Planning to take education loan…read on to get the basics of this facility before you venture out in the market
WORDS: SANGEETA SINHA
Getting education loan is not very difficult as banks do not discriminate between toppers or average students. All that a bank looks for is that you have a strong guarantor and your documents are in order. The student should have an inclination to learn and should have the potential to repay.
Education loan options are plenty and even government is making efforts to make it simpler and easier for students. But before you finally apply for this loan you need to be clear in your requirements.
The most important point is to be sure about the loan amount you would require. The expenses would not only include the course fees but all other costs like travelling, boarding, food, books etc. Check out your own savings and then decide on the loan amount you would require. Students planning to study abroad should check on the currency rate too. Many banks/financial institutions offer loan for full expenses, so if you wish to take loan for all expenses look for banks which cover all.
Once you are sure on the loan amount, the next important point would be to compare the interest rates. Do your homework well and also figure out whether the interest amount will be invariable or will it change according to market trends.
And most important never default in your payments of education loans. If you do that you may have problem getting other loans in future as banks may mark you as defaulter. A default will spoil the credit score of both the student as well as the parents (co-borrower). If your EMI gets over due for more than 90 days the bank classifies the loan as a non-performing asset. In case of higher loan amount (more than 7.5 lakh) even the collateral will be at risk.
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 even have the option of repaying your interest during the study period; this helps lower the EMI. Some banks even give concession to those paying interest during the moratorium period. It is always a good idea to be prepared with a repayment strategy.
Though banks usually grant loan based on the capacity to repay; employment potential of the student is checked but still it may happen that you are not able to get a job. In such a scenario banks have policies for tenure extension but it may be little difficult to convince. As per the guidelines, the tenure can be extended up to 10 years for loans up to Rs 7.5 lakh and 15 years for loans above it.
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.
It is also a good idea to take loans in installment because banks charge interest on the amount of money disbursed. If you have to pay fees semester wise then it will be smart move to take loan when required so that you save on the interest that accumulates.
Lastly, keep all documents related to loan in safe custody.
Vidya Lakshmi is a first of its kind portal for students seeking Education Loan. This portal has been developed under the guidance of Department of Financial Services, (Ministry of Finance) , Department of Higher Education (Ministry of Human Resource Development) and Indian Banks Association (IBA).The portal has been developed and being maintained by NSDL e-Governance Infrastructure Limited. Students can view, apply and track the education loan applications to banks anytime, anywhere by accessing the portal. The portal also provides linkages to National Scholarship Portal.
Now that your loan amount and the interest rate are finalized, it is time to decide on the repayment time. Longer repayment tenures will help if you want low EMI but keep in mind that in case of longer tenure you will have to pay more interest. Make the down payment keeping in mind your budget and paying capacity; certain percentage is decided by the bank which you will have to pay mandatorily.
Education loan sanctioned by any bank remains independent of any scholarship. You are free to apply for any scholarship even after you have the loan sanctioned. The extra in the form of scholarship will help in reducing the loan burden.
Pushkar Karni Sinha, Senior Associate with Legal Consultus, a New Delhi based Law Firm, specializes in Civil, Corporate and Consumer Laws. An alumnus of National Law School, Jodhpur, he practices in the Supreme Court of India and Delhi High Court.
1. How much loan amount can I get?
It depends from bank to bank. However, the banks in India are providing need based education loans. For example, few banks are even providing education loan up to INR 1.5 crores for pursuing higher studies abroad (subject to compliance of Exchange Control Regulations).
2. Any guidelines to students applying for education loan.
The education loan applicants should approach the nearest branch of their choice, preferably where the loan seekers are having their bank account, along with requisite documents. This minimizes the queries with respect to the credentials of the applicants.
Generally, the Applicants need to furnish the following documents along with the completed application form of the student, guardian (when the loan is jointly taken) as well of the guarantor (as the case may be):
» Mark sheet of last qualifying examination for school and graduate studies in India
» Proof of admission to the course
» Schedule of expenses for the course
» Scholarship documents, if any
» Passport size photographs
» Statement of bank account for the last six months of borrower
» Income tax returns
» Government approved proof of residence
3. How is the educational loan disbursement made?
The loan has to be disbursed in stages as per requirement/demand directly to the Institutions.
4. Does education loan also include travelling and other expenses like food, boarding, books etc or only the course fees?
It depends on the bank policies. Some banks even include two wheeler loans in an education loan with some maximum cap.
5. What is the age criteria required while applying for an educational loan?
There is no ‘minimum age criteria’. However, in case of minors, loan will be jointly in the name of parents and the student shall ratify the borrowing by acknowledging the debt on attaining major status i.e. 18 years of age.
6. Is there a penalty for pre-payment?
No prepayment penalty will be levied for prepayment of loan any time during the repayment period.
7. Is education loanee ‘a consumer’?
Yes. A loanee does come within the definition of ‘a consumer’ as defined in the Consumer Protection Act, 1986. An aggrieved loanee may also approach the Consumer Fora under the Consumer Protection Act, 1986 for the redressal of one’s grievance against such Insurance Company.
• A co-applicant is a must, could be a parent or a sibling
• Loans below 4 lakhs do not require a guarantor
• Loans above 4 lakh need a third party guarantor
• Loans above 7.5 lakh need a collateral
• Insurance is mandatory to study abroad
• For studying abroad it is better to look for part time job or sponsorship as the loan amount may not be sufficient.
» Ensure that you have conditional offer of admission before approaching banks
» Look for a bank that offers best moratorium period, less interest rate and customer friendly terms
» Make sure that there are no penalties for prepayments or part payments
» If you have the capability, then it is always a good idea to go for short tenure and higher EMI rather than long tenure with low EMI
» Long tenure loans get expensive as you end up paying more interest
» Try paying the interest part during the moratorium period so that you have less burden later
» Opt for loan in installments so that you save on interest
» Try clearing the loan as fast as possible; use any extra money you earn to make part payments on loan so that you save on interest
» It is better to finish loan in first 8 years if you wish to avail the tax benefits on the interest you pay on your education loan
» The deductions are available only for the initial assessment years and seven years after
» Never default on paying your EMIs; it will hamper your as well as your co-borrower’s credit opportunities later
» And lastly don’t go by the false promises of agents
» Keep all documents handy including guarantor’s financial documents