As college costs rise, loans become harder to get

When Daniel Ottalini entered the University of Maryland in 2004, his family had an array of choices to cover the cost -- cheap student loans, a second mortgage at low rates, credit cards with high limits and their own soaring investments. By the time his younger brother, Russell, started at the University of Pittsburgh this fall, the financial crisis had left the family with fewer options. Russell has had to juggle several jobs in school, and the money he could borrow came with a much higher interest rate that could climb even further over time.

The upheaval in financial markets did not just eliminate generous lending for home buyers; it also ended an era of easy credit for students and their families facing the soaring cost of a college degree. To pay for higher education, most Americans had come to rely on a range of financial products born of the Wall Street boom. Nearly all of these shrank or disappeared in the storm that engulfed the stock and debt markets. Lenders have raised rates and tightened standards, dramatically limiting the availability of home-equity loans and private student loans. College savings accounts, known as 529 plans, had acute losses in the downturn. And a new law, set to take effect Feb. 22, will bar students younger than 21 from getting credit cards on their own.

Loans offered with federal backing were the lone form of student debt to expand, but only because the government stepped in last year to prevent this business from collapsing under the pressure of the credit crunch. Still, the most common type of federally backed loan has a limit of $5,500 a year, not enough to pay for most four-year programs. Even as the financing options have narrowed for families, college expenses are rising faster than ever as schools suffer from endowment losses and cuts in state funding because of the financial crisis and the recession that followed. Last month, California's public universities announced that tuition fees would rise by 32 percent, sparking student demonstrations across the state. University of Virginia officials said a 15 percent cut in state funding for higher education will also force them to significantly raise tuition.

Some educators are concerned that the new price tags will discourage poor students from applying and will price out middle-class families that make too much to obtain financial aid, but not enough to easily afford college. "It's not only the credit model that has changed; the basic financial model of higher education has also become challenged," said Anthony Marx, president of Amherst College in Massachusetts. "We were already concerned that middle-class students were getting squeezed by racking up debt that could constrain their career choices after they graduate. All of that comes under more strain in these new circumstances." Other educators worry that students will be forced to compromise on their education.

Russell Ottalini said he choose the University of Pittsburgh because he judged that it would be best for his Japanese-language studies. He relied on his parents to borrow money for his education. But he acknowledged that economic times are tough and said he is willing to transfer to a cheaper school if one parent gets laid off, even if it means attending a lesser program.

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.

Govt launches portal for easy student loans

If you are a student looking for an education loan, there’s an easy way out. Now, you need not go through the ordeal of visiting one bank after another to get a loan. Just log on to www.vidyalakshmi.co.in and apply to multiple banks by filling just one form.

The portal has been launched in line with an announcement made by finance minister Arun Jaitley in his February budget speech. After applying for a loan on the portal, students can track the status of their applications, and avail various loan schemes being offered.

The portal has been developed by NSDL e-Governance Infrastructure Ltd, in collaboration with the department of financial services in the ministry of finance, department of higher education (a part of the human resource development ministry) and the Indian Banks’ Association lobby group. NSDL is short for National Securities Depository Ltd.

Students will need to first register on the website and then fill a simple form to apply for a loan on the portal, which they can also use to write to banks about their grievances, if any, with the loan-sanctioning and disbursal process. The website also provides a link to the national scholarship website where students can access student loan schemes being offered by various government departments.

Thirteen banks, including the State Bank of India, IDBI Bank, Canara Bank, Union Bank of India, Bank of India and Punjab National Bank, are registered with the portal to offer education loans. Of these, five banks have integrated their system with the portal for providing the loan processing status to students.

The number of banks will increase in the coming days, said Gagan Rai, chief executive and managing director, NSDL e-Governance Infrastructure.

“All state-run banks will be covered,” he said.

In his budget speech this year, Jaitley had proposed to provide students a single-window electronic platform for scholarships and educational loans.

“With a view to enable all poor and middle-class students to pursue higher education of their choice, without any constraint of funds, I propose to set up a fully IT-based Student Financial Aid Authority to administer and monitor scholarship as well as educational loan schemes, through Pradhan Mantri Vidya Lakshmi Karyakram. We will ensure that no student misses out on higher education for lack of funds,” he had said.

Total outstanding education loans falling under priority sector lending stood at Rs.58,700 crore as of end-June, an increase of 2.8% from a year ago.

“It will make it easier to get an education loan. At present, the only option is to physically go to every branch and apply for a loan. The approach also varies from one branch manager to another. If the name of the institution is not very well recognized, then banks are wary of giving a loan,” said Abhijit Shankar, 19, who has dropped a year after his 12th board exams, since he did not get into Indian Institutes of Technology (IIT) and opted not to go for the more expensive private colleges.

Education Loan Interest Rates

Education Loan Interest Rates

Many factors determine the attractiveness and acceptability of any standard loan product, a competitive interest rate being one of the more important factors in this regard. In India, education loans usually command an interest rate from anywhere “Between” 12.00 % to 16.00 %, depending on the bank’s base lending rate and other factors. The base lending rate for banks in India, as directed by India’s apex bank, the RBI, is around 9.00- 10.00%. Some private education loan lenders/ financial institutions offer interest rates that are based on their own base lending rates (often very dynamic) and calculation of interest rates are accomplished on a case-to-case basis.

Education Loan Application Checklist:

No. Things to Do. Yes/No?

1. Confirm upon applicable educational course (University, location, costs, etc.)  

2. Compare all available educational loans on BankBazaar.  

3. Basic Documents to Keep Ready- Address, Age and Nationality Proof.  

4. Attested Marks Cards- Starting from SSLC/10th Std.  

5. Admission Letter as issued by the admitting School/College/Institute.  

6. All essential documents issued by the admitting School/College/Institute, including prospectus, breakup of fees, etc.  

7. Letter from admitting School/College/Institute that stipulates non-availability of hostel facility.  

8. Income Proof- Bank statements (6 months), Salary slips (3 months) & ITR of Parent/Guarantor.  

9. Passport sized photographs (2 nos. each) for applicant, guarantor and parent.  

10. Studying Abroad- Employment Contract.  

11. Studying Abroad- Entry Permit (Validity, issuing authority etc., must be noted).  

12. Studying Abroad- Admission letter & I-20 form from Foreign Institution.  

13. Studying Abroad- Passport & Visa.  

14. Documents confirming upon the security/collateral.  

15. Substantiating documents if immovable property is offered as security.  

16. Affidavit confirming that NO education loans have been availed or defaulted on with regards to other banks or financial institutions.  

17. If Employed- Resignation letter, Acceptance of Resignation letter or Sanction letter for study leave.  

How to calculate EMI interest rates for education Loans?

The generally tedious task of calculating Equated Monthly Installments (EMI) on your subscribed education loan is easily accomplished (minus the sweat) with the friendly Education Loan EMI Calculator on BankBazaar. This useful tool offers the following advantages,Saves Time- Calculate your applicable EMIs, for varying inputs, in mere seconds! Massive saving of time and patience.

Know it All- Unearth all the information you need about your education loan, including applicable EMI amount, amortization details, etc. Find your Sweet Spot- Calculate EMI for different interest rates and applicable tenures. Find the combination that works the best for you.

100% Free- Using this handy tool is completely free of cost.

Comparing Education Loans from Top Banks

Comparing Education Loans from Top Indian Banks:

Lender. Loan Amount/ Interest Rate. Max. Loan Amount Repayment Tenure State Bank of India (Base Rate- 9.70%) Upto Rs.4 lakhs / 13.35% p.a (base rate + 3.65%) Between Rs.4 lakhs- Rs.7.5 lakhs / 13.60% p.a(base rate + 3.90%) Above Rs.7.5 lakhs / 11.60% p.a (base rate + 1.90%) Studies in India- Rs.10 lakhs Studies Abroad- Rs.30 lakhs 5-7 years Axis Bank (Base Rate- 9.95%) Upto Rs.4 lakhs / 16.95% p.a (base rate + 7.00%) Between Rs.4 lakhs- Rs.7.5 lakhs / 17.95% p.a (base rate + 8.00%) Above Rs.7.5 lakhs / 15.95% p.a (base rate + 6.00%) Studies in India- Rs.10 lakhs Studies Abroad- Rs.20 lakhs Maximum 7 years Punjab National Bank (Base Rate- 10.00%) Upto Rs.4 lakhs / 12.00% p.a (base rate + 2.00%) Between Rs.4 lakhs- Rs.7.5 lakhs / 13.00% p.a(base rate + 3.00%) Above Rs.7.5 lakhs / 12.50% p.a (base rate + 2.50%) Studies in India- Rs.10 lakhs Loans upto Rs.7.5 lakhs : 10 years Loans above Rs.7.5 lakhs : 15 years Avanse Education Loan (Avanse Base Lending Rate- 11.50%) Calculated individually based on course being pursued and the accompanying cost. Minimum- Rs.50,000 Maximum- No Limit Minimum Repayment Tenure- 12 months Maximum Repayment Tenure- 120 months

Top Banks Offering Education Loans in India:

The following banks are listed at the top of their class when it comes to education loans in India- SBI Education Loan-India’s largest public sector bank is also a firm favourite when it comes to education loans. Offering upto Rs.10 lakhs for studies in India and Rs.30 lakhs for studies abroad, the SBI Education Loan is a full-fledged offering with customer friendly features and benefits. Some of the key highlights of the SBI Education Loan are as follows- friendly interest rates, coverage of a wide spectrum of educational courses in India and abroad, immensely student friendly terms and the backing of SBI’s legendary name and reliability. Axis Bank Education Loan- India’s third largest private sector bank is a strong contender when it comes to student friendly loans for education. The Axis Bank Education Loan is a full featured offering that is characterised by friendly interest rates, quick turnaround times, loan amounts of Rs.10 lakhs for studies in India and Rs.20 lakhs for studies abroad, a comprehensive listing of funded educational courses (in India and abroad) and Axis Bank’s famous brand of customer support and banking innovation.

HDFC Education Loan- India’s fifth largest bank is a veteran when it comes to offering comprehensive and student friendly education loans and also commanding absolute devotion towards its loan schemes from students aspiring for higher education in India and abroad. Competitive interest rates, a whole range of student centric options and features, funding for an elaborate list of educational courses in India and overseas, alongside HDFC’s constant popularity and new-age banking methodologies, are some of the fundamental reasons why HDFC must be on your scanner when talking of good education loans.

Avanse Education Loan-The first thing that hits you about education loan offerings from Avanse is the sheer number of options on offer. Loans for studies in India, abroad, executive education, pre-admission loans, pre-visa disbursement loans and fast track loans are popular offerings, while a number of student friendly terms and conditions make the aforementioned loans very popular. Avanse Education Loan is focussed on top notch customer service that is backed by an interactive and robust loan processing and disbursal system that will ably match the best on offer in India.

Education Loan - Choose Education Loan

About Education Loan:

When it comes to all the building blocks that form a complete and successful life, nothing is as important as quality education. However, education in India, at least the commonly perceived ‘quality education’ as imparted by acclaimed and influential educational institutions, is decidedly costly and not easily available to everyone- especially those who deserve it based on merit alone. Thus, education loans are vitally important. A barebones explanation for an education loan is thus, ‘funds offered by financial institutions to meritorious and/or deserving students so that the latter can pursue their basic/higher education, in India or abroad’. Almost all banks in India offer education loans, and the demand for it has remained stable with the Indian student community.

Why Choose Education Loan?

The question should ideally be, why choose an education loan over a personal loan, or the money accumulated in your savings account? The versatility and advantages of education loans are listed below-Education is Expensive-It's a matter of instant availability. A comprehensive education loan frees you from the task of accumulating sufficient money to fund your son/daughter’s higher education. And, with inflation and shifting prices, can you ever be 100% certain? A good education is expensive and the expenses aren’t changing in a predictable curve. A good education loan scales accordingly and helps you be safe from unexpected surprises.

Specialised Help-The expenses incurred through a standard study course are many, caution deposits, library fees, building deposits, laboratory fees, etc. With a comprehensive education loan, individual facets of the course can be better addressed without the risk of running out of money. It’s more organized and seamless with an education loan.

Widely and Easily Available- Comprehensive education loans are a priority product in most banks’ arsenal of products and the RBI lists them as part of the priority sector lending of banks. Conforming to some basic requirements and confirming your ability to repay the borrowed amount is all it takes to get on-board.

Timely Assistance- Often, good intent isn’t backed by good monies. A good education loan offers timely help when it comes to a crucial pillar that promises a successful life- education. Nullifying the worry that accompanies the need to gather up the requisite amount, a full-fledged education loan puts you at ease.

Features & Benefits of Education Loans:

When it comes to a complete education loan, the features and benefits offered are the designated deal makers. Commonly, the following conveniences are offered as part of the education loan-Universally available. Anyone with a will to study can apply.

Education loans are provided to pursue all types of academic courses, in India and abroad. The courses include graduation, post-graduation, vocational courses and other certificate courses.

Loan amounts can vary from a minimum of Rs.10 lakhs to a maximum of Rs.15 lakhs. For education abroad, banks will provide loans to the quantum of Rs.20 lakhs. The applicant’s annual family income and the course pursued are primary determinants for the applicable loan amount.

Usually, female students are offered discounts and/or lower interest rates when it comes to education loans. Government sponsored subsidy schemes, such as ‘Central Scheme to provide Interest subsidy (CSIS)’ help students from the economically backward sections of society avail the benefits of a robust loan for education.

The applicant need not repay the borrowed amount immediately. Post the completion of the course, the repayment tenure can stretch upto 5-7 years. Generally, loans below Rs.4 lakhs do not require a security or guarantor. Banks, in their individual capacity, will offer a whole suit of exclusive features and benefits. Check the same before zeroing in on the one that best complies with your requirements.

Why Apply for an Education Loan on BankBazaar?

BankBazaar is a user friendly portal that is dedicated to the comparison of various banking products, including Education Loans. A helpful resource, BankBazaar allows visitors to better understand this loan, its pros and cons, as well as the various banks that offer them in India. Why BankBazaar? The reasons are as follows-100% Hassle Free- Save on time and effort as you ditch legwork and fire up your computer to check out the best education loan options. The process is extremely simple, distraction free and incredibly quick.

Compare Education Loans- BankBazaar lists almost all the education loans offered by the various banks and other financial institutions in India. The simple comparison option allows you to choose the loan that best suits your limitations and requirements. Plus, detailed information on every available loan option.

Apply Online- Post the comparison, use the simplistic BankBazaar interface to apply online for your chosen education loan. Kindly note- Currently, you can only apply for Avanse Education Loan on BankBazaar. More options are expected to be available soon.

Know it All- From important details such as education loan eligibility, documentation and the basic terms and conditions, to informational bytes that relate to the latest happenings across the education loan landscape in India, BankBazaar is a treasure trove of helpful information.

Always With You- Have a query or concern? BankBazaar’s brand of superior customer support is always just a phone call, email or chat-box away.

How to apply for an education loan on BankBazaar?

Applying for a suitable education loan (currently Avanse Education Loan is available) on BankBazaar is a very interactive and simple process. The following steps list this process clearly- On BankBazaar’s homepage, access the ‘Education Loan’ option from the top navigation bar.

Spread before you, on the drop-down, are popular education loan options. You can directly choose any lender from this list. Do you notice the ‘Get Quote’ and ‘Explore’ buttons? These link to wizards that help you, a) find the most suitable education loan for you, and b) find more information about individual loan options. Your eligibility for the loan is determined by an interactive wizard that takes just about 3 minutes to complete. At the end, a selection of the most appropriate education loan options are listed before you. Clicking on any of these allows you to explore this option further.

On a particular bank’s education loan page, the ‘Apply’ button is a prominent fixture. Click on the same to set the wheels in motion. Your information (as provided) will be forwarded to the bank in question and the representative from the latter will contact you in a short while. You can also track your loan application via SMS alerts and email notifications.