education loan

Everything You Need To Know About Education Loans in India

Who doesn’t want to provide their children with the best possible education? Unfortunately, not all can. Like many other services, education, too, is becoming an expensive affair. Parents dream of sending their children to the best colleges and universities to shape their career and life prospects. For this reason, they start financial planning right from the time a child is born. But with education fees rising exponentially and outpacing income growth, savings can often turn out to be inadequate.

Money shouldn’t be a barrier in providing a child with a good education; disappointingly, it often ends up being one. Fortunately, to reduce this burden on parents and to help them fulfil the dreams of their children, there is a tool. The solution is the financial product called an education loan.

What is an Education Loan?

An education loan is provided to students with a good academic background seeking to pursue higher education in India or overseas from a well-recognised university. The education loan is offered at attractive interest rates to students in need of money to pay partial or entire fees to institutes. Education loan interest rates can be availed of on the fixed or flexible interest rate. The latter one is either linked to repo rate or the marginal cost of funds based lending rate (MCLR). The education loan not only covers basic course fees, but also takes care of related expenses like accommodation, exam fees, and other miscellaneous charges related to education.

What is Education Loan Eligibility?

Whether taking an education loan for going abroad or pursuing education in India, the key requirement for education loan eligibility is to have a proven good academic track record. In addition, other factors considered for approval of education loans are:

  • The applicant should be a citizen of India
  • Marksheets of previous exams (SSC, HSC, and other degree courses)
  • The student must secure admission in India or abroad through entrance exams or the merit selection process.
  • As per the RBI, there is no upper age restriction for the applicants. However, some banks may have an age limit of 16 to 35 years for loan applications.
  • Income proofs and tax return documents of the co-applicant (parent/guardian/spouse) are a must when applying for an education loan.
  • The applicant should have a confirmed admission offer letter in the institution recognised by UGC/ AIBMS/Government/ ICMR/ AICTE.

If you are a working professional and thinking of getting an international degree to boost your career prospects, then you can also opt for an education loan. Many banks provide education loans to working professionals.

How to Obtain an Education Loan?

Just like any other loan, one can apply for an education loan online. If you are thinking of availing of an education loan, then it is advisable to plan and give yourself room for improving academic scores to avoid rejection of the application.

Steps to apply for an education loan:

  • Fill an application form listing your personal and academic details.
  • You will be called by the lender seeking information on your academic qualifications, performance, short-listed institute, and type of course. The lenders also tend to discuss the skills you would acquire and how they would boost your career prospects. In other words, they gauge your ability to repay the loan.
  • You need to have an offer letter from the university or college where you intend to pursue your course.
  • If the loan amount exceeds a certain value, then one may have to provide collateral, such as property papers, etc. Ensure your property is clear from dispute and has all documentation for seeking an education loan on the property.
  • Generally, education loan is available to students. In other words, to those without any income. Hence, a guarantor is needed for the loan application. The lender will verify the credit history and other income documents of the guarantor before sanctioning the loan.
  • Once approved, the loan amount is disbursed directly to the concerned university and not to your personal bank account.

How to Repay Your Education Loan?

The student is the main applicant to the education loan. During the tenor, the bank will ask to pay only the simple interest through EMIs. The lender offers a moratorium period of 6 months to one year from the date of completion of the course for the student to find a job i.e. a source of income to start paying the EMIs. The tenor for an education loan is usually between 5 to 7 years. The repayment tenor for an education loan on the property may extend to 20 years.

What Are the Types of Education Loan Schemes Available in India?

Many education loan schemes have been initiated by the government of India to promote education.

  • PadhoPardesh Scheme: Scheme of interest subsidy for education loans. Check details for padho pardesh scheme and receive benefits on loan to study abroad.
  • Ambedkar Central Sector Scheme of Interest Subsidy for Educational Loans: Education loan interest rates subsidy provided to economically backward class and other backward classes to study abroad.
  • Central Sector Interest Subsidy Scheme: This scheme is provided to economically weaker sections to attain technical and professional courses in India.

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