Cost of higher education such as MBA may not be affordable for everyone. In such situation people tend to think about the Education Loans.
Just to bring clarity on this topic I am posting the detailed procedure for availing an education loan.
Pre-requisites for education loans: Documents Required
· You need to have a valid admission letter from an institution. This means you should have already been selected in the institution.
· Also get the complete expense details of the course you are pursuing. Before approaching bank find out the total cost of education including tuition fee, hostel fee, books cost etc.
· Mark sheet of last qualifying exam.
· Two of your photographs.
· You should also have sufficient money to pay a part of the total education cost. (around 20% of total education you need to bear, rest all would be paid by bank)
Note: The documents for availing the education loan may vary from bank to bank and the list of the required document can be seen in the education loan application form,
Eligibility to get education loan
All graduation, post-graduation and professional courses are eligible for an education loan. Also the courses that offer a degree or diploma can avail education loans.
These courses could be from foreign universities or institutes approved by the state and central government.
Various Education expenses covered under education loan.
Education loan doesn’t cover only the Tuition fee but various other expenses too which are incurred in the course of your education. Some of such expenses are:
· Tuition Fee
· Hostel Fee
· Cost of books needed during the course
· Cost of computer/laptop if it is mandatory for the course.
· Cost of flying, if the course is in abroad.etc
Education Loan Amount=Tuition Fee+ Hostel fee + Books Cost+ Equipment cost+ Flight Charges + etc
Security for your loan
This depends on your Loan amount, if your loan amount is less than Rs.4,00,000/- you don’t need to provide a security.
If the loan amount is more then you need to provide security for availing the education loan.
Security means surrendering some form of assets or investment to the bank for availing the loan. Some form of investments and assets that are accepted as security deposit by banks are:
· Government securities,
· Shares ,
· Bank deposits,
· National Saving Certificates
· House property
· Land Property
· Shop etc
In case you are not able to pay back the education loan, the bank will have rights to sell these assets so as to recover the loan amount from you.
Guarantor for your loan
In cases when loan amount is not too big , but still higher than 4,00,000/- then the bank may ask for a third party to act as a guarantor for your loan instead of asking for security deposit.
In case you are not able to pay the loan, the guarantor of your loan will be legally bound to pay the loan.
Repayment of Loan
Until you are pursuing the course for which you have availed the education loan you don’t need to worry about its repayment. The repayment of your loan may start at :
· -some banks ask for repayment to start after 6 months of completion of course
· -while some other banks ask for repayment to start after a year of completion of course
· -there is also option to start the repayment once you have secured a job. (but this doesn't mean that you can delay repayment of loan infinitely, after a certain period of time you are obliged to start the repayment of your loan irrespective of the fact whether you have secured a job or not)
In most of the cases 10 years would be maximum tenure in which you need to pay back the loan after completion of the course.
Perhaps the number of years for repayment of loan also depends on the amount of loan.
If your loan amount is say around Rs.4,00,000/- then probably you may get 5-7 years only for repayment of the loan.
If the loan amount is larger then you may get 10 years for repayment of the loan.
Frequently Asked Questions - FAQs
What are the current rate of interest?
For most of the banks like PNB/SBI rate of interest for education loan varies between: 12.75 to 14.5% depending on various education loan schemes and also on the bank.
Is there any rebate for girl candidate?
Education Loan from most of the banks are cheaper for girls, for female candidates education loan is given at special interest rate which is slightly lower.
Currently SBI/PNB are giving 0.50% concession in interest for girl students
I need an education loan of 3.5 Lacs but do not have anything to show as Security. What should I do?
For loans upto 4 lacs security is no required you just need to furnish co-obligation of parents (as per SBI/PNB). Below is the detailed break up of various limits:
Upto 4 lacs:
- Co-obligation of parents
- No security
Above Rs. 4 lacs and upto Rs.7.50 lacs
-Co-obligation of parents together with collateral security in the form of suitable third party guarantee.
-The sanctioning authority can replace Third Part Guarantee with Parent/ Guardian as co-borrower provided the Gross Annual income of Parent/ Guardian (co-borrower) as verified by the latest Income Tax Return is 3 times the loan amount.
Above Rs.7.50 lacs
-Co-obligation of parents together with tangible collateral security of suitable value, along with the assignment of future income of the student for payment of instalments. The security can be in the form of land/ building/ Govt.Securities/ Public Sector Bonds/ Units of UTI, NSC, KVP, LIC policy, gold, shares/ debentures, bank deposit in the name of student/ parent/ guardian or any other third party.
-The documents should be executed by both the student and the parent/guardian as joint-borrower. We clarify that if the student is a minor, the documents will be signed by the guardian acting `for self’ as well as `for and on behalf of the minor’.
Can my in-laws be my co-obligatrs foor education loans?
The co-obligator should be parent(s)/guardian of the student borrower. In case of married person, co-obligator can be spouse or the parent(s)/parents-in-law.
What should be shown as security for education loan?
It may be in the form of Property or fixed deposits. The value of the security whatever form it is, should be of substantial when compared with the the Loan amount.
This will again also vary from bank to bank.
Complete list of Documents required for education loan?
Completed Education Loan Application Form.
Mark sheets of last qualifying examination
Proof of admission scholarship, studentship etc
Schedule of expenses for the specified course
2 passport size photographs
PAN Card of the student and the Parent/ Guardian
Borrower's Bank account statement for the last six months
Income tax Returns/ IT assessment order, of last 2 yrs (If IT Payee)
Brief statement of assets and liabilities, of the Co-borrower
Proof of Income (i.e. Salary slips/ Form 16 etc. if applicable)
What is the maximum amount that can be availed under educational loans? / How is the maximum loan amount calculated?
The maximum loan amount varies from bank to bank, but, most importantly, it depends on the course for which the loan is sought and the institution chosen. For example, the loan amount for an M.B.A. course would be different for different institutes--the fees at I.I.M.'s would be approximately Rs 2 Lac, whereas at Somaiya it would be Rs 80,000. Hence the loan amount will vary drastically. But many banks have a margin criterion, which means that they would provide up to 75 per cent or 90 per cent of the total cost of the course, while the balance has to be paid by the applicant. The loan amount can also depend on the borrower's parents/guardians net monthly salary. The loan amount could also be calculated as being six or 10 times the monthly salary of the parent. Ultimately, however, the loan amount would depend on the discretion of the bank.
Is there any penalty in case of prepayment of loan?
No prepayment penalty is levied for prepayment of loan.
When does the repayment of loan commence?
Repayment will commence after Course period + 1 year OR 6 months after getting job, whichever is earlier.
In whose name the loan would be granted?
Loan would be granted in Student’s name
What is the maximum amount I can avail?
For studies in India: Rs. 10 lacs
If the amount exceeds Rs. 7.5 lacs, then security shall be required
For Abroad: 20 lacs
What are the eligibility criteria for Education Loan?
-Should be an Indian National
-Should have secured admission to a higher education course in recognized institutions in India or Abroad through Entrance Test/ Merit Based Selection process after completion of HSC(10 plus 2 or equivalent). OR Where the admission is purely based on marks scored in qualifying examinations, there is a cut off percentage of marks of 50% for SC/ST and 60% for General category.
Would my entire fee be funded by the bank?
Upto Rs 4 lacs- Entire fee shall be funded by the bank
Above 4 lacs certain margin(5-10%) shall be required to be brought in by the student/guardian
What is the moratorium period ?
Moratorium Period is a holiday on repayment which would be for the course period + 1 year or 6 months after the student gets a job/start earning whichever is earlier. Some banks will also allow you a moratorium on payment of interest. This means that you can defer payments of even the interest...
What is the minimum age for getting Education Loan?
There is no specific restriction with regard to the age of the student to be eligible for education loan.
What are the courses covered for Education loan?
Education loanis available for all Approved courses leading to Graduate/ Post Graduate degree and PG Diplomas conducted by recognized colleges/ universities recognized by UGC/ Govt. / AICTE/ AIBMS/ ICMR etc.
Loan is also available for part time courses and job oriented courses subject to employability and earning potential.
Education loans for study abroad is also available for job oriented professional/technical courses offered by reputed universities.
What are the expenses considered for Education Loan?
A. Finance is provided to meet all type of expenses which are necessary for completion of course and also include purchase of books, equipments, computer, travelling, study tours, boarding, lodging besides all types of fees.
How much loan amount one is eligible under Education loan?
Studies in India - Max. Rs.10 lac
Studies abroad - Max. Rs.20 lac
Are there any processing charges one has to pay for availing Education loan?
For studies in India, there is NIL processing fee, however, documentation charges of Rs.270/- for loans up to Rs. 4 lac and Rs.450/- above Rs.4.00 lac - exclusive of service tax and education cess are charged.
For Studies abroad: Upfront fee @ 1% with a minimum of Rs.10,000/- which is refundable on availment of the loan.
Whether, Student can get second loan after completion of first course for other course?
Second loan (Top up loans) to students for pursuing further studies can be considered at the level of Circle Head, on merits, within the overall eligibility limit taking into account genuineness, accessibility, future repaying capacity of the student borrower, recovery of loan and subject to taking required security provided further studies are commenced during the moratorium period of the first loan.
Whether reimbursement of fees is permitted in Education Loan scheme?
Yes, reimbursement of fees paid by the student/ guardian at the time of admission or subsequent stages is permissible within six months from the date of payment of fees on individual merits of the case.
What if Student do not have PAN, can one get an education loan without having a PAN card?
If PAN is not available at the time of sanction, the same can be submitted within one year of disbursement of loan
Whether Loan account can be transferred from one branch/ place to other branch/ place?
Yes, to facilitate hassle free deposit of repayment dues, and to have proper monitoring.
Is Insurance cover for education loans students mandatory? Also is there any compulsion of getting cover from a particular company?
No, it is optional and is on voluntary basis. Student can get himself/ herself insured from the company of choice and assign the policy in the Bank’s name. However, Banks have made arrangement with insurance providers to provide the insurance at competitive rate and easy terms and conditions.