Getting the help of education loan became a necessary for parents to give higher education to their kids. Increasing fees and lot of new educational avenues brought education system as the business opportunity for educational institutes. Hence it is better to know about education loan in a better way.
This scheme is basically meant for the meritorious and poor student to give them financial help in perusing their higher education. But these days even middle and upper middle class parents suffer financial difficulties for providing education to their kids 🙂
1) Student should be Indian National.
2) Should have secured admission for higher education course in recognized institutions in India or abroad through entrance test. But if the admission is not only based on entrance test marks then banks are advised to adopt the criteria of employability and reputation of the institution concerned.
3) Banks will consider meritorious student for this scheme even if student get admission under management quota.
1) Studies in India
- Approved courses leading to graduate/ post graduate degree and P G diplomas conducted by recognized colleges/ universities recognized by UGC/ Govt./ AICTE/ AIBMS/ ICMR 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/diploma in nursing or any other discipline approved by Director General of Civil Aviation/Shipping/Indian Nursing Council or any other regulatory body as the case may be, if the course is pursued in India.
Above course list is indicative not the exhaustive. Courses other than the above listed can also be approved by banks based on the employability of the course.
2) Studies abroad
- Graduation-Job oriented professional/technical courses offered by reputed universities.
- Post Graduation-MCA, MBA, MS, etc.
- Courses conducted by CIMA- London, CPA in USA etc.
Degree/diploma courses like aeronautical, pilot training, shipping etc provided these are recognized by competent regulatory bodies in India/abroad for the purpose of employment in India/abroad.
Eligible Expenses for 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 total loan).
- Purchase of computer at reasonable cost, if required for completion of the course (total expense should not exceed 20% of total loan).
- Any other expense required to complete the course – like study tours, project work, thesis, etc (total expense should not exceed 20% of total loan).
- While computing loan required, scholarships, fee waiver etc., if any available to the student borrower may be taken into account.
Maximum Loan Available–
Studies in India-Maximum Rs.10,00,000.
Studies abroad-Maximum Rs.20,00,000.
These are the ceilings fixed by RBI. But banks are free to re-consider this limit if the course offers higher than these limits like IIM, ISB etc.
Above Rs.4,00,000-Studies in India 5% and for studies abroad 15%.
This margin includes Scholarship/ assistantship. Margin may be brought-in on year-to-year basis as and when disbursements are made on a pro-rata basis.
Upto Rs.4,00,000-parents need to be joint borrowers but security is not required.
Above Rs.4,00,000 and below Rs.7,50,000-besides parents joint borrower condition, you need to bring collateral security in the form of suitable third party guarantee will be taken. But if banks satisfied with financial condition of the borrower then they may waive the condition of third party collateral.
Above Rs.7,50,000-parents as joint borrower and any tangible asset of suitable value acceptable by banks and assignment of future income of the student for repayment of installments.
For the purpose of joint borrower, loan documents should be executed both by students and parents. The security can be in the form of land/ building/ Govt. securities/ Public Sector Bonds/Units of UTI, NSC, KVP, life policy, gold, shares/mutual fundunits/debentures, bank deposit in the name of student/ parent/ guardian / any other third party or any other tangible security acceptable to the bank with suitable margin. Wherever the land/ building is already mortgaged, the unencumbered portion can be taken as security on second charge basis provided it covers the required loan amount.
Rate of Interest–
Interest rates will be charged at the rates linked to base rate of banks. Simple rate of interest will be applicable till the period of study and commencement of repayment. Paying of interest during these period is optional. But after this period while fixing EMI, this existing interest will be considered as principal. 1% concession will be provided if interest is regularly paid during study period and before commencement repayment.
Loan Approval process–
You can apply either physically or through online mode. After receiving the applications banks will issue you the acknowledgement number. This number includes the bank official contact person in case of delay or more information. Loans either sanctioned or rejected within 15 days if all the documents are correct with duly filled form. Usually future financial generation of the student will be considered for loan approval. If loan rejected then banks need to provide the reasons for rejection. You can submit the loan nearest to your stay or your institute. But future transactions will be nearer to your educational institutes. Loans will be usually disbursed in installments based on the educational need.
Repayment will be after one year of course completion or 6 months after getting job, whichever is earlier. Two years extension will be provided if the courses not completed within the time period. But course is not completed within this period then depending on banks own decision they may extend this extension period. If student discontinue the course then after consultation with student and parents appropriate repayment will be fixed.
Tenure of repayment of loan will be as below.
For loans upto Rs.7,50,000-Max 10 years.
For loans more than Rs.7,50,000-Max 15 years.
Usually earning capacity of person is low during the start of carrier. Hence to make EMI smooth, banks provided stepping of EMI facility. In this facility usually EMI will be lesser during the starting but will goes on increase as the period passes.
No penalty on early repayment of loan.
Processing Charges-Usually banks not charges any processing fees for this type of loan. But banks may charges fee for abroad study loans, will be refunded once student takes up the course.
- Banks may issues 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 to avail this loan.
- Top up loan will be available if further study commence during the moratorium period. Repayment will commence after completion of the further study.
- Usually parents or guardian will be joint borrower. But in case of married student either spouse or parents/parents-in-law may be joint borrower.
These are the major features of education loan updated by Indian Banking Association as on September 2012.