Education loan
Education is the key to unlock the
golden doors of freedom
-George
Washington carver
Education is necessary for successful
and happy life, but nowadays the cost of education is continuously increasing.
Keeping this in mind many parents invest in number of investment vehicles, like
mutual funds, fixed deposits (FDs), unit-linked insurance plans
(ULIPs) etc. Sometime this also falls short to cover the education expense.
That is where education loan (student loan) steps in. Education loan helps the
student to complete his education and pursue careers that he/she wants.
 |
Who all needs education loan?
Everyone who has limited fund but
boundless passion for studies, who wants to achieve higher education without
any full stop needs education loan/student loan.
What are different types of education loan?
The Student loan can be broadly categorized into
- Domestic education loan
- Study abroad education loan
Education loan can further be categorized based on different
parameters
Based on education course type
- Higher education loan (degree/ graduation)
- Diploma student loan (for diploma courses)
- Professional study loan (for post-graduate/Doctoral/post-doctoral education)
The below categories are also common to
other types of loan.
Based on the security of collaterals/guarantee
- Secured loan: loan which is backed by collaterals, tangible or non-tangible guarantee, third-party guarantee.
- Non-secured loan: loan which is not covered by any guarantee or collateral and hence have high risk.
Based on loan collateral type
- Loan against property: The property can be flat, house, land, agricultural or non-agricultural.
- Loan against deposits: the deposit can be gold deposit, fixed deposit etc
- Loan against securities: securities could be shares, bond, and debentures.
- Loan against third-party guarantee: it involves the certificate of guarantee from the home bank or employer.
The term collateral used above refers to any property or asset that is given to a lender as a backup in exchange for a loan. The collateral agreements allow the lender to take over the asset if the borrower fails to repay the loan.
What all expenses are covered in education loan?
It covers the basic academic fees and other
related expenses such as accommodation, exam, equipments, travel, books and any
essential expense required for completion of course .
Who provides education loan?
Any banking institution that is approved from
Indian banking association (IBA) can provide the loan. The most common
institution that provide the education loan are registered banking institution
and non-banking financial institution (NBFC). Each of them have their own pros
and cons.
What to choose bank or NBFC?
I will discuss pros and cons of each which will
help you to take a better decision.
|
Parameter |
NBFC |
BANKS |
|
Course flexibility |
Non banking financial institution are relative more
flexible in this regard. They offer loan for broader range of courses across
the globe. |
Most of the bank provide loan for courses from
non-vocational stream like graduate, post graduate, diploma and that too from
reputed university and institution in India and abroad. Some nationalized bank may offer loan for vocational course
but that is on case to case basis. |
|
Loan coverage |
Both Bank and NBFC stands equal in this regard. Both of
them covers
|
|
|
Loan procurement |
NBFC have relatively relaxed rules and regulation. Loan is
possible for offbeat courses chosen by student. |
Bank has more stringent rule and regulation and offer loan
only to those courses that has promising job prospects. |
|
Processing time |
NBFC in general gives fast approval on loan no matter which
ever course you choose. |
Bank gives quick approval for recognized courses. Private bank approves loan fast than public bank. Public bank also give fast approval but on the basis of the
relationship the costumer have with the bank. |
|
Processing fees |
Around 1-2% |
Around 0.5-2% |
|
Government subsidy |
Not applicable |
All bank offer interest rate subsidy to support weaker
section of society. These subsidies are applicable during moratorium period. |
|
Security collateral |
Individual needs to provide with the collateral security to
NBFC based on the loan amount borrowed and also based on the credit history. |
Based on the loan amount borrowed by the individual, he
needs to provide the collateral security to banks. For loan amount less than 4 lacs no collaterals are
required. For amount between 4 lakhs and 7.5 lakhs third party
guarantee is required. For loan amount greater than 7.5 lakhs tangible collateral
are required. |
|
Loan amount |
NBFC do not have any kind of upper limit on loan amount
based on course and student needs. |
Bank impose a upper limit on the loan amount that person
can borrow based on the course and university selected. |
|
Charges |
In both the case borrower need to pay charges like processing charges, documentation charges, bounce
charges, swap charges, prepayment charges, late penalty charges, etc. |
|
|
Moratorium period |
6 months |
6 months to 1 year |
|
Repayments |
Repayment can be done within 7 years. The interest
repayment starts during moratorium period where as principal repayment starts
after the student have got the job. |
|
|
Interest rates |
Interest rates are dependent on the current base rate of
the bank. Educational loan offered by NBFC are with floating interest
rates |
Interest rates are dependent on the current base rate of
the bank. Interest rates of education loan I roughly around 10-17% |
|
Document required |
ID Proofs Residence Proofs Signature Proofs |
Personal
details
Other
details
|
|
Additional services |
Pre-visa or pre-admission loan sanctions,
fast-track loans, bridge loans, GRE score based loans and certificate of
availability of funds. |
Customized loan package as per the requirement of the
individual Pre-visa/ pre-admission loan sanction. |
|
Pre-closure charges |
May have pre-closure charge based on the reason for
closure. |
Do not have any such charges as per the guide line of the
Reserve Bank of India. |
|
Benefits for women |
May or may not have concession for women. |
Mostly have concession for women borrowers. |
Key take away
|
Registered banking
institution. |
Non-banking
financial institution (NBFC)
|
|
It has low interest rates, long loan tenure and also have Interest Rate subsidies
and tax rebates
|
It has high interest rates, strict repayment timeline, may
or may not need collaterals and they have high processing fees. They can
provide high education loan amount and take low processing time. |
Factors to check on an education loan
While going for education loan you need to check few points
- Study loan interest rates
- Study loan eligibility criteria
- Collateral requirements
- Loan repayment conditions
Loan Interest rates
The
percentage of the borrowed principal amount that is charged from the applicant
is the interest rate. In India the interest rates are floating and changes as
per the regulation of IBA (Indian Banking Association) and RBI (Reserve Bank of
India). Most banks charge a basic percentage over the MCLR (Marginal Cost of
fund based Lending Rates) as the interest rate. The interest rates of some of
the popular banks in India are as follows.
|
Bank |
Interest Rate: Domestic Education |
Interest Rate: Foreign Education |
|
ICICI Bank |
11.00% |
11.50% |
|
Punjab National Bank |
10.35% |
11.10% |
|
HDFC Bank |
10.25% |
11.88% |
|
State Bank of India |
10.14% |
10.70% |
Few
other details
|
Education loan duration (domestic/foreign) |
Min: 1 year Max: 20 years |
|
Maximum loan amount for domestic education |
Min: INR 20,000 Max: INR 45,00,000 |
|
Maximum loan amount for foreign education |
Min: INR 1,50,000 Max: 1,50,00,000 |
Loan Eligibility criteria
Education
loan is provided to only those students that show the potential to pay back the
loan amount back in the future. As a result of which bank has certain
eligibility norm that the applicant must fulfill to get the loan.
The
most basic eligibility criteria are that the student must be a resident of
India and he/she must have a co-applicant that can be
parents/guardian/spouse/parents in law.
Education
loan eligibility criteria in India
|
Eligibility type |
Details of loan eligibility |
|
Course-based eligibility |
|
|
Age-based eligibility |
|
|
Institution-based eligibility |
|
Education Loan eligibility criteria of some popular banks of India
|
Bank Name |
Education Loan eligibility |
|
Axis Bank
|
|
|
|
|
Eligible courses: Graduation, post-Graduation
and onwards Technical/Professional Courses Certified by
UGC/AICTE/IMC/etc. Indian national
|
|
|
HDFC
Bank |
|
Education loan repayment process
Education
loan is same as other loan, where the applicant needs to pay the EMI back. The
applicant can choose between the tenure of the loan shorter the tenure higher
the EMI, longer the tenure shorter the EMI. Few other details that you need to
know are
Moratorium period
In
India the EMI will start after the applicant has completed the education or has
got the successful employment.
Time
period: - course duration + the 1st year of employment + 6 months
Student loan EMI
The EMI contain 2
parts the interest amount + the principal amount.
Student
loan EMI = (the annual interest on the total principal amount/12) + principal
amount adjustment
Education loan part-payment
Student with extra fund can deposit
in the bank to make a reduction in principle amount and reduce the burden of
EMI.
There is no limit to pay fixed EMI, the student can pay higher
than the EMI amount with no limit. The applicant should check with their bank
for this service.
Education loan pre-payment
The student who is able to arrange
for the due amount can choose to repay the loan prior its tenure.
It may or may not involve some processing fees.
It
is not allowed during the moratorium period.
The
applicant needs to check with the bank for the limit of repayment.
Education loan extension
The applicant can choose to extend the tenure of the loan to lower the EMI
which help the student to manage the loan more effectively. This extension can
be done in two ways
Decrease
the EMI: - loan can be extended to lower the EMI amount.
Increase
in principle amount: - the loan can be extended for borrowing more amount from
the bank.
Education loan refinancing
The addition to education loan can
be done as per the requirement. Students wishing to continue
their education or seek more funds can present their existing student loan as
proof for refinancing
How to apply for education loan
Education loan can be applied by online or offline channel. The process consist of 5 steps
- filling application form
- interview round
- submitting documents
- loan approval
- loan disbursal
few popular institution that provide education loan in Mumbai
Eduloans :- it is a free platform that connect student
aspiring for higher education with the potential financial institution,
investor, or any other such sources. For more information you can visit their
website https://www.eduloans.org/
State bank of India: - All technical, professional graduate and post graduate degree
courses along with certain diploma courses at reputed institution are financed
here. SBI also finances courses offered by chartered institute of management
accountants (CIMA), London and the certified public accountant (CPA), USA.
The maximum amount provided is 30 lakhs with security/ collaterals required only for amount more than 7.5 lakhs. You can find more information here
https://www.bankbazaar.com/sbi-education-loan.html
Tata capital personal loan: - tata capitals provide personal loan between 75,000 to
25,00,000 with no security required. The plus point here is that, they don’t
charge processing fees, have quick disbursal of loan amount, They also have
flexible repayment plan. Find more details here https://www.tatacapital.com/personal-loan/education-loan.html
There are many other platform from which you
can get education loan like HDFC bank, Axis bank, Canara bank, Bank of baroda,
Avanse financial service, IDBI bank, Punjab national bank.
What is vidyalakshmi ?
Vidya lakshmi is unique portal for all
the students seeking education loan. This portal is developed under the
guidance of department of financial service (ministry of finance), department
of higher education (ministry of education) and Indian Banks Association. This
portal is maintained by NSDL e-governance infrastructure Limited.
The benefit of this portal is that the
students can apply and track the loan application to banks anytime, anywhere.
You just need to register on the portal, fill the Common Education Loan Application Form (CELAF) by providing
all the necessary details
and you can apply to multiple banks. There are 38 banks registered and 127 loan
schemes on this portal.
How much education loan can you get?
The loan amount that you can get
varies with each bank and institution but generally the its maximum 10 lakh for
studying within India and 20 lakhs for studying abroad.
Can you get education loan at 0% interest rate?
Technically the answer to this
question is no, but you can find ways to come around this problem.
You can reduce the burden of interest
by availing scholarship and grant. Many institution like Tata trust, K C
Mahindra have given education loan at 0% interest rate. if your family income is
less than 4.5 lakhs then you may get government subsidy on interest rate for
moratorium period.
Conclusion
Education is important for happy and successful life. Having the choice of education loan to choose from will help student to reach their desired goal and careers.
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