The education loan provides financial assistance to the student for completion of his education. The education loan helps the student to meet most of his major academic expenditures.
This article will help you to understand about education loan, it’s advantages, process, types, loan repayment etc.
What is education loan?
It is the loan provided by the financial organisation to the student to meet their academic expenses of higher education.
Generally banks provide education loan with less interest rate in comparison with other loans. Some of the banks also promotes the girls education by providing special concession in interest rate for female applicants.
The education loan also has the facility of moratorium period in which the applicant can find the job before starting repay tenure. This type of loan also requires co-applicant with sure income source as in this case the student is considered as applicant who don’t have any income source. The parent or guardian of applicant can apply as co applicant for education loan.
The education loan is provided with or without taking collateral. If the loan amount is less then the bank never ask for collateral but if the loan amount is more then the lender may ask for the collateral.
Which expenses are covered in education loan?
The sanctioned loan amount for the education loan can be used for following expenses:
1) Tution fees
2) Hostel stay
3) Library fees
4) Travel expenses for student in abroad
5) Books and other expenses
Most of the lenders offer the the education loan for such a major expenditures.
Factors to be consider while choosing the education loan:
It is necessary to choose the right plan for the education loan which will be affordable in case of interest rate and other services. The applicant willing to take education loan can use following factors to check the proper plan for education loan.
1) Loan amount: The maximum limit of education loan is different as per the different lenders. Some of the lenders provide maximum loan for the students studying abroad. Hence while choosing lender it is necessary to check that the loan amount can meet your all educational expenses or not.
2) Rate of interest: The rate of interest also varies for different lenders hence the applicant has to choose the lender which offers lower rate of interest so that we can reduce the burden of interest. Along with rate of interest it is also necessary to check the method of interest calculation. The flat rate method applies the interest rate on the complete capital amount while in case of reducing interest method interest is applied onto the monthly reduced balance.
3) Processing fees: It is also necessary to check the processing fees charged for the education loan. some of the bank charges the processing fees in the form of percent of your loan amount.
e.g. For the sanctioned loan amount of 400000 if the bank charges 1% of processing fees then the applicant has to pay 4000 as processing charge.
As well as some of the lenders offers no processing fees for studying in own country.
4) Moratorium period: It is not easy to get job immediately after completion of course therefore in such condition the moratorium period is provided by the bank in which the applicant don’t have to pay EMI to the bank. After moratorium period is over the applicant has to start paying EMI of the education loan. Therefore while choosing plan the applicant has to check for the suitable moratorium period.
5) Repay tenure: The applicant can get the maximum repay tenure up to 15 years and this period is different for different banks. The longest tenure period lowees the EMI cost but increases burden of interest on EMI while the shorter tenure can minimize the interest amount but the EMI cost is more. Therefore the applicant has to choose the suitable tenure period as per his repay capability.
These points will help you to choose the proper education loan plan which will be affordable to you.
Repayment of education loan:
After the completion of course the bank provides moratorium period to the applicant for the job search. If the applicant get the job within this moratorium period then he/she can start the process of loan repayment. For starting the repayment of loan the borrower has to meet the lender representative who will suggest you the prpper EMI based on your salary. After that you can start the repay in the form of EMI.
Eligibility criteria for the education loan:
The eligibility criteria for education loan is slightly different for different lenders. The lenders generally check the eligibility of the applicant on the following factors.
1) Nationality: Eligibility of the applicant also depends on his nationality based on the nationality and his residence there are different plans provided by the lenders (plan is different for Indian citizen, NRI, OCI, PIO’s etc.)
2) Course: The banks also has criteria for type of course you are pursuing. Most of the banks generally provide education loan for following careers,
A) Under-graduation/ Post-graduation/ Ph.D.
B) Job oriented course
C) Diploma courses
D) technical courses etc.
3) Co-applicant: The applicant can keep their parent/ guardian as a co-applicant and it is necessary that the co-applicant should have sure income source.
4) Collateral: Without collateral the bank provides less amount of education loan as it is and unsecured type of loan. But if the applicant provides collateral to the bank like residential or commercial property then the applicant can get higher amount of education loan.
Types of education loan:
Education loan is classified on the basis of different aspects like location of institute, security of loan, type of courses etc.
A) Based on location:
Based on the location of course Institute the education loan is classified as,
i) Domestic education loan: The applicant persuing course in own country is subjected to the domestic education loan.
ii) Overseas education loan: The applicant willing to pursue the course in overseas Institute can apply under this category of education loan.
B) Based on security:
Depending on the condition of collateral the loan is classified as,
i) Unsecured loan: In this type the bank provides education loan to the applicant without taking any collaterals. But the unsecured education loan provides less amount for our expenses.
ii) Secured education loan: In this type of education loan applicant has to provide collateral for the security purpose. It may be your commercial or residential property, plot etc.
The applicants can get more amount for loan to cover his academic expenditures as compared with unsecured education loan.
C) Based on type of course: Depending on type of course persued by applicant the education loan may also classified as,
i) Undergraduate loan
íi) Postgraduate loan
iii) Career development loan etc.
Advantages of education loan:
Here are some advantages that you can avail by taking education loan.
1) Lower rate of interest: Most of the banks offer lower rate of interest for the education loan in comparison with other loans while some of the lenders in India provides special concession in interest rate for female applicants.
2) Covers different educational expenses: The education loan helps the applicant to pay the maximum educational expenses like tuition fees hostel charges library fees books etc.
3) Moratorium period: It is not possible for everyone to get placed immediately after completion of course. Hence the bank also provides moratorium period to the applicant for searching the job.
4) Tax benefit: The applicant of education loan can also avail tax benefits as per the section 80E of Income tax act.
5) Longer repay tenure: The bank provides max tenure up to 15 years for repay of education loan. Hence it is better to handle less cost EMI for the newly join trainees.
6) No financial burden of education: The higher education is expensive and may become a financial burden to the parents hence by taking education loan the applicant can manage all his educational expenses and can protect the savings of his parents.
Documents required for education loan:
The following documents are generally same for almost all the lenders for availing education loan. Documents for salaried and self employed parents/ guardian are slightly different in case of their income proof.
A) Proof of age and identity: (Any one of the following document can be used)
i) Aadhar card
ii) Driving licence
iv) PAN card
v) Voter ID card
B) Proof of residence: (Any one of the following document can be used)
i) Aadhar card/ driving licence/ passport
ii) Bills: electricity, water bill, LPG book etc.
iii) ration card
C) Income proof for salaried guardian/ parent:
i) Latest salary slip
ii) Bank statement of salary account for last 6 months
iii) Last two years IT return
D) Income proof for self employed parents/ guardian:
i) Bank statement of last 12 months
ii) Past two years Income tax report
iii) Balance sheet
E) For the people involved in agriculture and not filing the ITR can provide the income certificate issued from tahsildar/ revenue department.
F) Property papers (in case of secured education loan)
G) Copy of 10th or 12th marksheet or any latest qualification certificate
These documents are mostly preferred by almost all the lender while some of the bank also ask for admission proof, admission confirmation letter, prospectus of the institute, course fee structure etc.
Process of education loan:
Here we have provided the step-by-step procedure for availing the educational loan which will help you to understand the whole procedure of education loan.
i) Fill the application form: The applicant can contact nearest branch for completing procedure of education loan. The application can be done online on to the official web portal of bank or applicant can fill the offline form at the branch office of bank.
The candidate has to fill all the required information about personal and academic details. The information provided in the application should be accurate as this information gets verified by the bank and the false information provided by you can reject your application.
- Face to face discussion: After submission of application the bank invite the applicant to to the branch office to discuss about academic record and course pursued by applicant. Bank wants to know that the course selected by you has the potential to create employment opportunity.
3) Document submission and verification: At this stage the applicant has to provide the documents required for education loan to the bank. Documents may be related to your identity or address proof, academic records, course fee structure etc. If your course fee not fits under the unsecured education loan policy then the applicant has to provide the collateral for getting more fund for education loan.
After the submission of document the bank verifies application and documents provided by the applicant.
4) Approval process: At this stage the bank verify the income details of the parents/ guardian of the applicant and also check the credit history of the co-applicant.
5) Disbursal of loan: After completing the procedure the bank disburse the loan amount to the college/ university.
Education loan providers in India:
The different bank offers different proposals for education loan with varying limits for loan amount, interest rate, repay period etc. Following are some of the banks which provides education loan facility.
1) SBI Education Loan
2) Bank of India Education Loan
3) HDFC Bank Education Loan
4) Punjab National Bank Education Loan
5) Bank of Baroda Education Loan
6) ICICI Bank Education Loan
7) Axis Bank Education Loan
8) Kotak Mahindra Education Loan
9) Tata Capital Education Loan
10) Union Bank of India Education Loan
11) Federal Bank Education Loan
along with this banks there are much education loan providers are present into the market which may meet your loan requirement at affordable price.
The education loan helps the applicant to cover most of his academic expences therefore by taking education loan the student or his family doesn’t needs to take financial burden of education. Therefore the applicant has to choose the proper plan for the education loan which will meet his all requirements and also become affordable while repayment.