Funding your dreams

October 19, 2014

Your higher education aspirations need not suffer for want of money. But how easy or difficult is it to get a bank loan?

Former President A.P.J.Abdul Kalam famously said, " A dream is not that which you see while sleeping, it is something that does not let you sleep." Everyone has dreams. But how does one bear the cost of the education that will help him/her realise their dreams? Several students aspire to study abroad or pursue specialised courses but hold themselves back because of financial constraints. This is where an education loan can help. Taking a loan would ensure that you do not put the entire financial burden on your parents or depend on getting a scholarship.

The process

The cost of education has risen substantially over the years. The college fee, which usually runs into lakhs, depends on the course and the country. For example, if you are pursuing a course in India, you may have to spend from Rs.5 lakh to Rs.15 lakh, but if you are going abroad, then the cost could go up from Rs.30 lakh to Rs.40 lakh. If you are taking a loan of Rs.4 lakh, no security is required. For loans ranging from Rs.4 lakh to Rs.7.5 lakh, third party security is required. From Rs.7.5 lakh to Rs.20 lakh, which is usually the maximum amount that is sanctioned by nationalised banks, a collateral or security is necessary. "If the amount is less, the application gets processed within 10-15 days. But if security is involved, then the legal evaluation of the collateral and other formalities need to be done which can take some time. Usually, the process does not take more than a month," says an SBI branch manager, who does not want to be named.

Some banks such as the Syndicate Bank, ask for 5 per cent of the loan amount as margin money for studies in India, and 15 per cent for studies abroad. The rate of interest also varies from bank to bank. The principal amount can be returned by the student through EMIs, starting from one year after the completion of the course or six months after getting a job, whichever is earlier. "Income-tax benefits can also be availed for an education loan under section 80E of the IT Act," says Gopa Kumar, chief manager, Syndicate Bank, Aminjikarai branch, Chennai.

Shivangi Tyagi, a student of Carnegie Mellon University, Pittsburgh, USA, took an education loan of Rs.30 lakh from SBI to finance her course. "I applied for it around March and it was sanctioned somewhere around May. I preferred to go to a nationalised bank because they usually have a lower rate of interest. Also, women get a discount on the interest rate in government-owned banks. The process involved submitting the university acceptance letter, my GRE and TOEFL score reports and my undergraduate transcripts," says Shivangi. "We also had to submit our apartment documents, since it was slotted as the collateral and its value had to be verified by the bank. This was the only part of the process that took some time," she adds.


However, not everyone has a smooth experience with government-owned banks. Priyanka Sharma, another student from Carnegie Mellon University had a tough time. "To get a loan, I first approached a nationalised bank as the interest rate is good. But after three weeks and several visits, my application was repeatedly turned down. After this disappointing experience, I approached Credila, a non-bank finance company," says Priyanka. "Even though the interest rates were slightly higher, the loan was sanctioned within a week. The customer care service was efficient, and the company sent their representatives to our house to complete all the formalities, which helped me get my visa on time," she adds.

In the last two years, nationalised banks have become a bit cautious while issuing educational loans because the non-performing assets (NPAs) have been very high. "For a higher amount, people are compelled to pay back because of the mortgage. But for smaller amounts, like 4 lakh, no security is needed and the delinquency rate is very high," says Mr. Gopa Kumar. If a student is joining a reputed institute for an advanced course like an MBA, he/she is sure of getting a job. But for ordinary degree courses, there's no job assurance. This alarms the loan providers. The merit of the student is also taken into consideration while sanctioning the loan and continuously monitored after he/she has joined the college. "If the bank feels that the student is not putting in his/her best effort and the performance is not up to the mark, the yearly allowance can be withheld," says the SBI manager.

The right approach

While applying for en education loan, keep in mind the following things — check online and make sure all your documents are in order and have a plan ready for repayment of the loan. It is advisable to plan in advance. "The government policy is that not a single meritorious student should be deprived of the opportunity to study. So we make sure that the applications get processed as smoothly as possible," says Mr. Gopa Kumar. If the student is able to convince the bank that he/she is serious about the repayment of the loan, it is bound to get cleared without a hitch.