Know the basic features of education loan in India


With the cost of higher education increasing by leaps and bounds, many students take education loan from different banks of India. This article discusses the basic features of educational loan being offered by the public sector/private sector banks. Knowledge of these features would enable the students applying for education loan to bargain hard with the loan-offering banks.

Education, especially higher education, is becoming more and more costly with the passage of time. As a result, even middle class Indian parents have to go for education loan to meet the expenditures associated with higher education in India and abroad. So, it is absolutely necessary for all of us to know the basic features of education loan in India. In this article, we will discuss the features and eligibility conditions of education loan sanctioned by different banks (both public sector and private sector) in India.

Eligibility criteria

  1. The applicant student should be Indian National.
  2. He/She should have secured admission for higher education course in recognized institutions in India or abroad through entrance test. But if the admission is not based on entrance test marks, then the banks are free to adopt the criteria of employability and reputation of the educational institution where the student is going to take admission.
  3. Banks will consider meritorious students for this loan even if such students get admission under management quota.


Courses eligible

(I) Courses in India

  • Approved courses leading to Graduate / Post Graduate degree and PG diplomas conducted by recognised colleges or universities recognised by UGC/ Govt./ AICTE, etc.
  • Courses like ICWA, CA, CFA, etc.
  • Courses conducted by IIMs, IITs, IISc, XLRI, NIFT, NID, etc.
  • Regular Degree/ Diploma courses like Aeronautical, pilot training, shipping, degree/ iploma in nursing or any other discipline approved by Director General of Civil Aviation/ Shipping/ Indian Nursing Council or any other regulatory body.

(II) Courses abroad

  • Graduation- Job oriented professional/technical courses offered by reputed universities
  • Post Graduation – MCA, MBA, MS, etc.
  • Courses conducted by Institutes like CIMA (London), CPA (USA), etc.
  • Degree/diploma courses like aeronautical, pilot training, shipping etc provided these courses are recognized by competent regulatory bodies in India/abroad for the purpose of employment in India/ abroad.


  • Eligible expenses for loan

    The following types of fees are considered for grant of education loan:
    • Fee payable to educational institutes.
    • Examination/ Library/ Laboratory fee.
    • Travel expenses/ passage money for studies abroad.
    • Insurance premium for student borrower, if applicable.
    • Caution deposit, Building fund/ refundable deposit supported by Institution bills/ receipts (total expense should not exceed 10% of total loan).
    • Purchase of books/ equipments/ instruments/ uniforms (total expense should not exceed 20% of the total loan)
    • Any other expense required to complete the course; like study tours, project work, thesis, etc. (In such cases, total expense should not exceed 20% of total loan).
    • While computing loan required, scholarships, fee waiver etc., if any, will be taken into account.


    Maximum loan available

    • Studies in India – Maximum Rs. 10,00,000/-
    • Studies abroad – Maximum Rs. 20,00,000/-
    The above are the ceilings fixed by RBI. But the banks are free to re-consider this limit if the course fees are higher than these limits (like course fees of IIMs, ISB, etc.)

    Security

    In some cases of education loan, security is not required. Upto a loan of Rs. 4 lakh, parents of the students need to be joint borrower. In this case security is not required. However, for education loan amounting to above Rs. 4 lakh, the applicant needs to bring collateral security in the forum of third party guarantee. However, if the loan-approving bank is satisfied with the financial condition of the borrower, then there is a provision of waiver of third party collateral.

    Rate of interest

    The interest rate on the education loan will be charged at the rates linked to the base rate of the banks. Simple rate of interest will be applicable till the period of study and commencement of repayment. But after this period, the extended interest along with the original principal will be considered as principal for the purpose of calculating EMI.

    Tenure of repayment

    In case of loans up to Rs. 7.50 lakh the maximum tenure is 10 years. For educational loan above Rs. 7.50 lakh the maximum tenure is 15 years. There is no penalty on early repayment of loan.

    Loan approval

    The applicant is required to apply for education loan either in physical mode or through online mode. Loan is sanctioned or rejected within 15 days after the relevant documents are submitted along with the application.

    Other features

    • Banks may issue financial capability certificate based on the financial condition of the student, which is required while studying abroad.
    • Existence of education loan may affect other student's loan availability within the same family.
    • No age restriction is there to avail education loan.
    • Top-up loan will be available if further study commences during the moratorium period. Repayment will commerce after completion of the further study.
    • Usually parents or guardian will be joint borrower. But in case of married student, either the spouse or parents/ parents-in-law may be the joint borrower.


    Concluding comments

    Every student (along with his/her guardians/parents) who is going to apply for educational loan, must know the aforestated basic features of education loan. Knowing these basic facts would enable the students to negotiate with the bank(s) more effectively.


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