In today's life to be competent and successful, one needs to have a quality education which comes at a price tag. The rising cost of education at breakneck speed has forced most of the parents to look out for an education loan to cushion their children's educational expenses. For many people, graduating from a top institution is a feet in itself and the cost incurred in studying in some of the reputed institutions is hefty.
Despite the best efforts made by the parents to save money for their wards to provide them with an efficient education in this competitive world some times it is possible to fall short of some money. During this time education loan comes to one's rescue, as it helps to bridge the gap between the shortfall and the needed money.
What is an Education Loan?
The term education loan refers to the sum of money borrowed to finance a school or college-related expenses. Repayment of the loan is generally deferred when the students are studying in school and a six month grace period is provided post-graduation.
Types of Education Loan in India
In India, the types of Education Loan are broadly classified as
- Undergraduate Education Loan
- Graduate Education Loan
- Career Education Loan
Undergraduate Education Loan: It is a loan which can be availed by students who have completed their secondary education and are planning to pursue further courses to enhance their skills for securing a job.
Graduate Education Loan: These loans can be availed by students who are planning to pursue an advanced degree or higher education at colleges. To apply for this loan, students should have completed theirs under graduation courses.
Career Education Loan: As the name suggests, the career education loan can be availed by students who prefer to attend undergraduate career-oriented programmes provided at technical and trading schools and colleges (like ITI) in the country.
How Does An Education Loan Work?
An education loan helps students to cover the expenses incurred for their academic fee and it also covers their non - academic expenses which occur during their tenure as students. The provision of a student loan unlike any other kind of loan comes in with a set of payment terms and the interest will be charged over the initially borrowed money.
An education loan is also known as Student Loan. The EMIs for student loan should be paid over monthly instalments which allows the applicants to repay the loan amount through step - by - step procedure.
Eligibility for an Education Loan
- The applicant should be a resident Indian.
- The applicant should be aged between 16 - 35 years.
- The applicant should have either secured admission in any of the designated educational institution or a college which is approved by the bank.
- Most of the government and some of the top private ones are being recognized by the relevant competent government body and are usually included in the list of approved institutions for an education loan.
Please Note: The education loan covers the complete school fees until the completion of the course and is disbursed to the institution directly from the bank (the money will not be handed over to the students).
Any kind of boarding and lodging expenses incurred by the students (includes relocation to a different city for studies) should also be included in the education loan.
List of Expenses included in Education Loan
A student loan covers almost all kinds of an academic expenses incurred by a student. Almost all the banks in India provides loans which covers both tuition fees as well as other institutional expenses. It is better if students can check before hand if their chosen bank or the financial institution will cover all the expenses or not to avoid inconvenience at a later point of time.
Academic Expenses Covered in an education loan
- Registration Fee
- Tuition Fee
- Capitation Fee
- Examination Fee
- Counselling Fee
- Laboratory Fee
- Hostel Fee
- Library Fee
- Transportation Fee
- Food (Mess) Fee
- Study Visits and Education Tour Fee
Non - Academic Expenses Covered in an education loan
- Building Fee
- Student Insurance
- Refundable Caution Money
- Transport and Commuting Expenses
- Laptop, 2 - wheeler
- Equipment and Project Expenses
- Student Welfare Contribution
- Entrance Exam Fee (GMAT, TOEFL, LSATS, MCAT, GRE, SAT Exam and so on)
- In-Flight Expenses (abroad studies)
List of Things to Keep in Mind Before Applying for an Education Loan
Opt your Institute Carefully
Most of the Indian banks and financial institutions will have a list of accredited universities list and they usually restrict themselves to lend loans to the universities or colleges which are listed with them. They also have a few blacklisted universities for which applications will be rejected. If in case, your chosen institute is not in the list of bank's pre-approved universities then it is better to look out for banks or other institutions who will provide education loan based on the reputation of the institute. Such banks take a note on certain factors like rating, job placement facility, infrastructure into consideration before approving education loan.
Students who are planning to study in India can apply for universities which are recognized by the government, University Grants Commission (UGC), Institute for Mediation and Conflict Resolution (IMCR), All India Council for Technical Education (AICTE) and so on. For those who are planning to study abroad should look for universities reputation and standing.
Maximum Amount for Education Loan
For higher education in India, one can secure a loan of up to Rs 75 lakh with a maximum repayment tenure of up to 15 years. If you are looking for abroad education, then the maximum loan amount available for students is Rs 1.5 crore with a maximum 15 years repayment period.
Interest and Processing Cost
The interest rate for education loan in India stands between 8.50% - 15.20%. Some of the banks provide interest rate at discounted rates if you pay interests on time. Few banks even provides a concession for women applicants at a rate of 0.5 per cent.
One should also check for processing fee which is refundable at times based on the bank from where you are procuring loan amount. Some of the lenders fix processing fee between 1% - 2% of the entire loan amount. In the case of public and private banks, the processing fee ranges between Rs 5,000 - Rs 10,000.
Please Note: One may have to incur additional charges like administration fees and service charges during the loan application process.
Decide on the Marginal Amount
Marginal amount refers to the amount which one needs to pay and it ranges between 5% - 15% based on several factors such as the rating of the institute, location, subject. Bank usually funds 80% - 90% of the total required amount for education the remaining part has to be pitched in by you (or parents) from your saved funds. Some of the banks and financial institutions even offer to foot the entire cost based on the student's academic background and performance over the years.
Collateral And Co-Applicants
As per the RBI norms, if your loan amount is less than Rs 4 lakh, then you need not pledge any collateral nor you will have to arrange for anyone as third party guarantee or as co-applicant. If your loan amount exceeds Rs 4 lakhs, then you may be asked by your bank to arrange for a co-applicant. Banks will seek collateral if the loan amount exceeds Rs 7.5 lakhs.
In case of a student loan, banks usually give a moratorium period (time frame wherein you have availed a loan but has not started for repayment) and hence it is better if you can plan and pay interest during this tenure as interest will accumulate on a simple interest basis during this period. If you start paying your equated monthly instalments (EMIs) during the moratorium period, then you can prevent the loan amount from becoming bigger.
About the Author
Archana is a Content Writer at GoodReturns. She has been writing articles related to investment planning and personal finance for more than two years