Wish to pursue higher education – in your own country or abroad – in normal institution or premier…focus on your academics, the funds part can be easily managed with easy education loans. But be careful – if not managed well, the education loan can be a source of stress. Learn to manage your loan.
It is important to select the right education loan suiting your requirements; but before you think of that you need to have clarity about the course you want to pursue. The most important thing is to be sure about how well you will be able to use your course to make a career and earn money. Because end of the day, you will need money to pay back your loan. In simple words the course you pursue should be able to get you a job.
Now once you are sure about the course you want to pursue, next comes the choice of institution or university. It is crucial that you do an in-depth research on the country/institution you want to go. There have been cases when students have been denied access to countries because the universities they opted for were under scrutiny. Opting for the right institution will help you avoid unnecessary hassles. Also check on the placement the institution offers. The bank also checks on the credibility of the college and the course and also whether you will be able to secure job after the course.
Applying for an education loan is simple, though different banks have different policies but by and large the scenario remains common for all banks.
• To be eligible for education loan the student must have secured admission to a course.
• Since a student borrower has no credit history he/she is taken as creditworthy.
• A co-applicant is needed; a parent, siblings or even spouse can be a co-applicant.
• Usually for loan amount less than 5 lakhs no guarantor is needed.
• For higher amounts a third-party guarantor is needed; parents cannot be guarantors.
• For loans exceeding 7.5 lakhs you may be asked for collateral.
• And lastly the credit history of the co-applicant and guarantor should be good.
It is important to decide on the loan amount you would require. Your education would include other costs as well apart from course fees. Many banks/financial institutions offer loan for full expenses; look out for such banks if you want all your expenses to be covered. Students planning to study abroad should check on the currency rate too.
The loan amount varies depending on institution, location, course fees etc. but generally as a norm banks offer loans up to Rs 7.5 lakh for courses in Indian colleges and up to Rs 20 lakh for studies abroad. According to an expert from the field the policy for loan amount varies; depending on your course and institute some banks offer higher loan amount. In fact for studies in premier institutes like IIM, IIT and AIIMS some banks offer loan up to 30 lakhs. And for studying in premier institutes in foreign countries banks offer even higher loan amount though you may have to make a down payment ranging between 5-20 per cent of loan amount. Many banks including SBI offer a fully collateralized loan up to Rs 1.5 crore for studies abroad. The loan is secured by movable or immovable security.
Compare the interest rates offered by different banks. Also check whether the interest amount will be invariable or will it change according to market trends.
Make sure you understand how the interest will be charged; daily reducing balance or quarterly reducing balance? Interest is normally charged on daily reducing balance but it is better to clarify with the lender; daily reducing balance is better as you pay only for what you owe on a day today basis says an expert from the field.
Some banks, for example SBI, offer a concessional rate of interest to girl students. Currently SBI offers a concession of 0.5% in interest to girl students, says an expert from the field. So check out the policies of different banks before you take the final call.
It is a good idea to start paying the interest portion of your loan immediately that is if your bank allows that. Banks usually give the option to service interest during studies or capitalize it and repay the whole amount later.
Under section 80E, interest paid on education loan is exempted from Income Tax, i.e. the entire amount is deducted from the income of the Parent/Spouse/ Student paying the interest.
You can also opt to take loan in installments so that you save on the interest. If you have to pay fees semester wise then it is better to take loan when required.
Students are generally not required to pay back till they get employed. Repayment usually starts after the ‘moratorium period’, that is usually one year after end of your course or six months after the job whichever is earlier.
You may choose repayment period up to 10 years after study. Longer repayment tenure will keep your EMI low but at the same time you will have to pay more interest.
Never default on your EMIs. Any default will spoil your and even your parent’s (co-borrower) credit score and you may have problems getting loans in future.
If you default on your EMI for more than 90 days, the bank classifies the loan as a non-performing asset. Your collateral may also be at risk in case of high loan amount.
You should always have plan B in place in case you are not able to secure a job.
Though banks have certain tenure extension policies but it may become difficult to convince. Extension is also allowed in case the student takes up higher studies immediately after completing the course or if the student is unable to complete the course on time for reasons beyond his/her control.