Abhinav, a student with a brilliant academic track record, was hoping to seek admission in a well-recognised institute of management. For a brilliant student, it’s easy to land a seat in a good institute for higher studies. But when it’s about funding the high fee structure, it can be bit difficult for a student with limited funds. This is exactly what happened to Abhinav. He was happy with the admission letter in hand, but the fee structure worried him.
Abhinav and his parents went from bank to bank, trying to get a loan so that he would not miss out on the opportunity. They had a very tough time securing a loan as they had very little knowledge about Education Loans.
The information mentioned below will help you avoid problems like these!
What is an Education Loan?
An Education Loan is a source of finance which is used to pay for course fees, books, accommodation, travel abroad and other education related expenses. The basic difference between an Education Loan and other loans is the lower interest rate and deferred repayment schedule.
Eligibility: Who is eligible? And for what kind of courses?
A person who fulfils the following criteria is eligible for an Education Loan
- An Indian national not older than 30 years
- Having an admission letter from a recognized institution
Approved graduate/ postgraduate courses, diploma courses, management courses, professional courses, technical courses of recognised colleges/universities/institutions.
Range for Loan Amount
- Up to Rs. 10 lakh for education in India (may go up to Rs. 15 lakh)
- Up to Rs. 25 lakh for education abroad (may go up to Rs. 30 lakh)
Cost of finance (Or the Interest Rate)
This will determine how much the loan will cost you.
Interest rates vary from lender to lender, but one can find something in the range of 11% to 15%, depending upon the tenure of loan, course, institution, etc.
Interest rates can be floating (changeable in the future) or fixed. Depending on your need, you can choose one that suits your budget. Different banks offer different rates of interest, so don’t rush into choosing the loan and do your research before deciding on a bank. Also check for other costs such as processing fees and prepayment fees among others, especially when applying for a loan from a private sector bank.
Usually the tenure of a loan is between 5 to 7 years. But it can be extended up to 10 years if the loan amount is below Rs. 7.5 lakh and up to 15 years if the loan amount is more than Rs. 7.5 lakh. Currently, a tenure of 10 to 12 years is a norm.
The difference between the amount you applied for and the amount disbursed by the bank is referred to as margin money. Suppose, you applied for an amount of Rs. 5,00,000 and the bank provided you with Rs. 4,75,000. This means the bank kept Rs. 25,000 as margin money.
The margin money retained may vary from bank to bank. 5% on domestic Education Loan and 15% on overseas education is the general norm. No margin money is required for a loan of up to Rs. 4 lakh.
Don’t forget security for your loan, as banks never forget this.
- Up to Rs. 4 lakh – no collateral. Two signatures are required on the documents – yours your parent’s
- Between Rs. 4 lakh and Rs. 7.5 lakh – collateral will be a third party guarantor to the bank.
- Above Rs. 7.5 lakh – collateral will be the documents of a physical property, such as documents of an immovable property.
Moratorium on Repayment (holiday period)
The holiday period to begin repaying the EMIs on an Education Loan –The best part about an Education Loan is that you are not required to start repaying until after the completion of your course. Generally, EMIs begin 12 months after the course completion or 6 months after getting a job, whichever is earlier.
- Full time courses are preferred by banks over part time courses.
- Interest on Education Loan is eligible for tax deduction under section 80E of the Income Tax Act. Don’t miss filing it in your Income Tax return.
- Education Loans require around 15 days to get sanctioned.
- In most cases, the payment is made directly to the educational institution but banks may transfer the loan amount to your account as well.
- Documents Required – Admission letter from the institute, marks sheets, fee schedule, statement of assets and liabilities, ID proof, address proof, signature proof, passport and visa in case you are going abroad
There’s no question about the importance of education. However, financial constraints can sometimes be a problem. Fortunately, these can be dealt with the help of Education Loans. However, make sure that you do proper checks to avoid spending more than you should on your loan.