Introduction
With increasing interconnectedness among nations and societies, overseas education is no longer considered a far-fetched dream. Students and professionals from all over the world are increasingly recognising that international education offers exceptional education quality as well as open doors to outstanding career opportunities. Although pursuing higher education from a reputed international institution holds the strength to transform the world, it often takes a toll on finances, leaving one conscious of their financial well-being.
To support students in these overwhelming situations and make quality education accessible, a lot of organisations, including banks, financial firms, and non-financial banking companies, along with the government, offer education loans on varying terms and conditions. Understanding how education loans work in India, including eligibility criteria, interest rates, repayment methods and tenure, etc., is crucial for students and their families to make informed decisions and avoid future financial stress.
In this article, we’ll break down the key aspects of education loans in India, helping you navigate the process confidently and wisely.
Understanding Education Loans
Types of Education Loans Available in India-
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Secured Loans
Secured loans are usually offered based on collateral security, where a borrower pledges collateral to secure a loan so as to provide compensation to the lender for an outstanding loan debt. This kind of arrangement is done to ensure timely payments, and if in case the borrower fails to do so, the lender is liable to seize the collateral and make ends meet. -
Unsecured Loans
Unsecured loans, on the other hand, do not require any collateral. The borrower in this case has to have a co-signer with a good credit history, excellent academic scores and admission to a recognised university to avail of this loan. -
Government-Supported Loans
Since students are increasingly opting for overseas education, it has proportionally increased the number of education loan borrowers in the country. Resultantly, the government has invested in special schemes at subsidised interest rates for students from special backgrounds.
Key Benefits-
- Flexibility in Repayment:Instead of arranging a large sum of money in a short period, as in self-funding, an education loan allows you to borrow and repay as per your capacity. It also offers you a moratorium or a grace period where you have the flexibility to arrange your finances while also focusing on your career.
- Low-interest Rates for Students: Usually, the interest rates are comparatively low for educational purposes, and even the government provides subsidies to public banks for low-interest education loans.
- Tax Benefits on Education Loans: A borrower can also benefit from the tax deduction policies of the Indian government, wherein they can claim a tax deduction on the interest rate under section 80E of the Income Tax Act, 1961.
- Building a Credit History: Interestingly, opting for an education loan over self-funding helps you build a strong CIBIL score as timely EMI repayment results in a positive credit history.
Process of Acquiring an Education Loan-
Education Loan Interest Rates
- Most importantly, a borrower should decide between fixed or floating interest rates for the education loan, as EMIs are highly dependent on this factor. In fixed interest rates, the rate of interest will remain immutable throughout the entire loan repayment period. Whereas in the case of a floating interest rate, the rate of interest keeps fluctuating as per the market forces, and it can increase or decrease multiple times during the repayment period.
- Also, floating interest rate is complex to predict and involves non-linear EMIs; therefore, it requires planning and managing your monthly finances accordingly.
- Additionally, note that since the RBI determines the base rate as per the market dynamics, the rates do not drastically vary sporadically, as such changes impact the broader economy of the nation.
Repayment Options and Eligibility Criteria
Education Loan Repayment Options
- Firstly, one must look into different repayment schemes available for students, which may offer large repayment tenure, longer moratorium periods and lower interest rates.
- Secondly, there are flexible EMI options available where one can select EMIs as per their paying capability.
- Thirdly, education loans also come with the benefit of early repayment, allowing you to get rid of unnecessary financial burdens before the stipulated time.
Eligibility Criteria for Education Loans
In order to be able to secure an education loan in India, one must qualify for the eligibility criteria and the documentation process. To simplify the application procedure, we have jotted down the basic requirements which you need you fulfil beforehand.
- Age Limits and Academic Performance:To apply for an education loan, one must fall within a stipulated age group of 18 to 35 years. Alongside this, different banks and NBFCs look for good academic performance as it enhances eligibility.
- Admission into Recognised Institutions:It is necessary to secure admission into a recognised institution, one which is known for its ranking, reputation and credibility, to spearhead your education loan application.
- Co-applicant’s Background:While providing an education loan, lenders often look for the co-applicant’s stable income source, CIBIL score, employment details, financial obligations, property and asset ownership to ensure a timely repayment of the loan.
- Collateral Documents (For Secured Loans): In case of a secured loan exceeding an amount of 7.5 Lakh, a collateral including residential/commercial property, fixed deposits, government bonds, LIC policies, or non-agricultural land, is mandatory to offer some security.
- Specific Eligibility for the UK Institutions: Along with the above-mentioned criteria, you will need your CAS letter and admission confirmation letter for UK universities.
How to Apply for an Education Loan
Now, look at the step-by-step guidance on how to apply for an education loan.
- Check for the Right Lender: Start by choosing the right lender among private banks, public banks and non-banking financial companies. Before finalising, compare these based on interest rates, loan coverage, moratorium period, repayment tenure, etc.
- Comparing Loan Options: Decide if you want to go for a secured or unsecured loan. Dig deep into each option and compare important parameters, including interest rate, loan repayment time, moratorium period, insurance policy, etc., before you make up your mind.
- Check Eligibility: Ensure that you are admitted to an internationally recognised institution, have a good academic record, co-applicant with a stable financial income, and have verified collateral in case of secured loans.
- Preparing Necessary Documents: Afterwards, start collecting all the necessary documents, including the offer letter from the university, academic records, KYC of the student and applicant, income proof of the co-applicant and collateral document (for secured loans).
- Approaching Banks or Loan Providers: Visit your lender for a detailed conversation regarding the whole process, and understand every concept or term and condition.
- Understanding the Loan Approval Process: Lastly, understand the loan approval process and ask as many questions as possible for your clarification.
Tax Benefits
Conclusion
Wishing to pursue your higher education from an internationally recognised university, but worried about managing finances?
There is no need to stress. Since students are increasingly choosing foreign institutions for higher studies, many are realising the advantages of education loans. An education loan not only allows you to strategically plan your finances but also helps preserve your savings for future needs. Today, numerous lenders in India offer tailored loan solutions that support your entire academic journey without causing financial toll on your mind. Therefore, if you are planning to study abroad, securing an education loan can spare you from unnecessary financial burden, allowing you to focus on your education.
FAQs
Yes, it is safe to apply for an education loan, provided you borrow responsibly from a recognised financial institution, understand the terms and conditions and carve out a well-thought-out repayment plan. Securing an education loan can help you achieve your goals as long as you manage it wisely.
Studying abroad from an internationally recognised institution often includes depleting your life’s savings. However, securing an education loan can significantly prevent you from financial strain and can also benefit you in numerous ways, including tax deduction, flexible loan repayment, a good CIBIL score and low-interest rates.
Yes, you can secure a 20-Lakh education loan without collateral, given that you are admitted to a reputable institution with a high ranking, have good academic records and a co-applicant with stable income. You can also prefer recognised NFBCs such as HDFC Credila, Avanse, InCred, etc., and private banks, including ICICI and Axis, as these offer higher unsecured loans as compared to public banks.