This article has been written by Milinda Sengupta.

Many of us are used to the idea that our parents are going to pay for our education. However, this may be difficult in many cases if you are opting for super expensive professional studies. A model has emerged now under which students go to expensive colleges that lead to good recruitment, making it easy to pay for the educational loan when the student is finally employed.

Education has been commoditized and studying from the top-notch B-school or law school adds to the professional skills in your portfolio and gets you a placement for a good desk job. But often such placement-guaranteed education comes at a great price. The only option when you don’t have the moolah then is to take an education loan, with the hope that you shall be in a position to pay it back from your earnings after graduation.

Understanding Education Loan

An education loan is a form of credit advanced to scholars and students; it is designed to help students pay for college tuition, books, laptops, hostel fees and other living expenses. It differs from other types of loans in that the interest rate is often substantially lower than most other loans and the repayment schedule is deferred while the student is still in school. It is priority sector lending for bank and also often relatively profitable – so most banks offer educational loans in large numbers.

An educational loan looks like a noble endeavour, but banks cannot afford to grant you the loan without assessing risks involved. Since you aren’t going to start repaying the loan for at least 3 years (5-6 years in case of law students) from the issuance date, the bank is investing in something that isn’t going to start repayment for quite some-time in the future. So, they will be cautious and extra careful when someone asks them for an education loan.

And still, getting an education loan should be a piece of cake compared to the effort you shall put into getting through a good college, B-school or law school. It can be a blessing for those who want to study and achieve their goals but do not have the money to pay.

Where does it come from?

Good question indeed.

Not everyone can offer a credit which you are going to return after n number of years. Here in India almost all the Public Sector banks offer Education Loan.

Some of the nationalised banks such as SBI group have special programmes, some of them are:

• Lower interest rates for girls, SC, ST, disabled.
• Lower interest rates for toppers, etc.

Taking education loans from government bans like SBI, Corporation Bank or UCO Bank is advisable because private banks impose stricter and more difficult conditions for educational loans.

Requirements:

Some banks have restrictions like:

The student or the guarantor should have a valid bank account for at least 6 months,

or the residence must be within 2 km from the bank branch, and so on.

The documents required may change from bank to bank, time to time. Usually the following will be asked for:

• Mark sheets of your last qualifying exam
• Proof of admission into the college
• Schedule of expenses for the course
• Photographs (Usually passport size)
• Bank Account Statement of the Borrower for the last six months (If Applicable)
• Income tax Assessment statement of the guardian (Parents or Guardians)
• Statement of Assets & Liabilities of the co-borrower (Parents or Guardians)
• Proof of Income of the Guardian
• Identity Proof like Driving License, Passport or Voters ID for both the student and the Guardian
• Address Proof like Ration Card or Electricity Bill etc

The list above is not exhaustive but it covers most of the documents that may be required to get an education loan. So, it is your responsibility to perform the entire requisite due diligence to ensure that you know what the bank will ask for when you go to them for the loan.

Important Do’s and Don’ts for Education Loans

An education loan is a long term financial commitment, certain things are important and you need to remember them. They are:

• Do thorough research while applying for an education loan.
• See if your requirements match with the requirements of the bank.
• Read all documents carefully, never assume anything.
• Try to understand all the terms and conditions properly.
• Don’t involve any middle agents or brokers. It is better to deal with the bank directly.
• Preferably opt for a bank that is near your home where you or your parents have a bank account for a few years and have a good reputation.
• Make sure you submit all the relevant documents.
• Do not forge any documents in an attempt to fast-track your case.
• Do not attempt to bribe anyone.
• Make sure you follow-up with bank officials regularly.

Courses eligible for loan

There are many courses that are eligible for an education loan. Here are some of them:

Courses in India

• Graduation courses like BA, B.Com, B.Sc etc
• Post Graduation courses like M.Sc, M.Com, PhD etc.
• Professional Courses like Engineering, Medicine, Law, Veterinary, Management etc
• Courses like ICWA, CA, CFA etc

Courses Abroad

• Post Graduation Courses like MCA, MBA, MS etc
• Graduation courses offered by reputed universities

Please note that, this is not an exhaustive list. It is just an indicative list that shows you the kind of courses which are eligible to get an education loan.

Repayment

Repaying a student loan is different. In most cases, payment can be deferred on the principal and the interest until the student is out of school. It can b postponed to 1 year after graduation as well, though not very advisable as the interest piles up. The best course of action is to keep paying down the interest throughout the loan period so that interest is not compounded – but this is a question of means. Also note that there is a income tax deduction available for interest paid on educational loans.

Repayment typically begins anywhere from six to twelve months after you leave school, regardless of whether or not you complete your degree program. In some cases, repayment begins if course load drops to half time or less, so it is important to check the exact terms and conditions of any student loan.

The student may have multiple options for extending the repayment period, although an extension of the loan term will likely reduce the monthly payment, it will also increase the amount of total interest paid on the principle balance during the life of the loan. Extension options include extended payment periods offered by the original lender and federal loan consolidation. There are also other extension options including income sensitive repayment plans and hardship deferments. Extensions and consolidation will also add to the principle, many times the unpaid interest and penalties becomes capitalized.

Try to ensure that there would not be any prepayment charges on your loan. This means if you pay down the loan ahead of schedule, thereby saving on interest payment, you will not be penalized with a prepayment fee (most private banks charge prepayment fee) – this is a great way to reduce interest costs.

Cost of Loan

Cost of Loan is the extra amount of money you pay in repayment that is actually the rate of interest and the processing fee if any.

In India it’s good that the rate of interest offered is almost constant across all banks with a 0.5 to 1% difference at max. Interest rate of 13% with no processing fee is obviously cheaper than a 12% rate of interest loan with a 2% processing fee so look out for these nasty fine prints. a 1% interest rate can mean difference of tens of thousands of rupees or more over a 5-10 years that you may take to pay the loan back – so be very careful.

Features of some banks.

SBI loans start from 11%

Corporation Bank gives 1% off for disabled ladies.

Axis doesn’t have any prepayment charges.

Federal bank has different rates for loyal customers and fly-in customers.

Bank employees always have an edge over bank customers in some cases rates are lower as much as 1.5% below normal.
Repayment period

Repayment period depends upon the duration of the educational course, some might be 2 years and some might even be 6years, it basically depends upon the agreement between you and the bank.

In some cases Repayment starts right from the time when the course ends, some may give a moratorium of 6 months or 1 year after graduating from the school.

You’ll have to clarify all these queries before signing up for the loan to avoid getting a shock later.

Tax benefits

Repayment of any type of scholar loan is eligible for tax rebate under Section 80E of the Indian Income Tax Laws covering the entire sum of money combined with interest and fines if any.

And to avail this you’ll have to get the interest paid statement from the respective bank and present it while filing income tax returns.

Start applying for Loan

Here is a collection of some important Banks and websites and their customer care numbers.

Call them, go to their site, suggest them your need, this could be the first step after reading this post.

• SBI Scholar Loan: view website 1800-345-3455
• Axis Study Power Loan: view website1800 233 5577
• HDFC Education: Visit your nearest branch.
• Corporation Bank Corp Vidya: view website +91-824-2426-416 to 420
• com 1800-209-3636

Since you’re buying a product from them, they should be more than happy to serve you, agents who normally do the paperwork get very much elated when they see applicants for any loan approaching them, they can’t resist the thought of a bonus and or a promotion too.

And it’s a fact that you’re giving them a good business.