Education Loan in India: Facts and Information You Must KnowThe cost of education is increasing exponentially nowadays. In fact, the cost of completing a graduate-level course from a reputable institution is already in several lakhs. Keeping it in mind, couples who want to secure their child’s future and provide them with the best possible education, invest money into fixed deposits (FDs), mutual funds (MFs), unit-linked insurance plans (ULIPs) and other long-term investment schemes. Still, there are scenarios wherein parents eventually face a fund shortage for their child’s education. Thankfully, there’s always the option of education loans, which help fill the difference between the required amount and the shortfall. Let us take a closer look at the education loans offered today.
Education Loan: Scope And EligibilityEducation loans not only have a low rate of interest but also cover most of the related expenses including the basic course fee, college accommodations, and exam fee. In India, low-interest education loans are offered to eligible students who wish to pursue higher education studies in India and overseas. While the maximum loan amount offered varies from bank to bank, it also varies for those wanting to study in India and overseas. To apply, you must be a citizen of India, and have an offer for admission in a college/university, whether in India or abroad. Moreover, you must have completed schooling up to higher secondary. There are banks who offer education loans to students even before they have an offer of admission. Likewise, there are no age restrictions to apply for low-interest student loans, according to the guidelines of the Reserve Bank of India. Finally, you need to provide additional documents with your SOPs such as the admission letter from the institution, complete fee structure, all mark sheets to prove the highest level of schooling, salary slips and income-tax returns (ITR) documents of the co-applicant.
Loan Financing And Collateral RequirementMost banks provide finance for up to 100 percent of the loan, although it depends on the total amount. Moreover, there are no margin money requirements if you apply for an education loan up to Rs 4 lakh. For completing higher studies in India, banks need the applicant to finance 5 percent of the total loan amount. That said, there is a margin money requirement for up to 15 percent, for all applicants going to pursue higher studies outside India. Likewise, the banks also ask for a collateral if the loan amount exceeds Rs 7.5 lakh. Currently, none of the banks ask for third-party guarantee or collateral for loans up to Rs 4 lakh. However, the third-party guarantee is compulsory for loans up to Rs 7.5 lakh. Once your application for higher education is accepted, the bank will disburse the amount to your college/university directly, according to the submitted fees structure.
Offered Interest Rate and Repayment
The banks use the “Marginal Cost of Funds based Lending Rate”, or MCLR, along with an additional spread to decide the interest rate for the loan. In 2017, the additional spread was in the range of 1.35 to 3 percent range. Likewise, the loan repayment starts after the completion of the course, although some banks provide an additional relaxation period of up to 6 months to help you secure a job or up to a year after the course completion for repayment. Usually, the repayment period extends between 5 to 7 years, which can be further extended if seen fit. You must note, here that the banks charge simple interest on the education loan during the entirety of the course. This helps lessen the calculated EMIs on the applicants for all future repayments. However, you must discuss any additional bank charges such as processing charges, late payment fee, and prepayment charges. Most banks include an additional processing fee of approximately 0.15 percent of the total loan amount.