A bank usually offers a variety of loan options categorized as per the needs of the individual. You can either take a personal loan for a miscellaneous purpose or take a specific loan for a specific purpose. Some of the specific loan types include car loan, two-wheeler loan, home loan, education loan, etc. Here, we shall discuss the various important details about the education loans.
What are Education Loans?
Education in India is really costly. When you wish to pursue an education in a private college or school, the costs are significantly high. Students often require financial support to pay their tuition fee. Certain loan structures also cover the student’s personal expenses to a certain extent in case the student is living away from the home at a university hostel.
Education loans are given to students who wish to pursue an education at a school/college/university but cannot afford to do that for the time being. The education loan works quite differently compared to the other loans. The repayment period of an education loan is usually longer compared to a car or a two-wheeler loan but shorter or equal to that of a home loan. Unlike other loans, the repayment period of the loan starts from a long time after the loan is granted to the individual.
The repayment of the education loan starts when the student starts earning and can shed out instalments to repay the loan from his/her salary/earnings. There are several types of education loans currently offered by the banks in India.
Types of Education Loans
Let us discuss a few types of education loans that are the most popular amongst Indian students/parents. There are currently a number of types of education loans which are classified on one or more parameters such as thelocation of the study, type of study, theamount borrowed for the loan, duration of the repayment period. The 4 major types of loans presented by the banks in India are,
- Undergraduate Education Loan – The undergraduate education loans are targeted towards students who wish to pursue a higher education after completion of their high school education. The courses for which you can get an undergraduate education loan include all the bachelor degree courses from various fields of study such as engineering, management, arts, architecture, medicine, etc.
- Graduate Education Loan – The tuition fee for the post-graduate course is usually higher compared to that of an undergraduate course. It is a trend for students to complete the undergraduate studies with the family money and take an education loan for a graduate course. Since the person is now eligible to work side by side after completing his undergraduate degree, it is easy for the person to accumulate funds to pay for his/her own education loan.
- Career Education Loan – The career education loan is given to the people who wish to pursue a special course after they start their jobs. These loans help the individual to pursue an extra course after the completion of college to enhance their skillset and get a better job afterwards. A work experience in a reputable field is required for you to get a career education loan from a bank. The career education loan is often considered as an investment by the individual to help him/her secure a better job with the added qualification. It is acommon trend for students to take up a mentorship or an internship at a firm for a few months/years before pursuing a career enhancement course.
- Loans for Parents – Loans for parents is a type of education loan that is comparable to a personal loan for their wards. In this situation, the student’s parents are entitled to pay the loan as soon as their ward starts with the college. Any guardian of the parent can take up this loan to fulfil the needs of the child’s education.
- Health Profession Student Loans – These loans are specifically crafted for the needs of a student who wishes to pursue an education in the field of medicinal practices. The cost of studying medicine in private colleges is significantly higher than the cost of studying at a governmental college. Most of the students in a private medical college pay their tuition fee using this education loan.
When to Apply for anEducation Loan?
Getting an education loan is not as simple as getting a loan over a credit card or getting a personal loan. You need to fulfil several formalities and need to clear several criteria to be eligible for an education loan. You can apply for an education loan when you need financial help with one or more of these costs.
- Tuition Fee – The most popular reason for opting for an education loan is to get the necessary help with the tuition fee of the college/university. The tuition fee for a governmental institute is usually a lot cheaper compared to the tuition fee for a private institute. The tuition fee for a college/university education can go from anywhere between 4,000 Rupees to 50 Lakh Rupees. The cost is higher when the student opts for education in a college overseas in a country like the US or Australia.
- Living Expenses – In certain cases, the living expenses for the student is higher compared to the tuition cost. For example, the living cost in foreign countries, that is, out of India, is significantly high. Under such situations, the student needs to work a part time job to fulfil his living expense cost. In case the student is not in the condition to work to pay his living expenses, he/she might fulfil the financial needs via an education loan.
- Extracurricular Activities and Accessories – The costs for extracurricular activities in certain colleges can get really high. For example, a student might require a loan to buy the necessary components to finish his final year project while pursuing his/her engineering degree.
- Travel – In case the student lives abroad and wishes to visit India once in a while, he/she might need a way to pay for the travel expenses. The travel expenses for an international travel can go to really high amounts in case the student needs to travel a lot to fulfil his/her education.
- Additional Costs – The education loans also cover additional costs for the education such as the cost of a vehicle, books, stationery and other equipment. The additional costs for a student also include the cost of study tours, project as well as fee for exams, library and laboratories. The education loan also provides for the necessary laptop/computer that a student might require for completion of his/her course.
Best Banks for Education Loans
Several banks in India offer an education loan for parents as well as students. The top banks offering low-interest rate loans to students in India include,
- State Bank of India (SBI),
- Oriental Bank of Commerce (OBC),
- Canara Bank,
- Axis Bank,
- Indian Bank, etc.
It is wise to compare these banks on multiple factors such as provision for additional costs, travel expenses as well as living expenses. It is better to go for a bank that covers a wide range of loan options compared to a bank that offers a low rate of interest but covers only the basic needs. In certain courses, the tuition fee for the education is a fraction of the living cost or additional expenses. Make sure you consult the bank for all the details on various aspects covered in the loan.
You must also compare the processing fee as well as late payment fee for the bank to make sure that you get the best deal and can afford the education at the minimum cost possible.
The eligibility criteria for the application of an education loan are generally much stricter compared to the criteria for other types of loans. These criteria change from bank to bank. However, some of the basic criteria that every bank asks for in a loan application include,
- Confirmed Admission Letter– A student needs to have a confirmed admission letter from the university/college/course that he/she is applying for. Only after thoroughly reviewing this letter and confirming the news with the respective university, will a bank grant you an education loan.
- Indian Citizen and Proof of Residence– The education loans from Indian banks are currently available for students with an Indian citizenship only. In case you are a foreign exchange student, you need to consult the banks in your respective country for the loan.
- Good Credit History of the Parent/Guardian– The co-applicant (parent or guardian who takes up the student’s financial responsibilities) of the loan must preferably have a good credit history to make sure that the entire process of application goes smoothly.
- Age Limit– The student must fall within the age bracket for to avail the education loan for the chosen course.
- Minimum Salary for the Co-Applicant– The co-applicant of the loan must follow a minimum earning limit. This limit varies from bank to bank.
- Bank Account- Account with the particular bank
Apart from these criteria, a good academic history for the student can help in securing the loan much faster. Banks prefer giving loans to students who have a good behavioural record with their former education institutes.
List of Documents Required for Application of anEducation Loan
You require the following documents when you apply for an education loan,
- Identity Proof – Pan Card, Driving License,
- Proof of Residence,
- Bank Statement – For the account where you deposit your salary,
- Salary Slips for the co-applicant for past 3-4 months,
- Passport Size photographs,
- Letter of admission from the university/college,
- Fee breakdown structure for the student,
- Marksheets from past education records,
You might require additional documents depending upon the type of course chosen or the amount of loan that you require.
Benefits of anEducation Loan
Some of the benefits of availing an education loan include,
- You can avail discounts or lower rates of interest in case you are a female student,
- The repayment for most of the types of education loan starts from the time when the student starts earning. This relieves the family of the financial pressure,
- Usually, you do not require any collateral while applying for an education loan,
- Several educational and non-educational expenses of the student are covered under the umbrella,
- It is easy to get an education loan for a student with excellent academic background.