Education Portal for Students in India

Posted In education loan On April 12, 2019 Banks demand a guarantee from the borrower which will ensure their loan repayment. A guaranteed loan is one where a third party guarantees debt obligation in case the borrower fails to repay. A loan guarantor is required for loan amount above 7.5 lakhs. Eligibility for a third-party guarantor in Education loan:

In case the income level of a co-signer is not sufficient for loan repayment guarantee, banks demand a third party guarantor along with a co-signer. The guarantor must be a citizen of India above 18 years of age where the payment agreement agrees. He/she is expected to have a good credit score and sufficient income to cover loan repayments.

A guarantor differs from a co-signer in the terms that a co-signer is the co-owner of the loan taken while a guarantor has no claim over the loan undertaken. It is sensible to ensure that the person offering the guarantee is a close relative/acquaintance of the borrower.

1. The guarantor guarantees the loan by putting their assets as collateral for cases when the borrower is unable to repay during the repayment period, he/she owes money to the bank.
2. In addition to making payments during the repayment period, the guarantor is also entitled to make payments which have added up due to the borrower’s late payments.

In cases when the guarantor as well is unable to repay the debts, the assets provided by him as collateral might be seized and sold to cover the costs remaining.
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Who can be guarantor for student loan?

Can anyone be a guarantor? – Almost anyone can be a guarantor. It’s often a parent or spouse (as long as you have separate bank accounts), but sometimes a friend or relative. However, you should only be a guarantor for someone you trust and are willing and able to cover the repayments for.

• To be a guarantor you’ll need to be over 21 years old, with a good credit history and financial stability.
• If you’re a homeowner, this will add credibility to the application.
• Whether you’re considering asking someone to be a guarantor, or you’ve been approached by a family member or friend in need, you need to be aware of the possible financial risks.

If the borrower doesn’t repay the loan you will be legally responsible for paying the debt. Apart from the financial burden, these situations can sometimes end friendships or cause family feuds. Both the borrower and the guarantor should think seriously about whether they can commit to maintaining the payments.
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Who is a guarantor of education loan in India?

Q1. What is an Education Loan? – Education loans are offered by banks to students to enable them to pay for higher studies such as graduation and post graduation courses, both in India and overseas. Apart from the tuition fees, other aspects of expenses such as hostel charges, equipment purchases and other course related expenses may also be covered by the education loan.

• In case of overseas studies, many education loan providers include the price of a return ticket into the education loan corpus.
• As most students have no previous credit history, the parent or guardian has to co-sign for an education loan as a guarantor.
• Moreover, education loans also require key lender approved collateral such as property documents, fixed deposits, etc.

Though there is an interest free (moratorium period) for an education loan, if you service the interest accrued on an education loan during the period, you may receive a further discount on the education loan. Q2. Who is eligible for an education loan? Every bank has its own eligibility criteria for dispensing education loans, but a few common parameters are:

Applicant should be an Indian national.Applicant should have confirmed admission in a college/educational institution at the time the loan application is made.Applicant should be in the age bracket 16–35 years.The Applicant should have a co-borrower such as a parent who acts as guarantor for the loanCollateral in the form of a fixed deposit etc. is required for loan amounts higher than Rs.4 lakhs.

Q3. What documents does the lending bank ask for? Documents that are to be submitted with the education loan application include:

Admission confirmation letters and papers validating any scholarships the applicant has qualified for.Schedule of expenses for the course including tuition fees and other expenses.Score sheet of qualifying test(s).Copies of foreign exchange permit/student visa for overseas studies.Bank account statements for last 6 months. (Can be a joint account with parent/guardian)Statement of assets and liabilities of borrower.Proof of ageProof of residence2 passport size photographsDocuments related to collateral required for education loans exceeding Rs.4 lakhs.

Q4. What are the courses for which an education loan can be availed? Education loan can be availed for all courses recognized by the UGC in case of India and all regular courses abroad. Each lender has its own list of educational institutions and courses that they would provide a loan for whether overseas or within India.

Tuition fees and hostel expensesExam, library, and lab fees if applicableAny refundable caution deposits paid to the educational instituteCost of books, uniforms, and other essentials for completion of courseTravel expenses (return fare for international flights.

Q6. Is a co-applicant for education loan needed? Yes, for all full-time courses a co applicant is required. The co-applicant can be Parent/Guardian or Spouse (if-married). Q7. Who can be my co-borrowers? Your parents/ guardian can be a co-borrower as well as spouse in case of a married applicant.

• The co-borrower should have a steady source of income and a good credit history in order to improve the applicant’s chances of a successful loan application. Q8.
• Is there a maximum limit on an education loan that a lender can disburse? Most lenders have a maximum limit of Rs 10 lakhs to Rs 15 lakhs for studies within India, while the maximum limit on education loans for overseas studies is between Rs 20 lakhs to Rs30 lakhs.

In case of some lenders, the applicant can get a higher loan amount sanctioned provided bank-accepted collateral is provided. Q9. What is the tenure of an education loan? The average tenure for an education loan is between 5-7 years in case of most lenders.

• However, some lenders can offer a longer tenure of up to 15 years in case of higher loan amounts. Q10.
• What is the maximum loan amount one can get for overseas studies? Banks generally fund up to 90% of the education expenses as loan and some even provide loans for 100% of education expense.
• However, the exact loan amount an applicant is eligible for depends on a range of factors including the monthly earning of the parent/legal guardian, the value of collateral provided, the academic record of the applicant and other factors.

Q11. Is there a margin on education loans? Most education loan providers do not charge a margin on education loans equal to or less than Rs.4 lakhs. For higher loan amounts of up to 7.5 lakhs, banks and NBFCs have a margin of around 5% i.e. they provide loan amount equal to 95% of the course cost and the rest must be borne by the applicant.

For loans up to Rs.4 lakh – No collateral or Third Party Guarantee is required.For loans from Rs.4 lakh to Rs.7.5 lakh – Collateral is not needed but third-party guarantee is requiredFor loans above Rs.7.5 lakh – Collateral is required. Some of the key types of collateral accepted by banks include LIC/NSC/KVP, Fixed Deposit held with the lender, property documents owned by the applicant or co-signor.

Q13. Is the loan disbursed in favour of the borrower or the institute/college/university? The tuition and hostel fees are disbursed directly to the institute as per their schedule and fee structure usually in the form of a draft. Other components of the loan such as course-related expenses for lab equipment, laptop computer, uniform, travel expenses etc.

• May be claimed by and provided to the loan applicant. Q14.
• What is employment verification in an education loan? Some banks perform independent verification of the employment records of the loan cosigner, which typically include parent/guardian or spouse (if married) of the student who is applying for the education loan.

In case the details provided cannot be verified, the loan application may be rejected by the prospective lender. Q15. What is a holiday/interest free/moratorium period? What if there is a break in the study? Each student is given some time by the bank before the repayment tenure starts.

• This is the time granted by the lender before the repayment begins is referred to as the holiday period.
• It is usually either 6 months to 1 year after the successful completion of the course, or the time it takes the borrower to start working at a job, whichever is earlier.
• If there is a break in the course or the borrower chooses a sabbatical, it is entirely up to lending bank’s discretion on whether to add a few months to the holiday period.

Q16. Do education loans have any Income Tax benefits? Loan borrowers can avail tax benefits on interest paid on education loan under Sec 80E of the Income Tax Act. This benefit is available over and above the Rs.150,000 deduction allowed under Section 80C,

Tax benefits can be availed once the borrower starts paying the interest on the education loan. Further, the deduction is available until the borrower pays off the full interest amount on the loan or for a maximum period of 8 years, whichever is earlier. Q17. Is there a prepayment penalty on education loan? Most banks do not levy prepayment penalty on education loan.

However, it is best to check with the bank before signing the dotted line. Q18. Is it necessary to have an account with the bank to avail of an educational loan? Earlier, having an account in the bank from where the borrower was hoping to get a loan used to be an important criterion.

• Now it is no longer a mandatory requirement.
• If you have an account with the particular bank, it usually becomes easier to get the loan sanctioned.
• This is because of your prior relationship with the bank, your past financial records and transactions can be analysed faster to make a decision. Q19.
• Can a student avail another loan for further studies? When will the repayment of the new loan commence? Yes, this is possible.

You can borrow a loan for a bachelor’s degree followed by one for master’s without repaying the first loan. This loan can be taken as a top-up loan against the already existing loan; however, it is subject to the lending bank’s discretion and the internal rules and regulations of the lender.

It will commence as per the new holiday period, which will take effect once the student has joined a new course. Q20. Do banks offer an education loan in foreign exchange? I need to pay in dollars for my studies, but the bank is in India. The loan availed by the student is paid to the educational institution directly in the local currency (Dollar/Pounds/Euro etc.).

The lender may charge an additional currency conversion fee as per RBI regulations on the loan amount disbursed. Q21. Is any incentive available for a girl student applying for education loan? Banks generally provide a 0.5% concession on the applicable education loan interest rate to girl students pursuing higher education in India and abroad.

1. Q22. Are there any special privileges for students in the Scheduled Caste/Scheduled Tribe (SC/ST) category who avail education loans? Yes, eligibility criteria and loan margins on education loan are relaxed for Scheduled Caste/Scheduled Tribe students availing education loans in India.
2. The eligibility criteria are lowered from first/second class to pass class for SC/ST category students seeking education loan for graduate and post graduate studies, while, margin money is sometimes lowered than the regular percentage or nil.

Q23. Do banks consider education loan requests from NRIs? Requests received from NRIs can be considered if:

Student is an Indian passport holder and meets all the eligibility requirementsDocuments such as security or any collateral which is enforceable in India can be handed over to the bank.

Q24. Why do banks require an insurance policy? Banks usually prefer that students avail a life insurance policy equivalent to, or more than, the loan amount. The policy acts as a security feature and forms a part of the collateral. In case of the untimely demise of the borrower, the bank recovers the outstanding loan amount from the student’s life insurance policy and the remaining amount, if any, is paid out to the beneficiary of the policy.

• Q25. Is credit score important in case of education loan? A majority of students applying for an education loan do not have previous credit history such as other loans or credit cards.
• Thus, education loan specialized lenders have a specialized credit scoring model that scores education loan application based on the University, College and the Course of admission.

They factor the academic background of the student as well as the credit history of the co-borrower into their decision.
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Who can be a third party guarantee?

Third-party guarantor means any Person other than the Applicant (including, without limitation, a parent, affiliate or subsidiary of the Applicant) who guarantees either the bonds or the underlying security for the bonds.
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Can a student apply for education loans without my parents?

A Word on Private Student Loans – You can get a private student loan without a parent, as well, but there’s a pretty big catch. Private student loans generally require a creditworthy cosigner, but the cosigner does not need to be your parents. Someone else with a good or excellent credit score can cosign the loan.

1. However, convincing a non-parent to co-sign a private student loan is hard.
2. If you have a mentor, grandparent, or trusted friend with sterling credit who will cosign your loan, you may be able to qualify for a private student loan without getting your parents involved.
3. A few private lenders and products, like Ascent’s Non-Cosigned Outcomes-Based Loan, use criteria other than credit and income, such as GPA or major, to establish eligibility.

Keep in mind that private loans do not offer the same repayment options and benefits as federal loans. These include income-driven repayment plans, a chance for subsidized loans, opportunities for deferment or forbearance if you lose your job, the potential for student loan forgiveness, and much more.
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Who is qualified to be a guarantor?

The Guarantor must: –

be 18 years of age or over have known the applicant for at least 12 months (or, for children under one year, the guarantor must have known the child since birth) not be related to the applicant by birth, marriage, de facto or same sex relationship, or live at the applicant’s address possess a current (unexpired) Australian passport that was issued with at least two years validity or be currently employed in an approved professional or occupational group. Please see the list above. endorse the back of one photo by writing ‘This is a true photo of (applicant’s full name)’ and signing in black pen.

: List of Acceptable Guarantor Occupations
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Can a family member go guarantor?

Common questions about becoming a guarantor – As a guarantor, you allow the equity in your own property to be used as additional security for the loan being taken out by your child or relative. The primary security for the loan will be the property being financed, but the lender will also take a mortgage over your property.

• This mortgage will not support the loan directly but will be used to support a guarantee from you, as the guarantor.
• While becoming a guarantor can seem like the right thing to do for your loved ones, you need to fully understand the risks involved before signing up.
• As a guarantor, you effectively offer to take on responsibility for the home loan if repayments can’t be met.

So, it pays to consider how you would cope financially if the unexpected happens, and the lender turns to you to make good on the loan. Your own financial wellbeing could be compromised – at worst, you could risk losing your own home. It is also important to note your own ability to borrow will be reduced after you have agreed to act, so consider carefully your future plans and finance options.

1. The big plus for home buyers is the extra security a guarantor provides.
2. It means you may be able to secure a home loan with just a small deposit – or even no deposit at all.
3. It could also mean avoiding Lenders Mortgage Insurance – a saving that can run into thousands of dollars.
4. The lender will still check you can comfortably manage the loan repayments, but having a guarantor can fast-track you into a place of your own.

The role of a guarantor is generally limited to the immediate family members of those seeking finance. Normally, this would be a parent but guarantors can include siblings and grandparents. Some lenders will allow extended family members and even ex-spouses to be a guarantor to a loan, but this varies depending on the lender.

• Your local Mortgage Choice broker can help you understand which lender best suits your needs.
• Plenty of lenders offer guarantor home loans.
• They come under a variety of names including ‘family pledge loans’.
• A guarantor home loan doesn’t have to come with a higher interest rate.
• In many cases a guarantor loan will have the same rate as a regular home loan.

The main point is to be sure the loan is right for your needs. After all, interest rates can change. But the features of a guarantor home loan will remain in place regardless of rate movements. The lender will still check that you can comfortably manage the mortgage repayments, but a guarantor home loan can fast-track you into a place of your own.

1. Each lender works differently, but in many cases you can nominate how much of the loan you’re prepared to guarantee, and how long you wish to act as guarantor for.
2. When deciding these elements, it’s worth making a realistic assessment of the borrower’s financial track record and job security, even if you are comfortable that the borrower is well-equipped to manage a home loan.

Often in these situations, emotion may cloud your financial judgement so it is vitally important that you seek independent legal and financial advice before accepting the role – in fact, most lenders will insist on this prior to accepting a guarantee.

A security guarantor will stay on your mortgage until your loan is refinanced, special arrangements with your lender are in place or the loan is paid off. In some cases it is possible for a guarantor to request a release from the loan in circumstances where you have built enough equity in your loan and have shown a history of servicing your mortgage repayments.

The time frame for this can obviously vary as this can take a number of years depending on the original loan amount, loan type, repayments made and whether the property’s value has increased. In some cases, depending on your lender’s specific policy and the terms of the loan, you may need to pay additional fees when requesting to release the guarantor.

Typically the guarantor is not able to be released until you have built up equity in your loan of at least 10% or 20% to avoid paying LMI, though this can vary depending on lender requirements. When releasing a guarantor this will usually require an internal refinance. You can build the equity on your loan by making extra repayments to bring the loan balance down quicker or looking at ways to increase your property’s value.

It’s important to understand that depending on lender requirements, releasing a guarantor involves refinancing your loan and can’t be done automatically, therefore your lender may need to review your financial situation during the refinancing process.

With a guarantor mortgage, you can borrow funds to purchase a property with a small deposit, under 20%, and avoid paying LMI. In some cases, you may be able to get a home loan with no deposit at all using a guarantor. It is best to speak with your Mortgage Choice broker, who can go through your situation and understand how much you can borrow with a guarantor.

As you can see, there’s much to weigh up, and it’s definitely worth speaking with us about becoming a guarantor. We understand the different requirements of each lender and will cut through the clutter to find the loan that suits your needs, as well as the needs of your loved one.
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Can I take education loan without guarantor?

Education loan: How to get education loan without any collateral Getty Images The bank may ask you to deposit margin money and seek third-party guarantee in some cases. To get a from a, you generally have to pledge such as house property, fixed deposits, shares, bond, etc., to take the loan. This is done so that in case you default on the loan, lenders can recover it by selling the pledged security.

• The security pledged against a loan is termed as collateral.
• However, you can get an without pledging any security.
• The Credit Guarantee Fund for Education Loans (CGFEL) provides a guarantee for education loan dispersed by banks under the Model Education Loan Scheme of Indian Banks’ Association (IBA).

Under this scheme, you can get a collateral-free loan amount for up to Rs 7.5 lakh without providing any third-party guarantee. There is no margin requirement if you apply for a loan within this limit through a scheduled commercial under the CGFSEL scheme.

It means that the bank can finance up to 100 percent of the loan, if the loan is up to the limit of Rs 7.5 lakh. Under the CGFEL scheme you can get a loan up to Rs 10 lakh for study in India and up to Rs 20 lakh for studying abroad. But, if you take a loan of more than Rs 7.5 lakh, the bank may ask for collateral for the loan amount.

The bank may also ask you to deposit margin money and seek third-party guarantee. Gaurav Aggarwal, Director & Head of Secured Loans, Paisabazaar.com said that normally lenders require third-party guarantee or tangible collateral as security, depending on the loan amount.

He said, “You do not have to provide collateral and present a third-party guarantee for a loan up to Rs 7.5 lakh under the CGFSEL scheme.” Do all banks provide collateral-free education loan benefit? IBA has formulated the ‘Model Education Loan Scheme’ to financially support meritorious students for pursuing higher education in India and abroad.

The guidelines issued by IBA for the CGFSEL educational loan scheme is generally followed by banks. However, the banks may vary in providing loans under the scheme as per their own internal rules. Aggarwal said that some banks do provide collateral-free loan option to students looking to pursue higher education from premier institutes.

However, it’s the bank’s sole discretion to waive off third-party guarantee or tangible collateral security requirement. He further explains, for instance, for loan up to Rs 4 lakh, lenders only require parents/guardians as joint borrower(s). But, lenders can ask for suitable third-party guarantee for loan amount in the range of Rs 4 lakh to Rs 7.5 lakh, besides having parents/guardian as a joint borrower.

However, “You will be required to provide tangible collateral security if the loan amount is more than Rs 7.5 lakh, along with the assignment of future income of the student for payment of instalments,” he added Can you get a collateral-free loan above Rs 7.5 lakh? However, if your education loan requirement is more than Rs 7.5 lakh or even more than Rs 10 lakh, you can reach out to other lenders to get a collateral-free loan.

Adhil Shetty, CEO, BankBazaar.com said, “Non-banking financial companies (NBFCs) and private lenders can provide you collateral-free loans for a higher amount, but these collateral-free loans are sanctioned at a slightly higher as compared to education loan taken with collateral.” Process to apply for an education loan Before applying for a collateral-free education loan, you must know that the student is the main borrower of the education loan and parent, spouse or sibling can be the co-applicant., Banks generally ask for co-applicant details when you apply for a collateral free loan.

Not only this, banks also ask for the income documents such as salary slips or income-tax returns (ITR) of the co-applicant before sanctioning the education loan. As per the Reserve Bank of India (RBI) guidelines, there are no restrictions on the upper age limit, but some banks may have it as per their own internal rules and regulations.

1. To apply for the loan, you should be an Indian citizen, having secured an admission into a college/university recognised by a competent authority (NAAC/NBA accredited Institutions/programmes or Institutions of National Importance or Central Funded Technical Institutions (CFTIs)) in India or abroad.
2. The lender will ask for the admission letter of the college/university with the fee structure of the course for which you have applied for the education loan.

Apart from this, lenders may also require documents such as Class X, XII and graduation (if applicable) mark sheets. When your loan application is accepted by the lender, then the lender disburses the amount directly to the college as per the given fees structure.

All students taking education loan under the CGFSEL educational loan scheme also get one-year moratorium for repayment after completion of studies. Basically, lenders can give a relaxation of about one-year time to start re-paying the loan after you complete your education.

Shetty said that the tax deduction benefit under Section 80E of Income Tax Act for interest paid on education loans is available only when you have taken the loan from a financial institution operating under the Banking Regulation Act, 1949 or an eligible trust/institution as per the prescribed rule. “So, when applying for a collateral-free loan of more than Rs 7.5 lakh from non-qualified institutions, you may miss out on the tax deduction benefit under Section 80E of the Income Tax Act,” he said.

Generally, repayment period of education loan is 15 years. However, you should try to repay the loan amount at the earliest as tax-saving deduction benefit is available for up to 8 years only.

( Originally published on Sep 18, 2019 ) (Your on estate planning, inheritance, will and more.) Download to get Daily Market Updates & Live Business News. : Education loan: How to get education loan without any collateral
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Can my uncle be my guarantor for education loan?

If you’re a student looking for the education loan to fund your higher studies, don’t just compare the interest rates banks are offering but repayment options, collateral and a host of other factors as well By Sunil Kumar Singh Ten years back, education loan was considered nothing short of a bit of luxury which a few could afford.

Today, lakhs of Indian students are studying not only in premier institutions within the country but in the ivy league institutions in the US and other countries with the help of the education loan. What was considered a privilege for the chosen few has now become a need for many. If you’re the one looking to fund your dreams of higher studies, following are the finer points about education loan such as the eligibility conditions, documentation, interest rates, tenure, etc that can prove handy when it comes to borrowing this type of loan.

However, do not forget to check with the bank you’re approaching for the exact terms and conditions of the loan as different banks have laid down different terms and conditions different interest rates, margin, minimum and maximum tenure, repayment period, coverage of expenses etc.

Let’s begin by understanding what an education loan is. Basically, education loan is a term loan lent to Indian nationals for pursuing higher education in India or abroad where the student has got admission. Besides, education loan is also offered for courses such as teacher training, nursing courses, vocational training and skill development study.

Some banks offer education loan for studies from even nursery to senior secondary schools. Further, no bank can refuse a student’s educational loan application on the excuse that the residence of the borrower does not fall under the bank’s service area.

In November 2012, the Reserve Bank of India (RBI) advised all scheduled commercial banks in a notification not to reject any educational loan application for reasons that the residence of the borrower does not fall under the bank’s service area. Are You Eligible Higher education could include graduation, post-graduation degree or diploma courses in universities or autonomous institutions like IITs/IIMs recognized by UGC/ / AICTE/ AIBMS/ ICMR etc; regular/part-time approved degree/diploma courses such as aeronautical engineering, pilot training, shipping (approved by Director General of Civil Aviation/shipping), technical courses such as ICWA, CA, CFA, MBA from recognized institutes in India.

For education abroad, banks provide education loan for job0oriented professional/ technical graduation degree courses/ post graduation degree and diploma courses including MCA, MBA, MS, etc offered by foreign universities. For higher education in India and foreign, the applicant should be 16-35 years of age; must be an Indian national and must have a confirmed admission in the college/university/institution.

• The amount of loan could range from Rs 10 lakh maximum (for education in India) to Rs 30 lakh (for education abroad).
• Collateral Options Education loan is not an unsecured loan and banks ask for various types of collaterals depending upon the loan amount.
• Banks generally don’t ask for collateral/security for loan upto 4 lakh.

Generally, for an amount upto Rs 4 lakh banks ask for parents/spouse/siblings to be primary co-applicants/co-obligators of the loan along with the student. In their absence, banks could ask for grand-parents/father-in law, motherin- law, brother-in-law, paternal /maternal uncle/aunt as co-applicants.

1. For loan above Rs 4 lakh upto Rs 7.5 lakh, banks ask for parents/guardian as co-borrowers as well as collateral security in the form of third party guarantor.
2. And finally, for loan above Rs 7.5 lakh banks ask for tangible collateral equal to 100% of the loan amount apart from parents as coapplicants.

These collaterals could be residential property papers, bank FDs, LIC policy, NSC or a KVP policy. Interest Rates & Moratorium The loan amount covers not only the fee of the college/ school/ university but a host of other heads. This could include examination/ library/ laboratory fee, insurance premium for the borrowing student, caution deposit, cost of books/ equipment/ uniforms/ computers, study tours, project work, thesis, travel expenses for studies abroad, etc.

Different banks charge different interest rates on the education loan. However, since education comes under priority sector lending banks are more flexible when it comes to interest rates on education loan and charge it as per the corpus of loan you want to borrow. For instance, for loans upto Rs 4 lakh SBI charges 13.50% p.a (3.50% above Base Rate i.e.10%) as per the information available on its website.

Further, above Rs 4 lakh and upto Rs 7.50 lakh, the bank charges 13.75% p.a (3.75% above Base Rate) and 11.75% p.a. (1.75% above Base Rate) for loan above Rs 7.50 lakh. Similarly, for loans upto Rs,7.5 lakh, Bank of Baroda charges Base Rate + 2.50% while for loans above Rs 7.50 lakh, it charges Base Rate + 1.75%, as per the latest information available on its website.

• The repayment period also differs depending upon the loan amount.
• Generally, for loan amount of Rs 4 lakh to 7.5 lakh, the repayment period is 10 years while it is 12-15 years if the amount is more than Rs 7.5 lakh.
• There is a repayment holiday/ moratorium period on loan repayment which is the coursework duration + 1 year or 6 months after the students gets a job, whichever is earlier.

After the moratorium period is over the repayment of the loan starts. Tax Benefit Repayment of an education loan is subject to deductions under section 80E of the Income Tax Act and you as a borrower are eligible for a tax rebate for the interest you pay on an education loan.

As Rashmi Roddam, Director, WealthRays group says, “Under Section 80E of Income Tax Act, one can claim interest deduction on loans taken to fund studies in India and also abroad. The tax benefit can be claimed for a maximum of 8 years beginning from year in which one starts paying interest on loan and for seven consecutive years after that.80E deduction is over & above 80C deduction & there is no maximum limit to claim deduction for educational loan.

However, deduction is available only on interest paid on educational loan & not on principal repayment.”
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Can parent guarantor for education loan?

The education of their children is a critical goal for almost all Indian parents. However, while providing the best education is priority, not many parents may actually be able to meet this goal. This is because the cost of education has been spiralling over the years, with education inflation pegged at a whopping 10%. Starting to save early is critical. If parents start to save for their child’s education immediately after the birth of the child, they would have 18 years to save for graduation and 21 for higher studies. “Parents should keep a separate education corpus and start early, so that the power of compounding can work,” says Naveen Kukreja CEO & Co-founder, PaisaBazaar.

Years to invest	Investment needed per month (Rs)
20	10,109
15	20,017
10	43,471
5	1,22,000

Assuming annualised return of 12% However, despite starting early, one can still fall short of the required corpus. This is where education loans come in. As a parent, you should not baulk at the idea of taking this loan because not only does it help to upskill a child, it also comes with attractive tax benefits.

1. In this week’s cover story, we will look at why an education loan makes sense today, what you need to consider while taking such a loan and the pitfalls to watch out for.
2. Bridge the shortfall Spiralling costs is not the only reason why parents may fail to accumulate adequate money for their children’s education.

A shortfall can occur because of a change in the nature of the goal. For instance, you may have budgeted for sending your child to one of the best institutes of higher learning in India, only to have your child opting for higher studies abroad. However, this possible shortfall is no excuse for not planning early.

An existing education corpus makes it easy to get an education loan. “It will be easy to get a loan if you are only asking for a part of the cost and not the full cost,” says Amol Joshi, Founder, PlanRupee Investment Services. The shortfall may also be due to the other expenses you did not foresee at the time of planning.

For instance, most parents consider tuition fees, exam fees and hostel expenses while planning, but tend to forget about living expenses and the like. If the child goes to study abroad, the living expenses would be steep. “Assume that your ward gets 6 months to search for a job after completing a course.

Since they will be staying outside the campus during this time, their expenses will be very high,” says Shilpa Wagh, Sebi registered investment adviser and fee only planner. Since no financial institution will fund these post-course expenses, parents must keep aside a part of the savings to fund these, while relying on the education loan to meet the cost of tuition fees.

Also read: Do’s and dont’s while taking education loan Advantages many Tax deduction for interest under Section 80E is the main advantage of an education loan. This deduction is available to the parent and the child, depending on who repays the loan. “Education loans offer a good tax planning opportunity.

Since the entire interest can be deducted under Section 80E, the actual cost of the loan becomes much lower,” says Rohit Shah, Founder & CEO, Getting You Rich. Repaying an education loan at the start of their career is a good way to instil financial discipline in young people. Since taking an education loan and repaying it on time also helps to establish credit scores, several parents, even those who can pay, insist upon their children taking this route.

“The loan repayment responsibilities are being seen by numerous parents as an opportunity to inculcate the habit of financial discipline in their children and to help them build their own credit history,” says Arijit Sanyal, CEO, HDFC Credila. Young people are also becoming independent and want to fund their higher education even if their parents have the money.

1. Education loan is good thing and I have taken an education loan personally.
2. Why should parents take all the responsibility? It is time students take responsibility of their higher education costs,” says Adhil Shetty, CEO, BankBazaar.
3. WHAT TO LOOK FOR 1.
4. Interest This is the most important factor when it comes to choosing any loan and an education loan is no exception.

Education loans in India don’t come cheap (see chart), “Since the aggregate NPA of educational loan is very high—9.5-10%—banks charge a higher interest,” says C.S. Sudheer, CEO and Founder, IndianMoney.com. However, banks reduce the interest by 1% if the interest is paid while the child is studying and the loan is repaid without any default thereafter. Compiled by: ETIG Database The institute of choice also has a bearing on interest rates (see chart), Banks readily give loans for those opting for premier institutes at low interest rates, because the employment opportunities for pass outs from these institutes are many.

The risks increase when students opt for lesser known institutes, and the interest rates charged are higher,” says Prashant Bhonsle, CEO-Students Loans, InCred. Most institutions offer special rebate of 25-50 bps for the girl child. Students getting into prestigious foreign universities also have the option of loans from foreign institutions.

“Since the interest on loan given by foreign institutions will be lower, students should consider this option,” says Shah. Banks charge lower interest for premium institutes Interest is low as chances of landing a job is higher Effective interest rate on SBI education loans (%) *This list includes top IIMs, ISB and XLRI 2. Collateral Since defaults are common, public sector banks usually insist on collateral for loans above Rs 7.5 lakh. Though several financial institutions provide education loans without collateral or mortgage, it is better to provide one to reduce interest costs.

Mumbai-based K.R. Suresh, 61, (see picture) took an education loan of Rs 40 lakh in 2018 from Punjab National Bank to fund his daughter’s higher studies in the US. He put up his flat as collateral for the loan and is paying an interest of 10.25%. Accepted collaterals include a house, a plot or fixed deposits.

“It makes sense to use money lying in FDs with 6% interest, rather than take education loans at 11% using it as collateral,” says Shah. In pic: K.R. Suresh, 61, Mumbai The retired PSU employee put up his flat as collateral to take a Rs 40 lakh loan in 2018 for his daughter Suchetha’s higher studies in Syracuse University iSchool in the US. The interest rate is variable, having changed from 10.3% in the first year to 10.25% in the second.

He is servicing the interest component now so that the repayment burden on his daughter is less.3. Co-borrower or guarantor As a standard practice, most financial institutions insist on a parent or guardian as the co-borrower/guarantor. The number of years of service of parents plays an important role here.

For instance, Pune-based Shashank Shukla, 27, (see picture) was forced to pay 15% interest on his education loan. “Since my father is about to retire, the lending bank did not consider him as a loan guarantor and charged me higher interest rates,” he says. In pic: Shashank Shukla, 27, Pune He took an education loan of Rs 33.75 lakh in 2019 to complete his MBA. He is paying a steep 15% interest as the lender refused to accept his father as a guarantor as he is due to retire in a year. The loan repayment tenure is 15 years.4.

Margin money Check how much the financial institution will fund and how much you need to put in. Your contribution is known as the margin money. This requirement varies depending on the lending institution, amount of loan and place of study. For example, PSU banks usually charge 5% margin for loans above Rs 4 lakh for students studying at Indian institutes and 15% for studies abroad.

Private players, on the other hand, are ready to fund without any margin requirements. However, make sure that you don’t pay higher interest just to avoid paying the margin.5. Moratorium Unlike other loans, EMIs don’t start immediately for educational loans.

In addition to the course period, there will another moratorium period for looking for a job. This moratorium period usually varies between 6 and 12 months. If the parent pays interest during the course period and moratorium period, the EMI will be based on principal only. If the borrower decides not to pay interest, the same will be accumulated and EMI will be based on loan plus accumulated interest.

Most Indian parents prefer to pay interest during the course time and Suresh is an example. “I can service the interest from my present earnings. This will reduce the buden on my daughter when she starts repaying the loan,” he says.6. Duration This is one area of an education loan that has seen a sea change over the years.

The maximum duration institutions used to give loans for was 7 years, which has now been extended to 15 years. This has meant a reduced EMI. In other words, the child will be able to service the loan it even if the initial salary is low. Since there is no prepayment penalty, it is better to opt for the longest possible duration.

However, some prefer to close the loan as quickly as possible. Suraj Parasramka, 48, (see picture) is a co-applicant for his son’s education loan. “Though the repayment period is 7 years, we want to repay it in 2 years,” he says. In pic: Suraj Parasramka, 48, Kolkata Parasramka took an education loan of Rs 40 lakh in August 2018 from Punjab & Sindh Bank for his son’s M.Tech in The Netherlands. The interest is 10%. He has been repaying the interest from Day 1. Though the loan tenure is 7 years, he intends repaying it in full within 2 years.7.

Documentation The documentation is similar to that of other loans. “Since lenders will check the credit score of the parent and student, the score should be good,” says Shetty. On an average, a credit score above 700 is considered good. The lenders will also insist on admission related documents. Papers related to the collateral will also need to be submitted.

For example, if you are pledging your flat in a housing society, you need to submit documents like share certificate, original sale deed, no objection certificate (NOC) from the society, etc.8. Speed This is critical because most institutes will not give too much time to secure admission.

PSU banks are as quick as private lenders when it comes to disbursing home and personal loans, but not education loans. This means, you need to start the process a early. Taking pre-approval and keeping the tentative loan ready is one way to speed up the process. Several foreign institutes insist you demonstrate the ability to pay fees and pre-approved letters come in handy then.

However, the final disbursement happens only after your ward gets confirmed admission. Diversifying your loan application can be another strategy. Approaching just one financial institution is a mistake. “To avoid last minute rush, it is better to start the process with 2-3 institutions simultaneously,” says Bhonsle.

Since 90% of the documentation will be similar, this will not be an additional burden. However, you may have to pay processing fees to all the institutions. Final word Though education loan is a good option, don’t treat it as the only source of funds. Most universities offer scholarships for deserving candidates.

It is important for students to explore such options before opting for a loan. Most foreign universities allow postgraduate students to take up campus jobs and this can take care of a major portion of living expenses.
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What are the three 3 types of guarantees?

Different Types of Guarantee –

Unilateral Contract of Commercial Credit – Commonly used in commercial transactions, it is used either between wholesale and retail sellers or between the retail trader and the final customer. This type of agreement implies that the goods are delivered either by the wholesale to the retail seller, or from the retail seller to the customer, with no immediate payment and an agreement for payment at a later date. Bank Guarantee – It’s a type of guarantee issued by a financial institution or a bank, that they will cover any debt a person or an institution attracts if they are no able to do so themselves. This practice helps businesses grow by allowing them to make use of certain goods and services while being able to pay for them at one point in the future, therefore letting a company invest at a higher rate than they would have done without the backing of a bank guarantee. Letter of Credit – It’s a letter written with the purpose or requesting credit to be given either to the person writing the letter, or to specific entities mentioned in the letter, and it is used most often in international trade. Absolute Performance Bonds – A straightforward deal in which the surety will pay the sum that’s specified in the contract if the person initially attracting the debt is unable to do so. Bid bond – Used in pursue of public contracts, it basically guarantees that once you win the respective contract, you will proceed to do the work you’ve signed up for. Warranty bond – When exporting goods, this type of guarantee ensures the respective goods will indeed be delivered. Retrospective guarantee – It is a guarantee issued when the debt is already outstanding. Prospective guarantee – Given in regard to a future debt. Specific guarantee – Also known as a simple guarantee, it’s a type that is used when dealing with a single transaction, and therefore a single debt. Continuing guarantee – A type of guarantee used in recurring transactions, it remains in effect until it is actively revoked by the parties. Personal guarantee – When a business owner obtains financing for their business, they may need to offer a personal guarantee, meaning that they are personally responsible for paying some or all the amount of debt in the situation when the company is unable to do so. Validity guarantee – Used by companies to guarantee that issued invoice are indeed valid and collectible. Warranties – A guarantee that assures the final customer that the purchased good or service sold to them meets certain quality and durability standards. They can either be enforced by law or specifically offered by sellers to increase trust in their goods or services.

If you need help with any type of guarantee, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.
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Can a relative be a guarantor for student loan?

5. I have a home loan outstanding. Am I still eligible to apply for the educational loan? / my father has a home loan outstanding. Can he still be a guarantor/co-borrower? – Yes, you can apply for the educational loan and your father can be the co-borrower provided he has a good income or we shall require additional co-borrower from your relative with a good income proof.
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What can I do instead of a guarantor?

Options if you can’t get a guarantor – You may not need a guarantor if you can pass a credit check or show proof of income. If you have a poor credit history or low income, a landlord may still rent to you if you can pay some rent in advance, Some councils and charities have rent deposit, bond and guarantee schemes that:

give cash to help with rent in advance and a deposit act as a guarantor service and cover unpaid rent or damage up to a certain amount

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How can I get student loans if my parents won’t cosign?

Ask another relative to co-sign the loan – If your parents won’t co-sign a private student loan, you can ask another relative or a trusted friend to sign the loan documents. Eligibility requirements vary depending on the lender and the loan you want to take out, but generally the co-signer will need income and a good credit score to qualify.
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Is income proof required for education loan?

Education Loan Documents for Co-Applicant/ Financial Co-Applicant/ Guarantor – II. Co-applicant/Guarantor:

Proof of Identity (Any one): Proof of Residence/ Address (Any one): 2 passport-size photographs A/C statement for last 1 year in case of any previous loan from other Banks/Lenders

III. Income Proof for Salaried Co-applicant/ Guarantor :

Salary Slip or Salary Certificate Copy of Form 16 and IT Returns acknowledged by IT Dept. Bank account statement for last 6 months (of Salary Account)

IV. Income Proof for Self-employed Co-applicant/ Guarantor:

Business address proof (If applicable) IT Returns acknowledged by IT Dept., TDS Certificate (Form 16A, if applicable) Bank account statement for last 6 months

V. Property /Other Security Documents VI. Vidya Lakshmi Portal Details VII. Cheque

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Do student loans look at parents income?

Why does my parent’s financial information affect my loans if they don’t pay for my loans? If you are considered a dependent student, your parents’ information must be assessed along with yours in order to get a complete picture of your family’s financial strength and your ability to repay a loan.
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Can my dad be my guarantor?

Passport Canada For child applications, the parent or legal guardian applying for the child’s passport cannot be the guarantor; however, the other parent can as long as he/she meets all the requirements: http://www.passport.gc.ca/info/section2.aspx?lang=eng.
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How is a guarantor determined?

In principle, any adult with the capacity to contract can act as guarantor. To do this, they must of course be sufficiently financially well off, otherwise they won’t provide any added security for the party providing the loan or lease. There are some more specific requirements too, which will be covered in the following.

1. Financial solvency is often a difficult requirement to meet, especially for people with poor financial backgrounds who live in cities with high rents.
2. With the average rent for a one-bedroom apartment in New York being $2,945, in Chicago $1,812, and in Philadelphia $1,623, the salary for a guarantor needs to be $235,000; $144,960; $129,840 for the three cities respectively.

That is to say, the guarantor needs to make annually a minimum of 80 times the monthly rent they are signing as guarantor for. As a student or young person it may be unlikely that you know someone with this income, so getting a private person to be your guarantor isn’t always an option.
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What are the disadvantages of being a guarantor?

The consequences of becoming a guarantor –

When you become a guarantor you are entering into a contract with the landlord, lender etc that is legally binding. If the person you’re guaranteeing doesn’t make the required payments then the landlord, lender etc will be legally entitled to ask you to pay them instead. Guarantors who don’t make payments when they are required to can be pursued through the courts by lenders, landlords etc. If you default on a guarantee – even though you weren’t the original party to the agreement – this can have a negative impact on your own credit score.

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Can a loan guarantor be a friend?

You may have to pay back the entire debt – If the borrower can’t make the loan repayments, you will have to pay back the entire loan amount plus interest. If you can’t make the repayments, the lender could repossess your home or car if it was used as security for the loan.
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Can I use my mom as a guarantor?

A parent or legal guardian cannot act as guarantor when applying on behalf of a child or dependent adult.
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Can a guarantor live with parents?

You could even have your parents be your guarantors on the loan, as long as they are not financially linked to you with other loans. The fact you live together has no bearing on the loan being approved.
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Can my friend be a guarantor for education loan?

Yes! Your friend can be a guarantor or a co-applicant in an education loan. In banking parlance this is know as a third party guarantor and banks prefer a third party guarantor over your immediate relatives as it gives them an extra cushion in case your family’s financial situation goes bad.
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Can my uncle be my guarantor for education loan?

If you’re a student looking for the education loan to fund your higher studies, don’t just compare the interest rates banks are offering but repayment options, collateral and a host of other factors as well By Sunil Kumar Singh Ten years back, education loan was considered nothing short of a bit of luxury which a few could afford.

Today, lakhs of Indian students are studying not only in premier institutions within the country but in the ivy league institutions in the US and other countries with the help of the education loan. What was considered a privilege for the chosen few has now become a need for many. If you’re the one looking to fund your dreams of higher studies, following are the finer points about education loan such as the eligibility conditions, documentation, interest rates, tenure, etc that can prove handy when it comes to borrowing this type of loan.

However, do not forget to check with the bank you’re approaching for the exact terms and conditions of the loan as different banks have laid down different terms and conditions different interest rates, margin, minimum and maximum tenure, repayment period, coverage of expenses etc.

Let’s begin by understanding what an education loan is. Basically, education loan is a term loan lent to Indian nationals for pursuing higher education in India or abroad where the student has got admission. Besides, education loan is also offered for courses such as teacher training, nursing courses, vocational training and skill development study.

Some banks offer education loan for studies from even nursery to senior secondary schools. Further, no bank can refuse a student’s educational loan application on the excuse that the residence of the borrower does not fall under the bank’s service area.

In November 2012, the Reserve Bank of India (RBI) advised all scheduled commercial banks in a notification not to reject any educational loan application for reasons that the residence of the borrower does not fall under the bank’s service area. Are You Eligible Higher education could include graduation, post-graduation degree or diploma courses in universities or autonomous institutions like IITs/IIMs recognized by UGC/ / AICTE/ AIBMS/ ICMR etc; regular/part-time approved degree/diploma courses such as aeronautical engineering, pilot training, shipping (approved by Director General of Civil Aviation/shipping), technical courses such as ICWA, CA, CFA, MBA from recognized institutes in India.

For education abroad, banks provide education loan for job0oriented professional/ technical graduation degree courses/ post graduation degree and diploma courses including MCA, MBA, MS, etc offered by foreign universities. For higher education in India and foreign, the applicant should be 16-35 years of age; must be an Indian national and must have a confirmed admission in the college/university/institution.

The amount of loan could range from Rs 10 lakh maximum (for education in India) to Rs 30 lakh (for education abroad). Collateral Options Education loan is not an unsecured loan and banks ask for various types of collaterals depending upon the loan amount. Banks generally don’t ask for collateral/security for loan upto 4 lakh.

Generally, for an amount upto Rs 4 lakh banks ask for parents/spouse/siblings to be primary co-applicants/co-obligators of the loan along with the student. In their absence, banks could ask for grand-parents/father-in law, motherin- law, brother-in-law, paternal /maternal uncle/aunt as co-applicants.

For loan above Rs 4 lakh upto Rs 7.5 lakh, banks ask for parents/guardian as co-borrowers as well as collateral security in the form of third party guarantor. And finally, for loan above Rs 7.5 lakh banks ask for tangible collateral equal to 100% of the loan amount apart from parents as coapplicants.

These collaterals could be residential property papers, bank FDs, LIC policy, NSC or a KVP policy. Interest Rates & Moratorium The loan amount covers not only the fee of the college/ school/ university but a host of other heads. This could include examination/ library/ laboratory fee, insurance premium for the borrowing student, caution deposit, cost of books/ equipment/ uniforms/ computers, study tours, project work, thesis, travel expenses for studies abroad, etc.

• Different banks charge different interest rates on the education loan.
• However, since education comes under priority sector lending banks are more flexible when it comes to interest rates on education loan and charge it as per the corpus of loan you want to borrow.
• For instance, for loans upto Rs 4 lakh SBI charges 13.50% p.a (3.50% above Base Rate i.e.10%) as per the information available on its website.

Further, above Rs 4 lakh and upto Rs 7.50 lakh, the bank charges 13.75% p.a (3.75% above Base Rate) and 11.75% p.a. (1.75% above Base Rate) for loan above Rs 7.50 lakh. Similarly, for loans upto Rs,7.5 lakh, Bank of Baroda charges Base Rate + 2.50% while for loans above Rs 7.50 lakh, it charges Base Rate + 1.75%, as per the latest information available on its website.

1. The repayment period also differs depending upon the loan amount.
2. Generally, for loan amount of Rs 4 lakh to 7.5 lakh, the repayment period is 10 years while it is 12-15 years if the amount is more than Rs 7.5 lakh.
3. There is a repayment holiday/ moratorium period on loan repayment which is the coursework duration + 1 year or 6 months after the students gets a job, whichever is earlier.

After the moratorium period is over the repayment of the loan starts. Tax Benefit Repayment of an education loan is subject to deductions under section 80E of the Income Tax Act and you as a borrower are eligible for a tax rebate for the interest you pay on an education loan.

As Rashmi Roddam, Director, WealthRays group says, “Under Section 80E of Income Tax Act, one can claim interest deduction on loans taken to fund studies in India and also abroad. The tax benefit can be claimed for a maximum of 8 years beginning from year in which one starts paying interest on loan and for seven consecutive years after that.80E deduction is over & above 80C deduction & there is no maximum limit to claim deduction for educational loan.

However, deduction is available only on interest paid on educational loan & not on principal repayment.”
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Can my brother be my guarantor?

Who can be a guarantor – A guarantor can be a family member or someone else you know. However, they must:

1. be a Canadian Citizen
2. know you (the applicant) personally, for at least 2 years, and
3. work in or be a member of an approved occupation or profession in Canada

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