Previously, our elders have advised us against taking any type of loan. Now the situation has changed and individuals have started taking loans for buying a small vehicle to building a house. Educational Loans for further studies is no different.
Why take an Educational loan
There are various reasons why you may need to take an educational loan.
- Education is something that should be completed at the right place and at the right time. Else, the opportunity is lost for-ever. What is the use of earning a lot of money by age 45 and going for further studies after growing old?
- Fees of undergraduate courses are increasing every year. The undergraduate courses itself is around 5 to 10 lakhs at present. If the individual want to pursue studies abroad it may be higher even up to 30 lakhs for Post Graduation courses. So it is necessary to take educational loans to pay such high fees.
- Educational loan is a way to encourage students who are academically strong but are not able to pay for further studies.
- Repayment of educational loans will build credit histories for the students and which will benefit them in future.
How to get the right Educational loan in our country?
Most banks provide loans up to Rs.10 lakhs for students Indian college courses and Rs.20 lakhs for students wishing to pursue studies abroad.
Banks may also provide loans above Rs.10 lakhs for students intent on taking up courses at premier management colleges in our country.
The average loan may however be Rs.5 lakhs only. The fees cover:
- Tuition fees
- Examination fee
- Library charges
- Lab charges
- Hostel charges
- Books, instruments, equipment travel expenses for studies, uniform, and other allied expenses
The Process for securing Bank loan
Conditions applicable for securing loan
Bank loans are usually given depending on the credibility of the applicant. Here it is the student who has no financial background most of the time who is applying for loans. So to provide loans the lenders/banks may make a few checks to assure themselves that repayment of loan will be made.
- The lender will check if the student has really secured admission in a quality college/institution recognized by a competent authority.
- Checks are also made if the student or the co applicant have the ability to return the loan after completion of course
- In case a collateral is furnished(for high ticket/value loans), its value is assessed by the lender
- The lender will pay the fees directly to the college
Requirements for taking an educational loan
Here are some basic requirements for taking an educational loan at most financial institution:
- There should be a Co-applicant along with the student. It could be parents, Siblings or spouse.
- Third party guarantee is required for loans amounts Rs.4 – Rs.7.5 lakhs
- Loan providers may ask for collateral in case of amount exceeding 7 lakhs.
- Repayment should be initiated between 6 – 12 months of completion of course. The students can avail benefits of Income Tax Act, Section 80-E during the repayment of educational loans.
- In case of student going abroad, the loan could be recovered from co-applicant.
- Payment default of educational loans will affect credit history of not only student but also co applicant.
The Interest rates for educational loans is presently between 11.75% to 14.75%. For world-class colleges the lender may offer discount up to 25 basic points. The Public sector banks have come forward to encourage female candidates by offering a discount of 25 basic points
Students wishing to pursue studies abroad should necessarily take Insurance. This may add to educational costs. It is advisable that students take up part-time jobs to allay some expenses, as educational loans may not completely cover their finance requirements for education.
Also, students may not get a job immediately after completing education, so parents or co-applicants should be ready to take-up repayment if such a situation arises.