Everything you wanted to know about educational Loans

Am I eligible? Can I apply?

Any Indian between 16 and 35 years who has secured admission to an eligible course and institution can apply for an education loan.

For full-time courses, you will likely need a co-applicant. This could be your parents, spouse, sibling or even a relative. Your loan eligibility is calculated on the basis of your co-applicants income. Though you don’t need a co-applicant for part-time courses, you can improve your loan eligibility by including one. Again, some banks don’t require a co-applicant but may ask for a guarantor.

What amount can I get?

The amount of the loan depends on whether your course is in India or abroad. For courses in India, the maximum limit is typically up to Rs10 lakh, whereas for courses abroad the upper limit is typically Rs20 lakh. The amount is disbursed to your chosen institution directly. For some courses, you can get up to 100% of the entire cost. However, many lenders will expect you to fund a part of your education cost. This could range from 5-15%, depending on whether the course is in the country or abroad. As of mid-2009, you can get education loans starting at interest rates of approximately 11-11.50%. Girl students may avail of slightly cheaper rates—by up to 0.50%. The rates can vary depending upon prevailing market rates of interest. Check with your bank for the latest rates. In any case, do not take a personal loan from the bank for your education. Personal loans are given at a much higher rate of interest than education loans. Currently, personal loans are at least 3-5% more expensive than education loans.

For loans above Rs4 lakh, you may be expected to put up some tangible security as collateral.

When do I have to repay the loan?

Each lender has its own fixed rules, but the industry standard is a repayment period of between five and seven years. Usually, you will get a year’s time from the completion of the course, or six months after being employed—whichever is earlier—after which you are expected to start repaying your loan. This period is known as the moratorium period. During this time you are not expected to pay back the principal amount on the loan. However, you will be expected to pay the interest component. The maximum tenure of the loan is seven years, and this includes the moratorium period. Many banks offer education loans but you are likely to get the best rates at public sector undertaking (PSU) banks. Foreign banks do not usually offer education loans.

What courses am I eligible to take a loan for?

Your banker will exercise some discretion on courses and institutions. Usually, the decision-making criteria are contingent on its view of your earnings and income potential after the course. Your chosen course can be full-time or part-time, undergraduate or postgraduate, degree or diploma, at a government or private institution within India or abroad. It is best to check with your bank to get a good idea of what courses are included in the loan. The following courses are typically accepted:

  • Management
  • Engineering
  • Medicine
  • Computer science
  • Architecture
  • Hotels and hospitality
  • Agriculture
  • Fine arts and design

What documents do I require?

The documents required to depend on whether your course is in India or abroad. You will require some documentation related to your course and from your chosen institution. Check with your lender in advance so that the loan approval process or disbursement is not delayed because of delays in providing documents. Typically, the following documents will be necessary:

  • Completed loan application form and photographs
  • Letter of admission from an educational institution
  • Mark sheets from the relevant examinations
  • A detailed break-up of the costs of the course
  • KYC (know your customer) documents of the applicant and co-applicant
  • Income and asset details of the co-applicant

Can I get tax benefits on the loan?

You can claim a tax deduction under section 80E on the interest paid on loans taken for your higher education or that of your spouse and children. There is no limit on the amount of deduction you can claim. The only thing to keep in mind is that the course for which the loan is taken should be a graduate or postgraduate programme in engineering, medicine or management, or a postgraduate course in the pure or applied sciences. Please check with your accountant about your eligibility.

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