What Is Education Loan In India?
Education loans are basically a form of monetary assistance availed by students to meet the expenses associated with their studies. Education loans can be taken by means of funding, scholarships, financing and rewards, and are granted in cash, which has to be repaid to the lender along with a rate of interest.
- Students who wish to avail education loans are advised to borrow based on their needs as the repayment periods for these loans can vary to a great extent depending upon the lender and the amount borrowed by the student.
- Most of the student loans available to individuals in India are granted at a relatively low rate of interest, and interest payments need not be made immediately.
Students are usually granted a period of time before from the time they take the loan to the time they start making repayments. Education loans are unsecured loans that can be used to cover expenses related to education, such as tuition fees, books, living expenses and other such expenses as transportation costs, etc.
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How does education loan work in India?
Education Loan: What is education loan? Here’s a guide The tentative cost of an MBA is up from Rs 2.5 lakh to Rs 20 lakh in 15 years. Quality education is a must for a complete and successful life. For many, it is equivalent to graduating from a top institution. The cost of education is, however, increasing rapidly.
In fact, the cost of studying at reputed institutions is already quite high. Keeping this in mind, parents, who want to provide their children with the best possible education, invest their money in (MFs), (FDs), (ULIPs), etc., for the long term. But despite all this, one may still encounter shortage of funds.
An, therefore, plays a vital role in such a scenario by helping to bridge the gap between the shortfall and the required amount. According to studies, the cost of education is increasing at an average of 15% per annum. The tentative cost of an MBA is up from Rs 2.5 lakh to Rs 20 lakh in 15 years.
- Who can apply for the loan?
- Whom is the loan offered to?
- Types of courses covered under the loan
- Eligibility, documents required
A student is the main borrower. A parent, spouse or sibling can be the co-applicant. It is offered to students who want to study in India or pursue higher education overseas. The maximum amount offered for studies in India and overseas are different and varies from one bank to another.
It can be taken for a full-time, part-time or vocational course and graduation or post graduation in the fields of engineering, management, medical, hotel management, architecture, etc. To apply for the loan, one must be an Indian citizen, having secured an admission into a college/university recognised by a competent authority in India or abroad.
The applicant must have completed his higher secondary level schooling. Some banks offer the loan even before one has secured admission into the university. As per the Reserve Bank of India (RBI) guidelines, there are no restrictions on the upper age limit, but some banks may have it.
- Loan financing, collateral requirement
- Interest rate
- Repayment
- Precautions
- Benefits under Income-tax Act
- Conclusion
- (With Inputs from Sunil Dhawan)
- Click to check out the education loan calculator.
The banks can finance up to 100% of the loan depending on the amount. Currently, for loan up to Rs 4 lakh, there is no margin money required. For studies in India, 5% of the required money has to be financed by the applicant. On the other hand, for studies overseas, the required margin money increases to 15%.
The banks also ask for collateral for loans above Rs 7.5 lakh. Presently, the banks do not ask for any collateral or third-party guarantee for loan up to Rs 4 lakh. For loans above Rs 4 lakh up to Rs 7.5 lakh, a third-party guarantee is required. A collateral is asked for loan exceeding Rs 7.5 lakh. Once the loan application is accepted, the banks disburse the amount directly to the college/university as per the given fees structure.
The banks uses the Marginal Cost of Funds based Lending Rate (MCLR), plus an additional spread to set an interest rate. Presently (in 2017), the additional spread is in the 1.35-3% range. The loan is repaid by the student. Generally, the repayment starts when the course is completed.
- Some banks even provide a relaxation period of 6 months after securing a job or a year after the completion of studies for repayment.
- The repayment period is generally between 5 and 7 years, but can be extended beyond that as well.
- During the course period, the bank charges simple interest rate on the loan.
The payment of simple interest during the course period lessens the equated monthly instalment (EMI) burden on the student for future repayments. While applying for a loan, one should also look out for bank charges such as those related to processing, pre-payment, late payment of EMIs, etc.
Most lenders charge processing fee of around 0.15 percent of the loan amount. Section 80E of the I-T Act allows for deduction on the interest paid on the repayment. This deduction is allowed only for the individuals paying interest on the loan for himself, spouse or children or for the student to whom you’re a legal guardian.
You can deduct the entire interest amount paid from your taxable income. This deduction is allowed for a maximum of 8 years. The principal amount does not qualify for any tax deduction. Taking an education loan helps you in building a good credit score as this is the first loan in a person’s life.
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What happens if education loan is not repaid in India?
FAQs – How to repay an education loan? – Education loan repayment is not an extensive process. You can contact your bank manager or lender, who will note your account details and start your repayment on an auto deduction mode. How do I get education loan? – You can get education loan from banks and digital lenders.
- Some of the banks offer lowest education loan interest rates,
- You also have education loan for CA students as directed by ICAI.
- What happens if you cannot pay an education loan? – If you cannot repay your education loan, you will get notices and warnings from your lender.
- If you fail to comply with them, you will be declared a defaulter.
It will be then tough for you to secure any other kind of loan for a considerable time. What happens if I don’t pay my education loan in India? – If you do not pay your education loan in India, the lender will start sending notices to you and your guarantor, if there is one. Or Click Here to Apply for Instant Personal Loan from the PaySense Website.
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Which bank is best for study loan?
List of Educational Loans – Leverage Edu has formulated a list of best education loans in India that can help you reach your dream university:
| Bank | Student Loan Interest for Indian Universities | Student Loan Interest to Study Abroad |
| Axis Bank | 13.70% | 13.70% |
| Bank of Baroda | 7.70% | 8.35% |
| Bank of India | 9.05% | 9.05% |
| Canara Bank | 8.50% | 8.50% |
| Central Bank of India | 8.50% | 8.50% |
| Federal Bank | 10.05% | 10.05% |
| IDBI Bank | 6.90% | 8.40% |
| Indian Overseas Bank | 10.65% | 10.65% |
| PNB | 7.05% | 10.65% |
| SBI | 7.00% | 8.80% |
| UCO Bank | 9.30% | 9.30% |
| Union Bank of India | 8.40% | 8.05% |
What is the difference between student loan and education loan?
Different Types of Education Loan – There are a number of different education loans which are offered for different types of education programmes. Based on the type of the education that one wants to pursue, there are student loans for diploma and certificate courses, student loans for skill-based courses, student loans for studying abroad, and so on.
- Domestic Education Loan – For educational courses within the geographical limits of the country.The borrowers have to meet various eligibility criteria and the lenders will approve the loan if the student has got a secured seat in an institute that meet the requirements of the lenders.
- Study Abroad Education Loan – For educational courses outside the geographical boundaries of the country.Like domestic education loan, the borrower should get a secured seat in a college or university among the list of the eligible educational institutions to approve the loan.
In addition to these, the education loans can be further divided on the basis of a few other categories. These include the following: On the basis of course of education: The financial institutions also provide loans on the basis of course type the borrower selects. The following are the types of course based education loans:
- Graduate Student Loans: These education loans will be provided to the students who like to continue their education in the institutions within India. These loans are specifically for those students who plan to pursue postgraduate degrees. To avail this loan, the students should have completed their undergraduate program.
- Undergraduate Education Loans: These loans provide financial support to the students to pursue their undergraduate degree programs. The course duration of an undergraduate program can be three to five years after completing which the students get ample job opportunities.
- Professional Education Loans: Many banking institutions and NBFCs provided loans to the students who are willing to opt for career education.
On the basis of security of collaterals and/or guarantee: The following are education loans provided based of security of collaterals or guarantee:
- Loan against deposits: Education loan can be availed against recurring deposits or fixed deposits or gold deposits.
- Loan against property: Banks and NBFCs also provide education loan against immovable assets such as residential land/agricultural land/ house/flat, etc.
- Loan against securities: The borrower can avail education loans against debentures/bonds/equity shares.
What is the duration of education loan?
Repayment: The loan is to be repaid in 5-7 years, after commencement of repayment. If the student is not able to complete the course within the scheduled time, extension of time for completion of course may be permitted for a maximum period of 2 years.
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Is education loan hard to get?
Easily available: Education loans are widely and easily available. In fact, they are a priority product in all banks as per the RBI’s guidelines. Varied loan amounts: Banks can offer loans anywhere between Rs.2 lakh and Rs.
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Is education loan paid by student?
#5. Your repayment period may start as soon as your course ends. – Educational loans are typically repaid by the student, and the repayment period may start once the course ends. However, some banks and lending institutions may provide relief of 6 months after the student’s course ends before starting the repayment process.
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What is the biggest problem with student loans?
Loan Debt Is an Economic Drag – When graduates who are looking for their first post-college job are already $30,000 in debt, the negative effect on the economy is considerable. 
Despite their qualifications, grads often have to settle for lower-paying, lower-skill jobs just so they can start paying their loan bills right away. As a result, graduates in debt often miss out on the benefits that come with a degree. According to a CNBC report, “85 percent of student loan borrowers say difficulty in saving has delayed their ability to buy a house,” and other research indicates that “Those with student loan debt also are less likely to have taken out car loans.
- They have worse credit scores.
- They appear to be more likely to be living with their parents,” Defaults and delinquencies are also more common with student loan debt than just about any other kind.
- While credit card default rates have dropped under 10 percent thanks to stricter borrowing guidelines, the rate of student loans in “serious delinquency” has gone up to 11.5 percent.
What’s worse, according to Rohit Chopra of the Consumer Financial Protection Bureau, is that many of these borrowers aren’t even graduating. “This suggests that borrowers who default are overwhelmingly noncompleters These borrowers take on some debt but do not benefit from the wage increase associated with a degree.” Last but not least, the prospect of such overwhelming debt is making an increasing number of students, especially low-income students, think twice about attending college at all — a decision that will compound the already-impending shortage of educated employees facing the U.S.
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Do education loans get 100%?
Yes, education loans cover 100% of the education expenses. However, full coverage may only be provided for expenses under a certain limit. Lenders have a margin if the expenses go above the limit.
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