Education loans in India - answers to some FAQs

In India, public sector and private sector banks offer education loan for higher studies and vocational training in educational institutions abroad and in India. This article answers queries that the prospective loan-seekers might have. Get answers to the what's, the how much, the when's and the who and more.

With the cost of higher education skyrocketing, more and more Indian parents are turning to education loans to finance their children's education. Since educational loans prove to be quite lucrative for their business, leading Indian banks have introduced a large selection of loan products to cater to the growing demand. However, different banks practice different methods for the loan application and evaluation processes. This article throws light on things to keep in mind while approaching a bank for an education loan and things to expect through the process.

Where can you get an education loan?

Most banks in India, from the public sector and the private sector, have education loan schemes for higher studies for deserving candidates. There are generally different products for education loan for study in India and abroad. However, the one criterion that a candidate has to unfailingly meet, to be eligible for a loan, is a confirmed offer letter from a university/institution. The university/institution must also be recognised and the applicant must have a fairly good academic record. Any bank can be approached for a loan if you meet these basic requirements.

What is the maximum loan amount offered by banks?

The maximum loan amount that you can apply for differs for studies within the country and overseas. Most financial institutions grant a maximum loan of seven and a half lakhs for study in India. The limit goes to twenty lakhs for loans for study abroad. These are the maximum limits set by the banks. However, if the applicant can provide substantial collateral in the form of residential property, bank FDs and NSC etcetera then the loan amount is raised to match the value of the collateral.

Which expenses are covered in an education loan?

This is a broad list of the expenses covered under by education loans –
  • Course fee paid directly to the university/institution
  • Security deposit/refundable deposit
  • Charges for registration, hostel/accommodation, examination, laboratory and library etcetera
  • Travel expenses for students travelling abroad for higher studies
  • Expenses for purchase of books, uniform and equipment etcetera

A few banks will also include the cost of health insurance and the purchase of a two wheeler within the loan amount.

What is the interest rate?

The interest rate can vary between banks, depending on the loan amount, and can be anything between 10.50% and 13.50%. These rates are of course subject to change, at any time. You must check with the bank if the interest rate is floating or fixed. Also, confirm if you are entitled to a concession or subsidy.

What are the general repayment terms?

For higher loan amounts most banks expect the borrower to begin repaying the loan amount from the following month after the loan is taken. If you take the loan in May, you begin repaying the principal amount through EMI from June onwards. Failing to repay the EMI invites a penalty on the unpaid amount. Once the loan amount is repaid, you begin repaying the interest on the loan.

Many banks offer a moratorium period or holiday period, a time when you do not have to repay any money to the bank. This period lasts between six and twelve months and no penalty is levied, during the moratorium. The moratorium period is either six months after you get a job or twelve months after you are employed, whichever happens first. The interest repayment period allowed could vary between ten and fifteen years, depending on the loan amount.

Are there miscellaneous charges or terms?

All loans are subject to different charges, over and above the interest on the loan amount. Education loan is also subject to these. Not all banks have these charges, but some may charge you a –
  • Processing fee
  • Prepayment penalty
  • Late payment penalty

In case there is a collateral involved you will need to pay additional charges for the inspection of your property by a bank-appointed surveyor. The surveyor inspects your property and delivers the property value report to the bank.

The bank will also employ the services of a lawyer, on the bank's panel, to scrutinise your property documents and provide a legal opinion, before the loan is granted. You will need to pay the lawyer fee. Banks appoint two separate lawyers to study the property documents in case the loan amount is substantial. In such a case, the lawyer fees have to be paid to both lawyers.

In the case of other assets, a chartered accounts authentication would be required and the fee for their services will be borne by the applicant.

The charges and fees mentioned are only indicative and are liable to change at any time.

Are there any other conditions you should know?

  • A majority of banks cover approximately 80% - 90% of the total cost of education through the loan
  • Girl students are offered a concession on the interest rate
  • Students with a brilliant academic track record are given preferential interest rates
  • Applicants can avail of tax rebate on the interest amount repaid toward education loan under section 80E of the Income Tax Act, 1961
  • The life of the applicant (student) is insured for the amount of the loan, and the bank is listed as the sole beneficiary
  • Banks may offer you preferential terms on other services, like investment options and insurance and more

Which documents do the banks ask for?

Most banks will ask for a string of documents to process an education loan. Here is a generic list of documents that you will need to submit –
  • Education loan application form filled and signed by the applicant and the co-applicant
  • Two passport-size photographs of the applicant and co-applicant to be submitted along with the application
  • Proof of identity for KYC purposes (PAN card, Voter ID, Driving License or any other government issued ID proof
  • Aadhar card has recently become mandatory
  • Proof of income of co-applicant (IT Return, Form 16, Salary slip)
  • Address proof (bank passbook, ration card and utility bills)
  • Six months bank statement of co-applicant
  • Copy of offer letter from the university/institute
  • Copy of the fee structure and all relevant charges
  • Copy of GMAT, GRE, IELTS scores, wherever applicable
  • Copy of mark sheets, transcripts and pass certificates
  • Originial property documents, including sale deed, property tax receipts, registration documents, approved drawing plan and legal opinion of title by the builder etcetera

In case the applicant has been previously employed they can also submit copies of their salary slip, IT Return and/or Form 16. If they have a source of income and/or have savings they can attach proof of the same to strengthen their case for a loan.

The co-applicant can be a parent or a spouse or the in-laws. The loan is not granted overnight, as there are a lot of processes involved. It is best to initiate the loan process immediately, on receiving the offer letter. Also, visit the banks personally or call their helpline numbers for information on their education loan schemes. Most banks send their representative to meet a prospective client to expedite things. However, do not expect the loan to be processed within a couple of days - it does not happen!

There is information on specific bank loans that you might want to explore -

Article by Juana
Juana is a freelance writer, with years of experience, creating content for varied online portals. She holds a degree in English Literature and has worked as a teacher and as a soft skill trainer. An avid reader, she writes on a variety of topics ranging from health, travel, education and personality development.

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