How to get the right education loan

The Indian Government has framed a Comprehensive Educational Loan Scheme which covers all types of courses including foreign education

One would always want to be educated in the 'best' institution, studying the 'best' course. But 'best' is will no longer be restricted by geography. With education loans becoming easily accessible, you can pursue the 'best' degree from anywhere in the world.

In a bid to ensure that no student in the country is deprived of higher education for want of finances, the Indian Government has framed a Comprehensive Educational Loan Scheme which covers all types of courses including foreign education. In consultation with the Reserve Bank of India and the Indian Banker's Association (IBA), this scheme allows up to INR 15 lakhs for studies abroad, no collateral or margin required for loans up to INR 4 lakhs, with interest rates not to exceed prime lending rates and repayment period defined between 5-7 years, with a grace period of one year after completion of studies. Tax benefits include deductions of upto INR 40,000 under section 80E of the Income Tax Act for upto eight years. While this has formed the base indicator, banks today offer upto INR 30 lakhs in education loan with varying collateral, documentation and interest rates applicable.

The past decade has also seen private companies enter the education loan market, thus simplifying the process and making it highly efficient and user-friendly. Companies offer up to 100 per cent finance with no margin money required; no ceiling on the loan amounts; repayment periods of upto 10 years, loans for pre-admission expenses and even doorstep services. Loans through private providers can be processed within a week if documentation is in place.

To facilitate education loans further, with effect from 2013-2014, the government announced 'Padho Pardesh', a scheme of interest subsidy on education loans for students belonging to minority communities who seek an overseas education. This includes students from communities like Muslims, Christians, Sikhs, Buddhists, Jains, and Parsis who seek to pursue a Masters degree and above, abroad. Under this scheme, the Ministry will reimburse 100 per cent interest component of the education loan availed by a student from a bank upto moratorium period (i.e. course period + one year after completion of the course or six months after getting employment, whichever happens earlier) where the student's overall family income is not more than INR 6 lakhs per annum. This scheme is monitored by the Indian Banks Association.

Additional interest rate benefits are also provided to female students and students from OBCs making education loans huge enablers for the growing middle class.

Here's a look at some FAQs to taking an education loan:

How do I calculate my education loan ability?

You need to know how much surplus income you have and measure it against your rate of interest and tenure of the loan. There are several online education loan calculators that allow you to key in this information providing you with the eligibility amount and your EMI.

Does education loan limit depend on the degree applied for?

Education loan limits are usually determined by your financial eligibility of repayment and the sector from where the loan is being taken. For example, a scheduled bank may offer a maximum of INR 30 lakhs (where an undergraduate degree can cost upto INR 150 lakhs), but a private financial institution like HDFC Credila can provide a loan to cover the entire expense as long as other requirements are met.

What documents do I submit, to get an education loan?

Education loan is divided into three stages – Eligibility (do you qualify), Sanction (how much will you get based on the information you have provided and post verifications) and Disbursement (releasing the education loan). Once you have the following documentation, you should be set to make your application through any of these processes:

Deciding on the co-applicant (it is recommended that parent/s become the co-applicant) and guarantor (if required) Completed application form Photograph, ID, address proof Academic documents to the highest qualification Admission-related documents 6 months bank statements Proof of Income (IT returns of co-applicant and/or guarantor) Collateral documentation

The paper work between banks can vary based on collateral, guarantors and other internal requirements. It is best to get this clarified from your financial institution.

What is the collateral I need to pay?

Education loans upto Rs 4 lakhs are usually collateral-free as stipulated by the government. For higher education loans, applicants/co-applicants will need to provide collateral either in the form of fixed deposits or property mortgaged with their respective institutions.

What is the repayment time?

About 5-7 years with scheduled banks and up to 10 years in private financial institutions. This excludes the moratorium period which usually refers to the course period and one year after completion of course or six months after getting employment whichever happens earlier.

Can you suggest a few banks or schemes from where I can secure my education loan?

It is best to approach a bank where you, or your family already have an existing relationship. Alternatively, nationalised banks under the IBA can provide competitive interest rates and applicable government schemes can be availed through these banks. Financial institutions dedicated to the provision and service of education loans can process loans across various income brackets very quickly.

Can I avail an education loan for any country?

In most cases, yes. However, some banks/financial institutions may have a reference list of universities from that country which they recognise, or they may ask you to furnish information authenticating the university institution of study.

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