Pursuing higher education is a very costly affair. Therefore, for students in India, education loans are a crucial source for fulfilling their dream of higher education without burdening their families much. Educational Loans are student education funds provided through financing institutions such as banks for disbursing a student's higher education expenses. Most such educational loans generally cover tuition costs, accommodation expenses, examination costs, library and laboratory fees, etc.
Eligibility Criteria
To avail of an educational loan in India there are some required conditions set to be fulfilled by the particular lending institution itself. Normally, you must have confirmed admission to a recognized educational institution in India or abroad. Indian citizenship is a must, and most banks also insist on a consistent academic record so that you can meet their benchmarks. The co-applicant, who is usually a parent or guardian, may also be required to provide proof of financial stability to support the application. The individual requirements of the banks may be different; hence it is best to check out their respective requirement.
Step-by-Step Procedure
1. Research and Choose a Bank:
Research the different banks, interest rates, the amount that can be loaned, terms of repayment, and customer care. Education loans are provided by many public sector and private banks, though their terms vary.
2. Collect Necessary Documents:
In order to apply for an education loan, one has to collect the necessary documents. Generally, the documents include an admission letter issued by the educational institution, mark sheets and certificates of previous academics, proof of identity and residence, and financial documents of the co-applicant, such as income proof and bank statements. With all these documents in hand, the process of applying and getting approval becomes much smoother.
4. Application:
Fill up the application form from the bank, available online or over the branch. This should be accurately done.
5. Submit Application:
After filling in the entire application, enclose supporting documents and send them to the bank for further processing.
6. Loan processing and approval:
Once the applications are submitted, the respective banks process them with proper evaluation before giving final approval. The credit history of the co-applicant is reviewed so that they may have a clean financial record with good repayment practices. Academic performance is reviewed so that one gets an idea of whether the student has the potential to complete the course or not as it also portrays whether the student can be absorbed after completing the course. The bank will also consider the reputation and accreditation of the academic institution and whether the course carries prospects in the job market, as well as the earning power. The income level and the financial stability of the co-applicant are the most important as they assure repayment capability to the bank. If the bank is satisfied with these factors, they will issue a sanction letter that specifies the approved loan amount, applicable interest rate, repayment tenure, and other terms of the loan.
7. Disbursal of Funds:
The bank disburses the sanctioned amount directly to the educational institution or as indicated in the sanction letter on the completion of formalities.
If one applies for an education loan to finance these expenses, considering an interest rate of 9 per cent per annum and a repayment period starting one year after course completion, the EMI would be calculated by an education loan EMI calculator. Today, many banks and financial websites have tools for the purpose where the applicant can estimate his finances.
The major factors to consider
Interest Rates
Interest rates on education loans in India typically range from 8 per cent to 15 per cent, varying by bank, loan amount and whether it is an overseas education loan or not.
Repayment Period
Repayment usually begins 6-12 months after course completion or 6 months after getting employment. But it goes without saying that this repayment window defers from banks to bank, also depending upon the bank being a public or a private one. With the exception of the moratorium period, almost all government banks offer an education loan payback duration of 12 to 15 years; however, students are free to pay off their loans sooner if they are able.
Collateral Requirements
According to RBI guidelines, banks must not take any collateral from students who are opting for education loans below Rs 4 lakh. For amounts between Rs 4 lakh and Rs 7.5 lakh, a third-party guarantee may be needed, while loans exceeding Rs 7.5 lakh often require collateral security.
Securing an education loan in India involves a systematic approach, from selecting the right bank to understanding the terms of repayment. By following this guide, you can navigate through this tedious process more easily, ensuring that financial constraints do not hinder your educational aspirations.
