The cost of education in India is surging every day similar to the soaring petrol price. The earnings of a middle-class individual remain the same irrespective of the rising cost of living in India. Graduation and Post Graduation in India costs around 5 to 20 lakhs in Private colleges whereas Medical Education costs around 5 to 10 lakhs in government-aided colleges and around 18 to 20 lakhs in private colleges. With the improvement in overseas education opportunities more and more students dream of achieving higher education in foreign universities. Graduation and Post Graduation Abroad costs anywhere around 50 lakhs to 1 crore which may vary from university to university. Paying for such hefty fees by middle-class parents is not possible without any external financial support. Such financial support taken from the bank specifically for education is Education Loan or Students Loan since students are the borrower of the Loan and parents or guardians can be the cosigner.
Read on to find out more about education loans in India.
Interest Rate for Education Loan in India
Rate of Interest is one of the most important factors to consider while looking for the right loan option. Public sector banks provide loans at lower rates compared to Private Sector banks.
SBI, India's largest bank provides education loans at a 9.30% interest rate with a 0.50% concession for girl students. SBI also provides different rates for institutions such as IIT, IIM, and NIT.
PNB, a public sector bank provides educational loans at a rate of 7.30% to 9.80%. Whereas a Private Sector bank such as HDFC provides a 9.25% to 13.68% rate of interest for education loans. Kotak Mahindra Bank provides a rate of 11.5% to 24% and a minimum rate of 10.25% for girl students. Axis Bank on the other hand provides a rate of 13.70% to 15.20%.
Banks usually provide education loan funding up to 7.5 lac and above. SBI provides loan funds up to 1.50 crores especially for education abroad. Kotak Mahindra Bank provides funding of 10 lac for education in India and 20 lac for education abroad. Every bank provides different finances for education in India and abroad.
Collateral for Education Loan
Collateral is the asset that loan givers accept as a guarantee to provide you with finance. Most of the banks require students to be the main borrower and their parents or guardians as the co-signers. Collateral is not required for a small amount. Most of the banks ask for tangible collateral for a loan amount exceeding 7.50 lacs.
- The loan applicant should be a resident of India.
- The applicant should be between the age limit of 16 years and 35 years.
- Co-applicant is mandatory for all full-time courses. Co-applicant can be a parent/guardian or spouse/parent in law.
- The applicant should have secured admission for a particular course in any recognised university.
- Aadhar number, PAN of the applicant and co-applicant.
- Duly filled loan application form.
- Proof of admission (Admission letter from the institution)
- Fee structure of the course.
- 10th, 12th, and graduation certificates (if applicable)
- Passport Size photos of the applicant and co-applicant.
- Scholarship letter (if any)
- Student's Passport (in case of abroad education)
- Asset-Liability Statement of co-applicant or guarantor (applicable for loan amount exceeding 7.50 lac)
- Documents related to the asset provided as collateral.
- Bank Statements of the last 6 months of parent/guardian.
- Latest Salary Slip and Income Tax Return form (applicable for the salaried applicant)
Loan Processing Fees
The processing fee is a one-time fee that a bank charges to the borrower of the loan. Different banks charge different processing fees while some public banks don't charge any processing fees. SBI charges Rs.10,000/- tax for loan amount exceeding 20 lacs. Private Banks like HDFC charge a maximum of 1% of the loan amount or a minimum of Rs.1000/- (whichever is higher) as the loan processing fees.
Usually, the interest on your loan starts immediately after the approval of the loan. Though you may or may not choose to pay your monthly interest during the course period and the moratorium period(repayment holiday).
The moratorium period is the period after completion of your course when you are not expected to repay the loan amount. The moratorium may be anywhere from 6 months to 1 year after the completion of the course. EMI usually starts after the completion of the moratorium period. Few private banks may request you to pay the whole or partial interests during the moratorium period. EMI is calculated based on the principal amount plus the interest accrued during the course period plus the interest accrued during the moratorium period. If full interest is paid during the course period and the moratorium period then EMI is calculated on the principal amount only.
Most of the banks provide a repayment period of 10 to 15 years. Repayment can be done through EMI which commences right after the moratorium period (repayment holiday) which is 1 year or so after the completion of the course. Prepayment of the loan amount is also accepted by most banks.
Tips to Reduce the Burden of Education Loan
- Pay the monthly interest on the principal amount during the course period and the moratorium period to reduce the burden of repayment.
- If you pay the accrued interest before the completion of the moratorium period then your EMI will be reduced during the repayment period.
- Few banks also give concessions on the Rate Of Interest for payment of the accrued interest before the repayment period.
- To be on the safer side make sure to pay the EMI regularly. Prepay the loan amount if possible.
Education loans are one of the reasons why youngsters with middle-class backgrounds are also able to dream of taking prestigious courses and studying abroad. Our government also provides subsidies on the interest of education loans for students belonging to Economically Weaker Sections(EWS). India is a country where you might also experience a total loan waiver by the government if you are lucky enough!