What we become tomorrow depends on the kind of education we receive today, this is especially true if we wish to be the fastest growing economy in the world.

While the enrolment into higher education has only increased over the years, so has the cost of education especially in the premier institutions like IITs and IIMs from where the future of our country is expected to graduate. Faced with the increase in education fees and not willing to compromise on their dreams, parents and students are increasingly turning to education loans.

If you are new to credit and want to know all about education loans, here’s a lowdown.

What does an education loan cover?

Almost all leading banks in the country offer an education loan. The loan amount sanctioned can cover fees and expenses that are mandatory to complete the course. Generally, a complete education loan covers all expenses including your tuition fees, hostel stay, library fees, books and courseware, and other miscellaneous expenses. Some banks also provide additional covers such as vehicle purchase for up to a certain amount, insurance protection, free credit cards, etc.

Types of courses covered

Education loans are granted for graduation, post-graduation, professional, vocational and technical courses conducted by colleges and universities affiliated or accredited to UGC, AICTE, IMC, AIBMS, etc. Professional courses like management and engineering (MBA and MS) in foreign countries are also covered by education loans. For studies abroad, you must have secured an admission before applying for the loan and see to that the institution is listed by the bank.

Getting an education loan for a technical course could be easier than for a non-technical course such as photography, art, filmmaking etc. as the lenders consider the risk of defaults and job security.

Loan amount

The loan amount could vary across banks, but the usual range is up to Rs 15 lakh for studies in India and Rs 20 lakh or more for studies abroad. Sanctioning the loan amount is at the discretion of the bank and also depends on the internal policies of the bank.

The banks do not ask you to pay a margin or demand a third-party guarantor for loan amount up to Rs 4 lakh. For any education loan more than Rs 7.5 lakh, lenders would look for a collateral to approve your loan, this, however, depends on the institution in which you have secured admission.

The interest rate on an education loan generally ranges between 12% to 16% and the basic lending rate starts from 9.15% onwards. The borrowers can either choose floating type of interest rate or fixed interest rate. Students can also benefit from the subsidies provided by the government of India and claim tax benefits on the interest paid. Do note it is best to check with the lenders on the latest interest rates.

Eligibility criteria

Any Indian student, who has secured an admission in any of the approved colleges, is eligible for an education loan.

As most students embarking on courses may not have a credit history or a source of income, the banks demand a co-borrower typically parents, family members or a guardian with sufficient financial means. The co-applicant would be required to have a good credit history and collateral for a higher loan amount.

Repayment

The tenure of the education loan usually ranges between five to 15 years and it can vary depending on the bank’s policies. Since the repayment is a huge responsibility for a first-time borrower and it depends on factors such as the type of employment that the student would get after the period of education. Hence, the lenders give an extension period after the course completion which is known as moratorium period ranging from six months to one year.

Parting notes

For many students, education loan would be the first exposure to the world of credit. Apart from giving the experience of borrowing and repaying a loan, education loans also provide an opportunity to build a healthy credit profile through consistent repayment and gets you to a good credit score. It also infuses a sense of credit discipline into the young minds which will be a stepping stone to secure big loans such as home loans in the future.

(Punja is the chief executive and co-founder of CreditMantri.com. Views expressed here are personal.)

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