Foreign education opens up many doors towards success. However, the cost of study abroad is generally beyond the reach of most of the Indians. Do not let the lack of funds hamper your dream of better education and lucrative career. This is where education loans enter the scene. Education loans make it possible for deserving students for achieve their dream of higher education.
There are several factors which need to be kept in mind while applying for higher education loans. The banks generally require security or collateral for the grant of these loans as the students do not have adequate creditworthiness for availing these high value loans. Due to this reason, banks are generally selective about the grant of these loans. Following are the factors which determine the feasibility of these loans.
Interest Rate:
The bank may charge fixed or floating interest rate for this loan. The borrower should also pay attention to the rate of interest levied as it will determine the amount of EMI along with the tenure of the loan. A special discount is generally provided to female students.
Some banks may also offer lower interest rate of economically weaker sections of the society. The families with less than Rs. 4.5 lacs in annual income are included in the category of Economically Weaker Sections.
Most of the banks provide competitive interest rates, however, the borrower should shop around to get the best possible interest rate.
Collateral:
Educational loans up to Rs. 4 lacs do not require any security but the parents of the borrower need to be joint borrower. If the loan amount is between 4 lakhs to 7.5 lakhs then along with the parents as joint borrowers, there is also the need for third party guarantee. If the loan amount is more than 7.5 lakhs then parents need to be joint borrowers. In addition, a tangible collateral security of suitable value such as house or land is also required.
Margin Money:
Generally, loans cannot be used for fully funding the education. If the loan amount is below Rs. 5 lakhs then the requirement for margin money is nil while if the loan is above Rs. 4 Lakhs and the student is enrolled in an educational institute outside of India, the margin money is required to be 15 percent.
Tenure of the Loan:
The loan is generally granted for up to 10 years if the loan amount is up to Rs. 7.5 lakhs and 15 years if the amount is higher than Rs. 15 lakhs. There is a moratorium period which is equal to the duration of the loan and 1 ear or 6 months after getting the job whichever is earlier. The interest keeps accumulating during the moratorium period, therefore it is advisable to start repaying the loan as soon as possible.
Interest rate paid by the student is eligible for income tax exemption.
Eligible Institutes and Expenses:
The educational loans are selective. The student should have gained admission to an eligible course in an eligible institute. The borrower should establish the eligibility of their course as well as of their institute, if they want to avail of the loan. The loan amount can be used for paying fees, accommodation expenses, library fees, exams fees and books expenses. The loan can also be used for funding reasonable equipment expenses such as computer or traveling expenses for going abroad and any other related expenses needed to incur for the completion of the course.
The banks may grant up to Rs. 20 Lakhs for foreign studies. On case to case basis, they may approve higher amount as well. However, they may need more collateral for this purpose.
Academic Progress:
The loan is generally granted in tranches so it is essential that the students keep up the academic progress. In certain cases, where the student keeps performing lower than expected, the loan grant may be stopped. Some foreign educational institutes may require the student to file a certificate from their banker about the solvency. The student should remain careful to maintain reasonable standard of academic performance in order to remain eligible for the loan grant.
Repayment:
The banks generally do not levy prepayment penalty if the student decides to service the loan before the scheduled dates. It is also advisable to start the repayment as soon as possible to avoid interest accumulation. The banks may levy high penalty charges if there is delay in payment of the EMIs. The borrower should be extra careful about the scheduled repayments and should service he EMIs as soon as they become due.
The banks may have varied requirements for the grant of the loans but they are generally competitive in this regard. Educational loans, if used wisely, may help you achieve your dream education and then your desired career.
