The education of their children is a critical goal for almost all Indian parents. An education loan offers several benefits. The most obvious one is that loans are an easy financing option that covers almost 100% of the expenses incurred during the span of education. The quantum of finances that students can borrow exceeds the amount they or their parents could have saved.
Kid’s Education is not easy; with the tuition, the gadgets and the fees, expenses are constantly on the rise. Oh and no, we are not talking about college education. We are just talking about nursery and basic school education fees. Have you checked the recent fees standards? Skyrocketing, to say the least! There is not only an immense pressure to get into top schools, but also the burden of paying the ginormous fees.
How Education Loan is helpful for Indian Students?
Earlier, students would have to give up on their aspirations due to lack of funds. What a person must pursue was decided on the basis of one’s affordability rather than based on their interests. Now they are carving their own destinies because finance is not an obstacle anymore.
With an education loan, they come one step closer to their dreams. Young students can freely choose courses of their interests because they know they have an education loan at their disposal. With such financial aid, students are coming forward & achieving greater heights in every discipline. Therefore education loans have an edge over other loans as it is securing future of the country.
The government is clear that no student should be denied his right to education, especially due to financial limitations. It has worked on ways to improve accessibility to loans & extending education loan subsidy. In 2015, it launched Pradhan Mantri Vidya Lakshmi Karyakram wherein any aspiring candidate can register through a common online application form and apply to several banks for an education loan in a single shot.
With the financial loan, comes the freedom to pursue courses that would otherwise be out of their reach. Students have increasingly benefitted from education loans. One important thing that makes Education loans so attractive is the “moratorium period”. This period of “repayment holiday” states that the borrower does not have to pay a single penny until the student is studying in a regular course.
Benefits of Education Loans
Besides providing you with affordable access to top-class education in premier institutes, education loans in India offer tons of perks. You can comfortably borrow a higher loan amount along with swift and hassle-free loan sanctions at minimal fast-track documentation. Further advantages include:
- Instant loan approval
- Tailor-made solutions for loan structuring
- Tax benefits
- Higher loan tenure
- Flexible repayment / EMI options
- Transparent charges
- Margin-fee waiver
- Collateral-free loan
- Smart and digital e-KYC process
Legalities Involved in Education or Coaching Loans
Education loan eligibility criteria are generally also applied for coaching loans. If you have ever checked the details of education loan, the process of coaching loan would sound so much similar. Here are the process technicalities you will have to keep in mind:
- Under the coaching exam loans offered, the maximum loan amount is up to INR 2 Lakhs to be returned in EMIs in 2 to 3 years.
- Unlike personal or education loans, the loan amount is recovered from the parents as most of the students opting for this are minors. Verifiable proof of income would be required for the applicant’s father, mother or spouse to ensure the repayment capacity of the loan amount. In case of salaried personnel, the repayment period must end before the retirement.
- These loans cover competitive exams like CAT, JEE, GRE, GMAT, GATE, UPSC, AIJEE, AIEEE, NEET, PMT, etc. which are for professional courses including MBA, Engineering, Medical studies, Research, CA, CS, ICWA, etc.
- The institute for which you want to apply must be a reputed institute running successfully for a period of at least 3 years.
- Like most loans, you will need to pay margin money which is around 10% of the availed loan amount. You will also be charged a few hundred rupees as a basic processing fee.
- In case you put an asset as collateral, you can further negotiate for the interest rate which is normally around 11% to 14.5% for these specialized coaching loans.
What to Look For in Education Loan
This is the most important factor when it comes to choosing any loan and an education loan is no exception. Education loans in India don’t come cheap. Since the aggregate NPA of educational loan is very high—9.5-10%—banks charge a higher interest. However, banks reduce the interest by 1% if the interest is paid while the child is studying and the loan is repaid without any default thereafter.
The institute of choice also has a bearing on interest rates. Banks readily give loans for those opting for premier institutes at low interest rates, because the employment opportunities for pass outs from these institutes are many.
Students getting into prestigious foreign universities also have the option of loans from foreign institutions. Since the interest on loan given by foreign institutions will be lower, students should consider this option.
Since defaults are common, public sector banks usually insist on collateral for loans above Rs 7.5 lakh. Though several financial institutions provide education loans without collateral or mortgage, it is better to provide one to reduce interest costs. Accepted collaterals include a house, a plot or fixed deposits. It makes sense to use money lying in FDs with 6% interest, rather than take education loans at 11% using it as collateral
This is one area of an education loan that has seen a sea change over the years. The maximum duration institutions used to give loans for was 7 years, which has now been extended to 15 years. This has meant a reduced EMI. In other words, the child will be able to service the loan it even if the initial salary is low. Since there is no prepayment penalty, it is better to opt for the longest possible duration. However, some prefer to close the loan as quickly as possible.
4. Margin Money
Check how much the financial institution will fund and how much you need to put in. Your contribution is known as the margin money. This requirement varies depending on the lending institution, amount of loan and place of study. For example, PSU banks usually charge 5% margin for loans above Rs 4 lakh for students studying at Indian institutes and 15% for studies abroad. Private players, on the other hand, are ready to fund without any margin requirements. However, make sure that you don’t pay higher interest just to avoid paying the margin.
Unlike other loans, EMIs don’t start immediately for educational loans. In addition to the course period, there will another moratorium period for looking for a job. This moratorium period usually varies between 6 and 12 months. If the parent pays interest during the course period and moratorium period, the EMI will be based on principal only. If the borrower decides not to pay interest, the same will be accumulated and EMI will be based on loan plus accumulated interest. Most Indian parents prefer to pay interest during the course time.
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Courses eligible for Education Loans in India
- Diploma in Engineering, Agriculture, Veterinary courses, any job-oriented course, etc.)
- Degree / Diploma in Army, Navy or Air-Force Training courses
- Degree / Diploma in Aeronautics or any other relevant Pilot Training courses
- Undergraduate Degrees and Diplomas (BA, BCom, BE, BEd, BSc, BBA, MBBS, B Tech, LLB. and others)
- Postgraduate Degrees and Diplomas (MA, M Com, MSc, M Res, LLM, MFA, M Ed, M Phil, MBA, MD, and others)
- PhD courses/Miscellaneous Doctoral Programmes
- Drone Training in renowned institutes
- Specialised Training Courses
- Certificate Courses (In Computers, Nursing, Teaching, job-oriented course, etc.)
- Vocational courses offered by government institutes
- Miscellaneous other courses run by the State Skill Mission or National Skill Development Corporation