
The eligibility criteria of education loan are as follows:
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.
The education loans cover the below mentioned expenses:
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.
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.
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.
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.
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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