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All you need to know before applying for an Education Loan in India

“The roots of education are bitter, but the fruit is sweet.” –Aristotle

Although the intent of the saying is much deeper but fits-in-well for the current scenario where getting the quality education is a bitter bite to the pockets but the return on the investment made today, tastes sweet later. The quality of education is the building block for a successful career, but with the skyrocketing cost of education at any Top B School in India, it is challenging for a student to pursue quality education, due to the financial constraints.

However, despite education getting expensive year on year the importance and demand of Quality education will never fade.

The cost of a graduation and post-graduation degree in India varies significantly. The Government institutions offer a subsidized cost whereas the education offered at private institutions is very expensive. The government recognized not-for-profit institutions offering quality education are a way to promote educational equality and increase the accessibility to value added education. The cost of education offered by such Not-for-profit institutes is placed in a reasonable bracket with ample financial support offered by the institute via scholarships and education loan help extended via several Bank-tie ups.

The meritorious students can seek out the financial support from several Banks offering the education loan facilities in India. However, choosing the right education loan is again very cumbersome.

Here are some of the FAQs answered to help you find the best education loan-

Personal Loan vs Education Loan, which one to choose?

Rate of Interest– The rate of interest on a personal loan is much higher than the one on education loan. Also, there are several benefits and conveniences offered with an education loan which would not be served by a personal loan.

Repayment- The repayment of principal plus interest starts immediately in case of personal loan, whereas in the case of education loan the repayment typically starts after 12 months from the date of completion of degree/course, that can be even extended (upon the approval of bank) in case of any medical emergencies, unemployment etc.

EMI & Tenure- The monthly instalment amount is directly impacted by the loan period for which a loan is granted. For education loans, the loan period can be of up to 15 years and with low- interest rates, the EMI tends to be smaller in amount. However, for personal loan, the loan approval is difficult to stretch for more than five years and the higher rates of interest make the EMI shoot high.

Are there any prerequisites for applying for education loans in India?

In order to avail an education loan in India, few basic requirements are-

  • CIBIL score (Learn more about CIBIL and How to get a CIBIL Score)
  • The course fee of the programme, student is willing to pursue along with the offer letter from the institute.
  • Applicant’s annual family income detail.
  • Details of a co-applicant, who can be either one of the parents/sibling/spouse.

Would I require a guarantor while applying for the loan?

  • No Guarantor/ Security is required for the Loans below INR 4 lakh.
  • For a loan amount above INR 4 lakh, a third-party guarantor is necessary.
  • For a loan amount more than INR 7.5 lakh, collateral is a must.

Which bank to opt for education loan?

There are several private and government banks offering education loans at reasonable interest rates. Few of the popular banks are listed below. However, do a thorough research on the repayment terms, loan facilities offered, and other Terms & Conditions before finalizing any bank.

  • Vidya Lakshmi Portal
  • State Bank of India
  • Indian Overseas bank
  • Axis Bank
  • United Bank Of India
  • HDFC Bank
  • Credila (HDFC Bank Company)
  • Punjab National Bank
  • ICICI Bank

In order to offer equal exposure opportunity to higher education aspirants, government has been actively involved in framing education loan policies to help meritorious students in getting financial support.

In 2015, Hon’ble Prime Minister of India inaugurated Vidya Lakshmi Portal, managed by NSDL e‐Governance Infrastructure Limited, Mumbai.

The portal is uniquely designed and developed with a view to enable all poor & middle class students to pursue their higher education without any funds constraint.  The user friendly and information rich interface has been developed under the guidance of ministry of Finance, Ministry of Human Resource Development and Indian Banks Association to make education accessible to all.

Things to consider before applying for the loan?

  • Carefully read, research and understand the terms & conditions for applying in different banks before choosing the favourable bank for your education loan.
  • Once the bank and the loan has been shortlisted, make sure to be thorough with the Terms & Conditions & checklists of the application form to avoid falling in the trap of certain hidden costs or undesirable terms.
  • Make sure to go in details of what all is covered under the education loan, as the loan amount would go directly to the institution at the beginning of each semester. The loan amount should cover all the benefits & services, to avoid incurring any additional cost burden.

An education loan typically may cover the following benefits

Caution deposits, building deposits, library fees, laboratory fees, tuition fees, examination fees, hostel fees, Books/ study material, instruments & uniform, travel expenses for studies abroad, etc.

  • It’s advisable to choose a bank which may offer an extension of the repayment tenure in case of any delay under unforeseen circumstances.
  • You should carefully consider the financial capabilities and liabilities of your family and then opt for an education loan, with the intention of repaying it on time so as to not to include you and your parent’s name in the defaulters list.
  • The government-controlled banks offer certain benefits in the form of interest-subsidy for the students from economically weaker strata of society which makes it a preferred option.

Wish you all a happy learning!

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