Education Loan

Quality higher education is very expensive and as a result unaffordable for a large number of people. Education loan can help students cover the cost of their higher education. As per Reserve Bank of India there are two main objectives of educational loans to enable:
1. the poor and needy to undertake basic education
2. to the meritorious students to pursue higher/ professional/ technical education

What does education loan covers?
Education loan generally covers all reasonable expenses involved in the studies:
● Tuition fees
● Exam/ library/ laboratory fees
● Books and equipment
● Hostel fee
● Purchase of computer – essential for the course
● Travel / passage money (visa and permit etc.) for overseas education
● Other related expenses

Who is eligible for student loan?
The general eligibility rules are:
● Student should be an Indian national
● Student must have secured admission to professional/ technical course
● Age of the student should between 16-35 years

What documents do you need to get education loan?
You need three categories of documents covering your academics and the course you want to pursue, your identity details and financial and identity details of your co-borrower. In some cases you also need financial and personal details of guarantor if different from co-borrower (generally parents).

Academic details:
● Admission letter
● Fees and other details
● Marksheets: 10, 10+2, Graduation for PG, PG for PHD

Personal details:
● Identity proof: Passport, Driving license, PAN card of student and Parent/Guardian
● Address proof: Passport / Driving license / Electricity bill / Telephone bill
● Adhaar card of student and guardian

Financial details of Guarantor / Co-borrower:
● Bank statement 6 months
● IT return/ IT assessment order, of previous 2 years (if IT Payee)
● Statement of assets & liabilities
● Proof of income (i.e. salary slips/ Form 16)

Co-applicant/ Co-Borrower for the study loan

Who is a co-applicant or co-borrower for the education loan? And why banks need a co-borrower or co-obligants for study loans?
Co-borrower is somebody who co-signs the loan agreement with the student. In case of study loan co-borrower generally has ability to repay the loan. The co-borrower also guarantees payment of interest during the moratorium period. The objective of bank asking for co-borrower is to secure their loan as co-borrower is a guarantor and even if student changes the address after studies, bank can track the co-borrowers.Generally banks accept family members as co-borrowers.

How much study loan one can avail

What is the maximum amount I can borrow?
● For studies in India the limit is 10 lakh
● For study abroad the limit is 20 lakh
However it also depends on the discretion of banks may consider lending more money in special cases.

What is the margin money for education loan?
Margin money is the the part that student (or somebody on his/ her behalf) needs to arrange. Rest of the money is paid by the bank.
For example, to get a study loan of 4 lakh rupees in India, 20 thousand needs to arranged as margin money.

● No margin money required for upto 4 lakh Rs.
● 5% for studies in India from 4 lakh to 7.5 lakh Rs.
● 15% for study abroad from 4 lakh and above

Is there any processing fees that students need to pay for education loan?
According to RBI guidelines, no processing fees/ upfront fees is charged on education loans.

Security for education loan

Do you need security for the education loan?
It depends on the loan amount. According to RBI guidelines:
 Upto 4 lakh Rs – no security is required
● Above 4 lakh Rs – 100% collateral security is required

What can be collateral security for education loan?
The security can be in the form of land/ building/ Govt. securities/ Public Sector Bonds/ Units of UTI/ NSC, KVP, LIC Policy, gold, shares/ debentures, bank deposit in the name of student/ parent/ guardian or any other third party with suitable margin.

Loan for overseas education or study abroad

Can we get education loan for studying abroad?
Yes you can get loan for overseas education also. 

Moratorium period for education loan

What is moratorium period for education loan?
Moratorium period or ‘repayment holiday’ is the time when student or co-borrower doesn’t have to pay any money or EMIs. The moratorium period starts with the disbursement of money. 

Do you need to pay interest for the moratorium period?
Yes. Moratorium period  is a period which only gives repayment holiday. But the loan keeps incurring interest at agreed rate during the moratorium period. This interest amount incurred during the moratorium period is added to the loan and adjusted by increasing the EMIs during the repayment period.

What’s the moratorium period for education loan in India?
According to RBI guideline, students are given moratorium period of one year after completion of their course. However students need to know that Moratorium period ends after 6 months of joining a job, if it happens to be before one year of completion of the course. 

Some useful tips for education loan selection and repayment 

● check the details of repayment with more than one financial institutions
  ○ educational institutes generally negotiate good interest rates with a bank
  ○ also check the rates with your regular bank

● repayment starts after the moratorium period but you can use that time to create a corpus fund to pay your EMIs later or partial pre-payment

● pay some interest during the study so that EMI is lower because bank keeps adding interest during the moratorium period 

● if you’re going abroad for studies, explore the loan options abroad also because:
  ○ interest rates are lower in some countries eg: UK, US
  ○ some countries have income linked loan payment options, these income sensitive
     repayment options are good for students

● create a fund which can take care of interest fluctuation

Top Loan Provider Banks