The idea behind education loans is to get a good enough education to get a good enough job with a good enough salary, which in turn enables one to repay that loan. With an education loan, a student can hope to get a better standard of education that they could otherwise afford. A student loan can also make it possible to go aboard for further studies.
State Bank of India, Punjab National Bank, Bank of Baroda, HDFC, Kotak Mahindra Bank, ICICI Bank, Bank of India, Union Bank of India, Axis, Bank of Baroda and others offer education loans. The loan amount can be any amount depending upon the need of the individual. Education loans cover course or tuition fees, hostel or other accommodation, books, exam and miscellaneous study expenses. Some loans will also cover travel expenses (as in the case of students who will be studying abroad.)
Generally speaking, college courses such as undergraduate, graduate, diploma, postgraduate, PhD and doctoral courses can be financed. Students can opt for financing engineering, management, medical, hotel management, architecture, the liberal arts and other recognised courses. In case of a foreign educational institution proof of admission is required. The student’s academic track record is examined as is the course for which loan is sought. The track record and reputation of the educational institution, accreditation and placement record is also relevant.
Whether or not collateral can be offered against the loan will also determine the amount of loan available (usually loans below Rs. 7.5 lakhs don’t require collateral). Availability of parents, guardians or others as guarantors and their financial profile is also taken into account when granting a loan. Students have to provide their relevant mark sheets and other documents. Co-applicant would have to provide IT returns, salary slip and so on.
Generally speaking, students between 18 and 35 may apply for students’ loans. The upper age limit is decided by individual banks. There is no RBI rule that governs this. For education loans of over Rs. 4 lakh, margin money of 5% is required to be provided by the loan applicant. If the student is planning to study abroad, this margin money requirement increases to 15%. Once the loan is approved, the amount of loan is paid directly to the college/ educational institution by the bank. The student is defined as the main borrower and another family member such as a parent, sibling or spouse is he co-applicant. There is generally a grace period (usually 6 months) between the time that one's education finishes and the repayment of the loan starts. This period can be extended or reduced as circumstance dictate (since compound interest continues to be added during this period, many students prefer to start repaying early). The rate of interest may be anywhere between 7% and 15 %. The term of repayment is often between 5 to 7 years, with a maximum of 15 years.
Look out for bank charges, processing fees, late or early payment penalty clauses while opting for the loan. IT deductions (interest amount is deducted from taxable income) are available on education loan repayments for the main applicant as well as the co-applicant. This benefit is available for a maximum of 8 years. Timely repayment of the student's loan will impact future credit scores of a person; determining their ability to take house, vehicle or other loans in future.
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