All about Education Loans | Tips, Guidelines & Resources
Increasing career benefits of a foreign education coupled with an enriching global exposure have increased the number of students who aspire to pursue their higher education abroad. In spite of a plethora of advantages of studying abroad, the exorbitant expenses involved discourage students from following their dreams. Although many scholarships and financial aid options are available, all students do not become eligible for them. As a result, educational loans become significant to the study abroad plan for the student. Education loans for studying abroad are provided by almost all the major banks in India, but parents and students are apprehensive about the complicated and cumbersome loan application procedure. With easy repayment options and reasonable interest rates, securing funding for study abroad plans has become much simpler than what is perceived. Below are a few tips to obtain student loans.
1. Be proactive
While you are anxiously awaiting the offer letter from your dream University, start applying for an educational loan. For this, you must research the available loan options thoroughly. Make use of this period effectively to study the various loan options. Being proactive will give you sufficient time to properly weigh all your option before you choose the most suitable loan scheme.
2. Compare Interest Rates
As you research on loans from leading banks, you will find that they offer loans with varying rates of interest. Compare the student loans that are on offer and make a thorough comparison. State-run banks normally have lower interest rates as compared to private ones. The current interest rates usually fall between 11% to 14%; however most of these are offered on a floating rate basis. This means you should be prepared to face an increase or decrease in interest rates later depending on market conditions. With respect to security requirements for the loan-
(a) Loan up to Rs. 4 lakh- No collateral security is needed, parents are the joint borrower.
(b) Loan amount between Rs.4 to 7.5 lakhs- along with parents as joint borrowers, collateral security in the form of a third party guarantee must be given.
(c) Loan amount above Rs.7.5 lakhs- Parents must be joint borrowers plus tangible collateral security of suitable value is required.
3. Apply to more than one bank
Do not depend on just one bank for your loan. It is advisable to apply to multiple banks, in case your loan application gets rejected by one.
4. Eligibility criteria
a. The applicant should be an Indian citizen
b. The applicant has secured admission to a professional or technical course through an Entrance Test or Selection process
c. Secured admission to foreign university/ Institution
d. Banks generally offer educational loans for long-term programs by prestigious institutions. Short-term ones (such as English language programs) are usually not covered. For those planning to study vocational courses, educational loans do not cover these either. MBA, an engineering graduate, and medical students are among the top choices for banks. Banks usually do not provide loans to students with a bachelor’s or masters in Arts. Also, for courses where employment prospects are less (as per Bank’s evaluation), loans are sanctioned by considering the parents’ income.
When a loan amount exceeds Rs 5 lakhs, you must indicate who your cosigner is. A cosigner (usually parent) is a person who must sign the loan agreement with you, will be responsible for your debt and agrees to pay your debt, in case you fail to repay the loan.
6. Prepare Application Checklist
Contact the bank and obtain a checklist from them in advance to have all documents and papers ready for the loan application. You must find out if the University has any tie-ups with banks for educational loans as it could expedite the loan process.
The Application Check List should comprise of-
a. Identity Proof- driving license, passport, pan card, voter identity card, and Aadhar Card.
b. Address Proof- Passport, Bank account statement, Ration card, Aadhar card, Voter’s ID Card and Telephone bill/ water bill/ electricity bill
c. Signature Proof- The banker’s signature verification, Driving license, PAN card, and Passport copy.
7. Loan Amount
For an overseas study, loan worth Rs 7 lakhs and above are approved against fixed deposits or property worth the loan amount, NSC certificates and a margin of 15 percent (means you get 15 percent less than the amount sanctioned as a loan). Also, if a loan below Rs 4 lakhs comes at a particular interest rate, the loan over Rs 4 lakhs is usually charged at one percent higher. This is a general overview but for more specifics and schemes on the amount, the rate of interest and repayment options, you must check the individual bank websites.
8. Documents required for applying for a Student Loan
1) Mark sheet of the last examination for school and graduate studies in India
2) Proof of admission to the course
3) Schedule of expenses for the course
4) Copies of the letter confirming scholarship, etc.
5) Copies of foreign exchange permit, if applicable
6) 2 passport size photographs
7) Bank account statement of the borrower for the last six months
8) Income tax assessment orders not more than two years old
9) A brief statement of the assets and liabilities of the borrower (usually the parent or guardian) and proof of income.
10) In case you are not an existing client of the bank from which you wish to avail the loan, you will also need to establish your identity and give proof of residence.
9. What the education loan usually covers
Education loans usually cover tuition fees, books and any other supplies, room and board fees, transportation costs, health insurance, as well as other living and education related expenses. The bank usually does not hand over the money to you, but will credit it to the University’s account at the start of each year or semester as required.
10. Read the Fine Print
Take time to go through the loan agreement’s fine print before you sign it. You should check for the interest rate structure, the pre-payment details, and any options to extend loan repayment in case of unemployment after graduation. Understand the entire loan disbursement process, its various clauses and clear any questions that you have with the bank officials.
A list of banks that provide education loans for study abroad in India
1. State Bank of India
2. Allahabad Bank
3. Axis Bank
4. HDFC Bank
5. Credila (a non-banking finance company, subsidiary of HDFC Ltd. exclusively focused on education loans.)
6. Punjab National Bank (PNB)
7. IDBI Bank
8. HSBC India
9. Indian Overseas Bank (IOB)
10. Avanse Financial Services
11. Syndicate Bank
12. Canara Bank
Thus, by preparing for an education loan application well in advance, gaining a clear understanding of the moratorium period and repayment options and conducting an extensive research about the various loan schemes available, you will ensure that the loan application process is smooth and you will be that much closer to fulfill your dream of studying at a prestigious university abroad.