All you want to know about educational loans

Ketul Shah

Amit Bhatia is an intelligent student. He got 93 per cent marks in the higher secondary examination. He wants to make a career in software engineering. Coming from a middle-class family background, it is difficult for his parents to meet college fees or even buy a computer.

This is a common case with many aspiring students and their families in India.

Higher education is not affordable to many intelligent students because of their financial condition. But now educational loans are easily available from many banks and financial institution. Hence many students can now go for a higher education without any fear.

Students, or their parents, can take loan for graduation, post-graduation and professional courses from the institutes approved by the government. The educational loan not only covers the college, school fees, hostel fee, books charges, library charges, purchase of computers, but also travel expenses for international education.

Loan amount: The maximum amount of educational loan for study in India is around Rs 10 lakh (Rs 1 million) to Rs 15 lakh (Rs 1.5 million). For education in foreign universities, bank will provide up to Rs 20lakh (Rs 2 million).

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All you want to know about educational loans

Banks decide the loan amount according to the student's course type and the family's annual income. Many banks provide the loan with lower interest rate to female students.

Third party guarantor or the security amount is required as per the loan amount. No security amount is needed for loans below Rs 4 lakh (Rs 400,000). But for loan amounts more than Rs 4 lakh, the bank requires a security amount, such as house property, fixed deposits, etc. The co-applicant is the third party guarantor -- it could be parent, spouse, siblings, in-laws or any other close relative.

Eligibility: The eligibility criteria include Indian nationality, age, course period, etc. The student should be between 16 and 35 years of age. The loan amount is calculated on the basis of the co-applicant's income.

Repayment is not immediately required: The student can be do repayment after course completion. Repayment period can be 5-7 years after the completion of the course.

In case of the student's failure in completing the course, he can seek for two years' extension to complete it.

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All you want to know about educational loans

Interest and fees: Interest rates vary, based on loan amount and type of course. Rates remain between 8 pre cent and 15 per cent. Banks and financial institutes charge fees which can be 0.5 per cent to 2.5 per cent for processing of the loan.

Guarantor or security: Banks may ask for guarantor or security if the loan amount exceeds Rs 4 lakh. The requirement of guarantor and criteria are different for different banks.

Documents required: The student will be required to provide identity proof, age proof and address proof. He is also required to submit the co-applicant's documents, which include relationship proof, address proof, income document, etc.

He is also required to submit admission letter with the fee structure. In case of a foreign-bound student, he needs to submit visa approval papers, travel papers, GMAT / GRE scores, etc.

Suggestion to students: When a student is planning for an educational loan, he should not shop for lower interest rates. Traditional banks may provide low interest loan but processing period could be long. Private institutes can make the loan available very quickly. Hence, look for the banks which give you loan sanction letter before your visa approval.

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