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Educational Loan

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Overview

Nothing can replace quality education when it comes to building a bright and successful future for your child and education is the only thing that can get a happy life going. However, due to the rising cost of higher education for students in India as well as abroad, parents are finding it more and more difficult to self-finance their children's education hence there is a huge demand for loans to cover education expenses. Unlike most educational institutions today, educational loans are given to meritorious and deserving students so that nothing hinders their progress and they achieve the best of education in India or abroad. At present, almost every Indian bank and NBFC offer education loans in India to students interested in pursuing a wide range of graduate, post graduate, professional and doctoral courses/degrees.

The quantum of expenses covered by this type of loan covers not just the direct expenses such as tuition fees and registration/examination fees, but also allied expenses such as those for uniforms, lab equipment/tools required for the course, travelling expenses and laptop. Aside from the fee payable to the school/college, other expenses covered by most education loans include:

  • Amount required towards the purchase of books, uniforms, equipment and instruments.
  • Purchase of computers/laptops, if deemed necessary for the completion of the course.
  • Fees paid for Exams, Library, Laboratories, Hostel, etc.
  • Building fund, Caution deposit, Refundable deposit (must be supported by receipts/bills).
  • Costs incurred in travel, specifically for studies abroad.
  • Additional costs that are required to successfully complete the course, including but not limited to, Study tours, Thesis work, Projects, etc.

Features & Benefits

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 up to 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.

Education Loan Eligibility:

Every bank has its own eligibility criteria for dispensing education loans, but a few common parameters are:

  • The applicant must be a resident Indian.Applicant should be in the age bracket 16–35 years.
  • He/she must have secured admission into a recognized course of study, in India or abroad, through an entrance test or other such qualification procedure.
  • If the applicant is a Non-Resident Indian (NRI), he/she must hold a valid Indian Passport.
  • Courses applicable in India- Graduation, Post-Graduation, Diploma programs, Technical courses, Management courses and other professional courses. All from recognized universities.
  • Courses applicable Abroad- Graduation, Post-Graduation, Certificate Degree courses from CIMA- London, CPA-USA and other such well known educational entities.
  • Collateral in the form of a fixed deposit etc. is required for loan amounts higher than Rs. 4 lakhs.
  • Applicant should have confirmed admission in a college/educational institution at the time the loan application is made.
  • The Applicant should have a co-borrower such as a parent who acts as guarantor for the loan

Note- This above listing is a basic eligibility requirement. Banks, in their own capacity, may request for more documentation and proof.

Documentation Required

Listed herein is the basic list of required documents-

  • Completed loan application form.
  • Admission confirmation letters and papers validating any scholarships the applicant has qualified for.
  • Schedule of expenses for the course including tuition fees and other expenses.
  • Score sheet of qualifying test(s).
  • Documents for proof of age (self-attested).
  • ID and Address proof.
  • Passport sized photographs of the applicant, guarantor, etc.
  • Copies of highest educational qualification (degree/post-graduation, etc.)
  • Proof of income (IT returns of parents/guarantor).
  • Six months bank statement for account held by applicant/parent/guarantor.
  • Details of collateral security marked by a Government approved value (if applicable).
  • Copies of foreign exchange permit/student visa for overseas studies.
  • Passport/Visa copy, airfare cost as established in documents (for studies abroad).

As noted, banks in their individual capacity can request for additional documents. Submission of the same, in their required format, is crucial for the smooth sailing of your application form.

Education Loan Interest Rates

The Interest rates on Education Loans tend to vary from bank to bank. There are some standard factors that affect interest rates on like education loan tenure, the amount borrowed and the competitive market rates being an important factor. In case of education loan, girl students are eligible for an additional discount of 0.5% on the rate offered to male borrowers. Usually, the education loan interest rate is computed as a certain percentage usually, between 1.5-2.5% over base rate hence interest rate start from as low as 11.25%. However, in India, education loans usually charge floating interest rates ranging from 12.00% to 16.00% and repayment periods up to 10 years.

Frequently Asked Questions (FAQs)

Education loans are offered by banks to students to enable them to pay for higher studies such as graduation and post graduation courses, both in India and overseas. Apart from the tuition fees, other aspects of expenses such as hostel charges, equipment purchases and other course related expenses may also be covered by the education loan. In case of overseas studies, many education loan providers include the price of a return ticket into the education loan corpus.

As most students have no previous credit history, the parent or guardian has to co-sign for an education loan as a guarantor. Moreover, education loans also require key lender approved collateral such as property documents, fixed deposits, etc. Though there is an interest free (moratorium period) for an education loan, if you service the interest accrued on an education loan during the period, you may receive a further discount on the 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.
  • Specialized 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.

An Education loan plan is a safe and efficient way to gain finance for when compromising on your child’s education is not an option. It is a long-term investment in your child’s secure future. It has the following features:

  • Anyone can opt for Education loan to study abroad or in India for graduate, post graduate, professional and/or doctoral courses/degrees.
  • Specialized 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.
  • Loan cannot be assigned to the student alone, the parent or guardian needs to be co-signor for the loan.
  • Female students are usually offered discounts and/or lower interest rates when it comes to education loans.
  • The annual family income and the course pursued by the education loan applicant are primary determinants of the loan amount.
  • Generally, loans below Rs.4 lakhs do not require a security or guarantor.
  • For an education loan plan up to a specific amount, no collateral is necessary for a higher loan amount (usually above 7.5 Lakhs), security in the form of fixed deposit, property or other bank approved collateral is required.
  • Usually, the maximum loan limit for students studying in India is capped to Rs.10 - 15 lakh and up to20 lakh for those who wish to study abroad with an Educational loan.
  • The normal student loan repayment period is 5 to 7 years, but flexible options for settlement of education loans with longer time period, i.e. 10to15 years is also available.
  • One can get an educational loan at the time of study, but that educational loan does not need to be serviced during the course time period and also features a moratorium period of up to 1 year or till the borrower gets regular employment, whichever is earlier.
  • The interest on this loan is eligible for student loan tax benefits under Section 80E of the IT Act. Also, a few government sponsored subsidy schemes like the Central Scheme to provide Interest subsidy on education loans to help students from the economically backward sections of society. There are numerous advantages of education loans over a personal loan, or the money collected in your saving account Loans for Education are versatile and offer the following benefits-
  • With the recent inflation and shifting prices, you cannot be fully certain about money saving. An all-encompassing education loan liberates you from the constant worry of accumulating sufficient money to fund your child’s higher education. In today’s time, a good education is expensive and these expenses have been increasing continuously. A good education loan keeps you safe from any unexpected costs that can obstruct your child’s future dreams.
  • There are many expenses that incur throughout a course apart from just studies- library fees, building deposits, laboratory fees, caution deposits, books, uniform, travel etc. All the aspects relating to the course can be covered with a comprehensive education loan without ever running out of money. They have been popular recently and one can easily avail education loan for studying overseas. RBI lists these loans as a part of the priority sector and so do banks. Conforming to some basic requirements and confirming your ability to repay the borrowed amount is all it takes to get on-board.

Education loan can be availed for all courses recognized by the UGC in case of India and all regular courses abroad. Each lender has its own list of educational institutions and courses that they would provide a loan for whether overseas or within India.

Every bank has its own eligibility criteria for dispensing education loans, but a few common parameters are:

  • The applicant must be a resident Indian.
  • Applicant should be in the age bracket 16–35 years.
  • He/she must have secured admission into a recognized course of study, in India or abroad, through an entrance test or other such qualification procedure.
  • If the applicant is a Non-Resident Indian (NRI), he/she must hold a valid Indian Passport.
  • Courses applicable in India- Graduation, Post-Graduation, Diploma programs, Technical courses, Management courses and other professional courses. All from recognized universities.
  • Courses applicable Abroad- Graduation, Post-Graduation, Certificate Degree courses from CIMA- London, CPA-USA and other such well known educational entities.
  • Collateral in the form of a fixed deposit etc. is required for loan amounts higher than Rs. 4 lakhs.
  • Applicant should have confirmed admission in a college/educational institution at the time the loan application is made.
  • The Applicant should have a co-borrower such as a parent who acts as guarantor for the loan

Note- This above listing is a basic eligibility requirement. Banks, in their own capacity, may request for more documentation and proof.

Listed herein is the basic list of required documents:

  • Completed loan application form.
  • Admission confirmation letters and papers validating any scholarships the applicant has qualified for.
  • Schedule of expenses for the course including tuition fees and other expenses.
  • If the applicant is a Non-Resident Indian (NRI), he/she must hold a valid Indian Passport.
  • Score sheet of qualifying test(s).
  • Documents for proof of age (self-attested).
  • ID and Address proof.
  • Passport sized photographs of the applicant, guarantor, etc.
  • Copies of highest educational qualification (degree/post-graduation, etc.)
  • Proof of income (IT returns of parents/guarantor).
  • Six months bank statement for account held by applicant/parent/guarantor.
  • Details of collateral security marked by a Government approved value (if applicable).
  • Copies of foreign exchange permit/student visa for overseas studies.
  • Passport/Visa copy, airfare cost as established in documents (for studies abroad).

As noted, banks in their individual capacity can request for additional documents. Submission of the same, in their required format, is crucial for the smooth sailing of your application form.

The interest rates on Education Loans tend to vary from bank to bank. There are some standard factors that affect interest rates on like education loan tenure, the amount borrowed and the competitive market rates being an important factor. In case of education loan, girl students are eligible for an additional discount of 0.5% on the rate offered to male borrowers. Usually, the education loan interest rate is computed as a certain percentage usually, between 1.5-2.5% over base rate hence interest rate start from as low as 11.25%. However, in India, education loans usually charge floating interest rates ranging from 12.00% to 16.00% and repayment periods upto 10 years.

Generally, there are no restrictions. Most banks and financial institutions do not impose this rule. However, certain lenders do mark an age limit spanning from 16-35 years.

  • Towards the purchase of books, uniforms, equipment and instruments.
  • Purchase of computers/laptops, if deemed necessary for the completion of the course.
  • Fees paid for Exams, Library, Laboratories, Hostel, etc.
  • Building fund, Caution deposit, Refundable deposit (must be supported by receipts/bills).
  • Costs incurred in travel, for studies abroad.
  • Additional costs that are required to successfully complete the course, including but not limited to, Study tours, Thesis work, Projects, etc.

Earlier, having an account in the bank from where the borrower was hoping to get a loan used to be an important criterion. Now it is no longer a mandatory requirement. If you have an account with the particular bank, it usually becomes easier to get the loan sanctioned. This is because of your prior relationship with the bank, your past financial records and transactions can be analyzed faster to make a decision.

Sanction or rejection of a loan is generally communicated within 15 days of receipt of duly completed application. In case of rejection, students can demand reasons of rejection of loan application in writing from banks.

The education loan is usually provided to the applicant in the form of a draft payable to the institution. The draft amount is based on the fee structure provided by the institute.

The tuition and hostel fees are disbursed directly to the institute as per their schedule and fee structure usually in the form of a draft. Other components of the loan such as course-related expenses for lab equipment, laptop computer, uniform, travel expenses etc. may be claimed by and provided to the loan applicant.

Yes, for all full-time courses a co applicant is required. The co-applicant can be Parent/Guardian or Spouse (if-married).

Your parents/ guardian can be a co-borrower as well as spouse in case of a married applicant. The co-borrower should have a steady source of income and a good credit history in order to improve the applicant’s chances of a successful loan application.

The applicant is expected (and mandated) to submit his/her progress reports periodically. The progress reports could be mark sheets or a suitably attested letter from the applicant’s school/college.

Some banks perform independent verification of the employment records of the loan cosigner, which typically include parent/guardian or spouse (if married) of the student who is applying for the education loan. In case the details provided cannot be verified, the loan application may be rejected by the prospective lender.

Most lenders have a maximum limit of Rs 10 lakhs to Rs 15 lakhs for studies within India, while the maximum limit on education loans for overseas studies is between Rs 20 lakhs to Rs30 lakhs. In case of some lenders, the applicant can get a higher loan amount sanctioned provided bank-accepted collateral is provided.

The average tenure for an education loan is between 5-7 years in case of most lenders. However, some lenders can offer a longer tenure of up to 15 years in case of higher loan amounts.

For exceptional and genuine cases where the student is not getting a job, lenders may consider extending the repayment period. Usually education loans have tenures of 5 to 7 years. However, as per the guidelines, the tenure can be extended up to 10 years only for loans up to Rs 7.5 lakh and 15 years for loans above it.

Normally, the repayment of a general loan begins after it is disbursed. The payments or Equated Monthly Installments (EMIs) have to be made each month. But for education, it is different; for ensuring convenience to the students, loan repayment usually starts 6 months after the course completion or the starting of a job, whichever is earlier. The period during which borrower is not required to make any repayment is called the moratorium period. Interest calculations do not start on the entire loan amount at once, but only when amounts are disbursed. During the moratorium period, on an education loan the bank will calculate interest on your loan on simple interest basis and will be accumulated until the end of the moratorium period. There are some banks that offer a concessional interest rate if one agrees to pay the interest portion of the loan in the moratorium period.

Nationalized banks usually do not have any pre-payment charges, but private and foreign banks usually charge a penalty that ranges from 0.25% to 2% of the outstanding loan amount.

Not immediately but Yes, Loan borrowers can avail tax benefits on interest paid on education loan under Sec 80E of the Income Tax Act. This benefit is available over and above the Rs. 150,000 deduction allowed under Section 80C. Tax benefits can be availed once the borrower starts paying the interest on the education loan. Further, the deduction is available until the borrower pays off the full interest amount on the loan or for a maximum period of 8 years, whichever is earlier.

The requirement of collateral varies from one bank to another; however, the following is generally the thumb rule:

  • For loans up to Rs. 4 lakh – No collateral or Third Party Guarantee is required.
  • For loans from Rs. 4 lakh to Rs. 7.5 lakh – Collateral is not needed but third-party guarantee is required
  • For loans above Rs. 7.5 lakh – Collateral is required. Some of the key types of collateral accepted by banks include LIC/NSC/KVP, Fixed Deposit held with the lender, property documents owned by the applicant or co-signor.

Each student is given some time by the bank before the repayment tenure starts. This is the time granted by the lender before the repayment begins is referred to as the holiday period. It is usually either 6 months to 1 year after the successful completion of the course, or the time it takes the borrower to start working at a job, whichever is earlier.

If there is a break in the course or the borrower chooses a sabbatical, it is entirely up to lending bank's discretion on whether to add a few months to the holiday period.

Yes, this is possible. You can borrow a loan for a bachelor's degree followed by one for master's without repaying the first loan. This loan can be taken as a top-up loan against the already existing loan; however, it is subject to the lending bank's discretion and the internal rules and regulations of the lender.

It will commence as per the new holiday period, which will take effect once the student has joined a new course.

Banks generally provide a 0.5% concession on the applicable education loan interest rate to girl students pursuing higher education in India and abroad.

Government of India approved the education loan subsidy scheme to provide full interest subsidy during the period of moratorium on loans taken by students belonging to economically weaker sections (with an annual gross parental/ family income upper limit of Rs. 4.5 lakhs per year) for pursuing any of the approved courses of studies in technical and professional streams, from recognized institutions in India. The interest will be paid to the banks by the Government of India.

Yes. Eligibility criteria and loan margins on education loan are relaxed for Scheduled Caste/Scheduled Tribe students availing education loans in India. The eligibility criteria are lowered from first/second class to pass class for SC/ST category students seeking education loan for graduate and post graduate studies, while, margin money is sometimes lowered than the regular percentage or nil.

Banks usually prefer that students avail a life insurance policy equivalent to, or more than, the loan amount. The policy acts as a security feature and forms a part of the collateral. In case of the untimely demise of the borrower, the bank recovers the outstanding loan amount from the student's life insurance policy and the remaining amount, if any, is paid out to the beneficiary of the policy.

Most education loan providers do not charge a margin on education loans equal to or less than Rs. 4 lakhs. For higher loan amounts of up to 7.5 lakhs, banks and NBFCs have a margin of around 5% i.e. they provide loan amount equal to 95% of the course cost and the rest must be borne by the applicant. In case of higher loan amounts, the lender may decide to set margins on a case by case basis according to internal policies.

Requests received from NRIs can be considered if:

  • Student is an Indian passport holder and meets all the eligibility requirements
  • Documents such as security or any collateral which is enforceable in India can be handed over to the bank.

Banks generally fund up to 90% of the education expenses as loan and some even provide loans for 100% of education expense. However, the exact loan amount an applicant is eligible for depends on a range of factors including the monthly earning of the parent/legal guardian, the value of collateral provided, the academic record of the applicant and other factors.

Banks