Defining Education Loan
Education loan for students by banks and lending institutions is loan money to pay for college tuition fee, hostel fee, and other expenses. The loan is credited by the bank directly to the college account. The rate of interest charged on education loans is based on the marginal cost of funds lending rate MCLR. The lending institute levies simple interest on the amount loaned during the course period. The repayment of a loan in EMIs starts after the student completes the course program.
Education loan eligibility
Individuals above the age of 18 can avail education loans for self, spouse, or children. There is usually no upper age limit for education loans. Individuals till 60 years of age and even above can be eligible for study loans. A student loan can be taken for graduate, postgraduate, vocational, and research programs. Educational loans can be availed for domestic and overseas studies in recognized varsities and institutes.
Education loan security
Banks may not require security or collateral for education loans up to Rs 4 lakhs. For student loans, between 4 to 7.5 lakhs, banks may ask for a guarantor. For education loans above Rs. 7.5 lakhs, the borrower can be asked for collateral security. Banks may also require the borrower to pay 5 % of the total education expenditure for availing education loan.
Education loan benefits
Education loan has several direct and indirect advantages. The direct advantage of student loan is financing career-based programs for self for a brighter future. Timely availability of education loans makes possible fulfilment of ambitions and career goals in a shorter period. Education loan is the first type of loan availed at the beginning of financial planning for life. Servicing and repayment of education loans enhance individual credit scores and improves eligibility for further loans.
Another advantage of an education loan is a tax exemption on interest under section 80E of the IT act. The taxpayer can deduct the interest amount paid during the year on education loan from total income and reduce the tax base. However, tax deduction benefit for education loan does not apply to the principal loan amount.
Education loan interest rate
Education loan interest rates of different banks vary from 11.99% p.a. depending on CIBIL score. The banks may levy monthly simple interest during the course duration. After completion of the course, banks levy the same rate of interest for EMI payments. If a borrower has paid all the simple interest instalments, then EMI is reduced.
Education loan tenure
Most banks and lending bodies advance loans to students for five years or a maximum of 7 years.
Education Loan without a PAN card
An educational loan can be applied without a PAN card provided the applicant has other relevant supporting identify/address proofs.
There are three types of educational study loans:
- Education in India or overseas
- Education in renowned and venerated Indian institutions
- Vocational education, skill-training camps
These are the general list of documents that may be required.
- Admission letter from the school, college, university or vocational training centre
- Filled and signed application form
- Passport size photographs
- Study expenses. The college will provide a list of expenses in a specific format. Miscellaneous expenses and personal expenses can be included in a separate section. These will add to the total expense of the study.
- AADHAR card or PAN card of the applicant, parent, guardian.
- A statement with details on the assets and liabilities of the applicant.
- Income proof of the individual, parent or guardian
- Indian nationals who have secured the rights of admission to a recognized college, institution.
- Scholar schemes require the college or educational establishment to be a premier institution or tier-one institution.
- Vocational training loans will require the student to have gained admission to a government recognized training institution.
Is there a government subsidy for educational finance?
- The Ministry of Human Resource Development has granted a moratorium period to economically weaker demographic sections. If the income of a student’s parents is below Rs. 4.5 lakhs, then a moratorium is granted on the educational loan interest component.
- A subsidized interest is levied during this period, where the period covers the duration of the course plus one year or 24 weeks after finding a job.
- To obtain the education loan interest subsidy, the student has to furnish family income details in the form of bank statements, salary certificates, etc.
Features of educational study loans
- Educational loans are classified as priority sector loans by the Reserve Bank of India.
- Interest rates average 11.99% p.a.
- There are special schemes for female students, vocational training seekers.
- Students with exceptional academic performance may be classified under special bank schemes and maybe given higher loan amounts without collateral.
- Almost every large bank in India offers educational finance with transparent, easy, and guided processes.
There is no need to postpone education for the lack of money. Taking an education loan is a smart way to study and get to that dream job than saving money to study. Time is the biggest asset. So, save time, act fast, and take an education loan to fulfil one’s ambitions.
Availing an Education Loan, …
Generally, there are very few unsecured educational loan products. Most educational study loans are given based on the providence of security or collateral. Even if the banks don’t take any security, they will not give the money in one single instalment. The money will be given in phases as and when the student completes their educational milestones.
- Banks play safe when disbursing higher amounts. They release the money in phases.
- 50% on completion of half of the semesters. The rest in the final semesters.
- They may require the college/university letter of semester accomplishment or successful passing of educational milestone to disburse the next instalment of money.
So what happens if an untimely event happens to the borrower?
Study finance is still open. Repossession activities are initiated. This is essentially attaching the property or collateral or security of the deceased. By attaching, the bank will try to leverage the collateral to recover unpaid dues.
What if the education loan is unsecured?
- It could become problematic for family members of the deceased. This is especially true if there is a co-signer in the study abroad loan. The co-signer or guarantor is a part of the agreement. Legally the co-signer is liable to pay the loan amount.
- There are education finance loan products that are unsecured and require no co-signer. These are generally low-budget loans. The property of the deceased becomes liable to repay the loan. All obligations to repay the loan are transferred to the deceased loan-takers estate/property/holdings.
- If the family members of the deceased educational money borrower want to preserve the property or holdings of the deceased, then one of them or all of them must voluntarily own repayment of the loan.
How to use an educational loan with care
- Any loan amount can be viewed either as an expendable corpus of money or an essential amount of money.
- The mistake that students make is spending the loan amount for non-essential activities that are not related to their educational study.
- Although top-up is available, it is advisable always to use study finance with care. Even if there is left-over money, it will come in handy, especially if the student is abroad and looking for a job.
Educational loans are classified as priority sector bank lending activity by the Reserve Bank of India. There are plenty of educational finance loan products with a wide array of features to choose from.
Minimum salary required to get education loan
There is much uncertainty about the minimum salary requirement for a student loan. Do banks apply minimum salary criteria for education loans? The EMI on education loan starts post-course completion. Only simple interest on loan amount is charged for course years. Also, students or student guardians can have to pay 5 % of the education expenses. This is often called margin money criteria for a study loan. Remaining 95% can be availed as a loan from the banks.
Unsecured education loan
Students can apply for education loans for studying at a recognized institution. The bank issues loan to student and loan account name is that of the student. The bank credits the loan amount directly to the college. Banks can extend the loan for studies to students who don’t work or who don’t have any salary. The bank may not enquire about the source of money for payment of simple interest and deem it to be sourced from guardians. For loans, up to 4 lakhs banks may even not ask for a guarantor or collateral security. These can be extended to the borrower as unsecured loans. Colleges who have education loan facilities can assist students in availing education loan. Banks ask for following documents for processing the loan:
- Admission letter by the college
- Margin money payment receipt of college
- Student grades and scores
- Student Identity and address proof
- Student photographs
Secured education loan
Sometimes a student may not be able to avail of education loans against college reputation. The student may pursue higher studies from college which do not have tie-ups for education loans with banks. In such cases, banks may apply minimum salary criteria, and working individuals find it easier to get education loans for higher studies. The minimum salary requirement would depend on the amount of loan applied. Usually, for a loan of up to 5 lakhs, the minimum salary requirement is 20K to 25 K per month. Education loans can be availed for up to Rs 15 lakhs against a higher minimum salary.
Education loan for dependent Individuals can apply for education loans for dependents like children and spouses. Banks can apply minimum salary criteria for individuals who seek education loans for dependents. The minimum salary requirement, in this case, can be applied based on the savings potential of the individual. Banks may consider the number of dependents in the individual’s family, salary of applicant, and present loans being serviced by the applicant. Individuals with high savings from salary are eligible for higher education loan amounts.