Education has become very costly in India and abroad, and the cost is rising every day. It has become very hard for students to afford quality education because college and school fees are always on the rise. The best option to counter these fees is to apply for an education loan with added benefits beyond the payment of college fees. Let's find out how study loans in India work, the education loan process, benefits, and much more.
What is an Education Loan?
An education loan allows students to apply for loans to fund either their studies in India or abroad. Different banks and financial institutions have dedicated schemes called study loans in India, which provide different schemes for aspirants to study for their quality education.
How does an Education loan work?
An education loan does not require immediate payment by the students. The repayment period usually begins a few months or a year after the completion of the course. However, it can further get extended up to five to seven years in some cases.
It differs from bank to bank. The loan amount is transferred to the institution/university of the student by the bank at the beginning of the semester. Education loans also cover all other non-academic costs such as the library, hostel, books, laboratory, etc., which guarantees that a student does not have to pay anything from his or her pocket.
Types of Study Loans in India
There are various distinct forms of education loans offered by banks, which can be classed based on the different aspects listed below:
1. Education Loans by Location:
- Domestic Education Loan- Domestic education loans are available for students studying in Indian educational institutions.
- Study Abroad Education Loans- A study abroad education loan is a type of education loan for students who want to further their studies at accredited overseas institutions and universities.
2. Education Loans Based on Course of Education:
- Undergraduate Education Loans - Undergraduate education loans are designed to help students pursue a bachelor's degree in their particular subject at a national or international college/university over a period of three to five years. To qualify for this loan, the student must have completed their 12th grade.
- Postgraduate Education Loans - Postgraduate education loans are mostly for two-year courses that allow students to pursue a postgraduate degree in their particular topic at a national or international college/university. To qualify for this loan, the student must have a Bachelor's degree.
3. Educational loans are based on collateral security or guarantee:
- Loan Against Deposits - An education loan against deposits can be obtained against recurring deposits, fixed deposits, or any other deposits accepted by the bank.
- Loan Against Property - An education loan against property can be obtained against immovable assets such as residential property (a house, flat, or land/agricultural land), etc.
- Loan Against Securities - An education loan against security might be secured by bonds, equity shares, and so on.
- Third-person Guarantee - An education loan can be taken out against a third person, who can be a relative or a friend.
Features and Benefits of Study Loans in India
A study loan in India assists students in paying for their tuition, living expenses, and other educational costs. By providing reduced interest rates and flexible repayment alternatives, it increases access to higher education. Here are the top features and benefits:
- For local students, the maximum loan amount is Rs. 50 lakh, but for overseas students, it might reach Rs. 1 crore.
- 100% financing is offered under some circumstances.
- Other costs, such as laptops and travel fees for student exchanges, are covered by the funding.
- For foreign disbursements, preferential exchange rates could be offered.
- For the education loan, parents must be joint borrowers.
- The maximum loan repayment period is fifteen years.
- A loan moratorium that lasts from six months to a year after finishing the course.
- Tax advantages on loan interest payments for a maximum of eight years.
Education Loan Process in India
The education loan process is easy to understand and allows students to pay for their education without worrying about money. Numerous NBFCs and banks provide loans with flexible payback plans and simple application processes. A few simple procedures can help students get a loan to pay for their tuition, housing, and other costs. Here’s how the education loan process works in India:
- Make sure you fulfill the requirements set forth by the bank or lender, such as those related to age, course, and institution approval.
- When selecting a lender, evaluate the interest rates, terms of repayment, and loan amounts that banks and NBFCs are offering.
- Assemble the required paperwork, including evidence of admittance, KYC, proof of income, and collateral, if any.
- Fill out the loan application in person at the lender's location or online.
- After looking over your paperwork and confirming your eligibility, the lender approves the loan.
- Once the loan has been accepted, sign the agreement that contains the conditions, interest rates, and repayment information.
- Depending on the needs, the bank sends the loan money straight to the institution.
- Repayment may start after a grace period or after the completion of the course, depending on the loan.
Education Loans Interest Rate in India
The education loan interest rate in India varies from bank to bank. Here are the interest rates of top banks:
- State Bank of India (SBI)
- Domestic Studies: 8.05% - 11.77% p.a.
- Overseas Education: 10.15% p.a.
- Female Student Concession: 0.50% discount.
2. HDFC Bank
- Interest Rate: 10.15% p.a.
- Processing Fee: Up to 1% of the loan amount.
3. ICICI Bank
- Standard Rate: 9.50% p.a. onwards.
- Special Rate: Lower interest for students studying in Canada.
4. Central Bank of India
- Cent Vidyarthi Loan: 8.10% - 10.60% p.a.
- Cent Skill Loan: 10.15%
- Cent Vidya Lakshmi: 9.15%
5. Bank of India
- Domestic Studies: 8.35% - 11.05% p.a.
- Abroad Studies: 11.05% p.a.
- Star Vidya Loan: Starts from 9.25% p.a.
Bottom Line
It is indeed a good option to have an educational loan when one wants to pursue a desired education, but it is imperative to review one's financial capability before going for the loan. Also, before choosing a bank for your education loan, be sure you have read all the terms and conditions.
