Radhika passed her graduation with flying colors. She had always dreamt of doing her master’s in international business from a prestigious university abroad. She did her spadework and realized that the course fee and the living expenses could easily cost her around 40 lakhs for the 2-year course. It was a huge amount for her parents to fund on their own. That’s when they learned that loans are available for higher studies.
Quality education is an important requirement in shaping up an individual's career. Therefore, everyone looks to a great start to their career by getting the best possible education.
Keeping that in mind, we at CreditMantri bring to you a primer on educational loans, eligibility, repayments, the rate of interest etc.
Eligibility: Any individual aged 21 and above can apply for an educational loan. It could be for higher studies within or outside India. The course that you are applying for must be approved by the Government of India, if in India or an appropriate body if abroad. This loan not only covers the tuition fee but also provides for examination, laboratory fee, hostel expenses, purchase of books, equipment, computers etc, passage to the country of education.
The necessity of Co-Applicants: Parents, siblings or spouse needs to be a co-applicant for the educational loan. Often, the educational loan is applied by students who do not have a credit history yet, so the loan is generally sanctioned based on the credit score of the co-applicant. Collateral is also insisted upon in certain cases depending upon the credit score.
Maximum amount applicable: Each loan is sanctioned on the individual merits of the application, like the course applied for, the country of education, the field of education, potential employment prospects etc. This amount again varies between institutions. These days lenders sanction 100% of the amount required subject to the borrower meeting their conditions.
The rate of Interest: The rate of interest charged also varies depending upon the course applied for. For instance, loans for education at highly reputed institutions like the IITs or IIMs are charged a lesser rate of interest. The credit score of the co-applicant also carries weight here. Some banks do give a concession of 0.5% to female students and to those applying for a lesser amount of loan.
Documents needed for applying: These are the documents required for applying for an educational loan.
Completed application form with photographs and signature
Proof of Address
Academic Documents: Marksheet/Certificate of 12th Exam Marksheet/Certificate of Subsequent Years of Education e.g. BE, B. Com, BSc, etc. Marksheet of Any Entrance Exam Taken e.g. CAT, CET, etc. (If applicable) GRE/GMAT/TOFEL/IELTS, etc. Marksheets (If applicable) Scholarship Documents (if applicable)
Proof of Admission
Income proof of co-applicant
Collateral security proof/documents
In addition, lenders also insist on a life insurance policy for the loan applicant.
Moratorium Period: Educational Loans come with a special feature. Unlike any other loans, repayment on an educational loan starts one year after the course completion or 6months after the borrower starts work, whichever is earlier. The interim period is called the moratorium period. In the moratorium period, simple interest is charged on the loan which adds up to the total amount of loan availed.
Section 80E Income Tax Benefit: This benefit comes as an icing on the cake. Section 80E of IT Act grants a deduction towards the amount paid as interest on the educational loan. This benefit is available not only to the applicant of the loan but also to the co-borrowers like parents.