How to get an education loan in India -Loan application process

Over the years, education has become absurdly expensive. As a parent, you want your children to have the best education possible, but that is often beyond your immediate means. Professional courses, such as engineering or medical, can set you back by Rs 5-10 lakh a year. And if you want your children to study abroad, it’s even more costly.

Education loans are one way to fund their education, and are a great investment in their future. Most banks offer attractive education loans. You can get an education loan for a variety of courses, be it graduate or under-graduate or professional or vocational. So what do you need to keep in mind while seeking an education loan?

Loan application process

To get a loan, you will first need to get your documentation in order. Here’s what you will need:

1. Proof of admission and break-up of costs
2. Academic records
3. Identify and address proof
4. Income documents

You will have to submit these along with a completed application form to the bank.

Quantum and disbursement of loan

• For loans up to a certain amount (between Rs 4-8 lakh), banks won’t ask for collateral. For loans above that, you will need to provide security.
• Banks usually will lend up to Rs 10 lakh for studies in India and double that for studies abroad. These, of course, differ from bank to bank. So check with several banks before choosing one
• The loans are usually disbursed directly to the institution, and you will need to submit a fee request letter from the college.
• If the loan is for studies abroad, most banks will insist on insurance, which will add to your cost.
• You will have to bear some of the expenses (‘margin’ as banks call them) – 5% for studies in India and 15% abroad
• Banks can take anywhere from a week to three weeks to sanction a loan.

Eligibility for loan

• Students can’t apply for a loan on their own. They can do so only if the guarantor is a parent, sibling or spouse.
• Typically, banks allow repayment of education loans six months to a year after the student has completed studies. The loan is repaid in equated monthly instalments.
• In case of default, the student and the guarantor are both held responsible, and their credit history will take a beating.

Loan for approved institutes

• You will get loan only for studies in a recognized institution. Check with the bank if the institution your child wants to apply to is recognized.
• The quality of the institution and the bank’s confidence in the student’s ability to land a job after completing studies also plays a part in successfully securing the loan.

Interest and tax benefit

Interest on education loans: At present, banks charge between 11 per cent and 15 percent. This depends on the type of institution the student has joined as well as the loan amount. Some banks may offer better interest rates to:

• Studies in world-class institutions
• Outstanding students
• Female students

You can get a tax rebate under section 80E for interest paid on education loans.

Getting an education loan, especially if you have a good credit score, ready documents and admission to a good institute, is easy. But to get the best deal compare offers and terms and conditions from different banks before signing on the dotted line.