Banks offering education loan directly disburse the loan amount to the college/institute. Before offering the education loan banks independently verify the tenure of the course and determine its total cost.
Banks usually offer education loans for a period of 4 years for unsecured loans and 7 years for secured loans. Secured education loans use a residential property or some other assets as collateral.
You can opt either for floating interest rate or a fixed rate of interest on education loans. Banks charge a lower rate of interest if you start repaying the loan amount even in the moratorium period. Kindly note that you have to start repaying the loan if you are not able to complete the course. However, some banks may offer you a grace period, either to continue your studies or to start repaying the loan.
Banks have some eligibility criteria for education loans. The following are some of them:
The applicant should be an Indian national
He should be aged between 16 to 35 years of age
All loans require a co-applicant.
Collateral is required for all loans greater than Rs. 7.5 Lakhs.
The applicant should have a good academic track record.
He should have parents or guardians with stable source of income.
Should have applied to a recognized university in India or abroad.
The following are the courses eligible for a loan:
Management Courses ( Full-Time + Part Time ) - Post Graduation
Engineering Courses ( Government + Private ) – Graduation
Medicine - Graduation + Post Graduation
Masters in Computer Application ( MCA/MCM) - Post Graduation
Distance Learning courses.
Fine Arts and Designing - Graduation + Post Graduation
Architecture - Graduation
Hotel and Hospitality - Graduation + Post Graduation
Agriculture - Post Graduation
Pure Science - Graduation + Post Graduation
Professional courses like SAP, ERP, GNIIT, and Air Hostess Training programs.
All educational loans require a co-applicant. The co-applicant can be a parent, sibling or relative. The following are the criteria for the salaried co-applicant:
Minimum age of 21 years
Maximum age of at loan maturity: 60 years
Minimum employment of 2 years and minimum 1 year in the current organization
Minimum Net Monthly Income : Rs. 10,000 p.m. for Tier 1 & Tier 2 cities (Rs. 8,000 in select cities)
The following are the criteria for the co-applicant if he is self employed:
Minimum age of 21 years
Maximum age at loan maturity: 65 years
Years in business: Minimum 3 years in current business and 5 years total business experience for professionals and 5 years continuous business experience for individuals.
Minimum Annual Income: Rs. 1 lakh for doctors, CA , CS, architects.
Business must be profit making for the last 2 years for companies and firms.
Minimum Annual Income: Rs. 1,50,000 annually for Tier 1 & Tier 2 cities.
The following are the documents you require to provide while applying for an education loan:
Declaration confirming that no loan has been availed from other bank/institution
Letter of admission from the Institute
Letter from the Institute stating cost break up of the program
Mark sheets of all exams SSC onwards
Residence proof , ID proof , signature verification proof and age proof of applicant & co-applicant
Income documents of the co-applicant
Copies of foreign exchange permit, if applicable.The following are the further documents required for studies abroad:
Letter from the Head of Department of the University
Visa approval papers
I-20 in case of applicant going to the USA
Kindly note that you need to provide progress report at the time of every disbursement tranche. Progress report includes mark sheets or a letter from the institute, in case the mark sheets are not available while processing the fresh disbursement tranche.
What expenses an education loan cover?
It covers the following expenses:
Fee payable to college/school/hostel
Fees of exam/library/lab
Caution deposit / Refundable deposit asked by the institution/Building fund - supported by Institution bills/receipts
Expenses related to books, uniforms, equipments and instrument
Expenses of travel in case of studies abroad
Purchase of computers and other software necessary for completion of the course
Any other expense required to complete the course.
Do I need to spend money on paying some of the fees?
Indian banks offer 100% loan on select courses. For other courses you may have to spend 5-15 % of the total fees. However, it depends on the terms and conditions of the banks.
What is the moratorium period?
Usually repayment of the loan starts 1 year after course completion or 6 months after obtaining employment, whichever is earlier. This is called the moratorium period.
Do I need to repay anything during the moratorium period?
It depends on the terms and conditions of the bank. In some cases, interest would have to be paid during the moratorium period. However, some banks also provide a moratorium on payment of interest. However, in that case the interest is compounded quarterly and added to the principal sum for repayment. You can go for this type of education loan if you do not want to repay anything during your course period.
How I would make the repayment?
You have to repay the loan amount in equated monthly installments(EMI). It can be done by giving standing instruction to the bank, having electronic clearing services (ECS) with the bank or by giving post dated cheques to the bank.
You have to start repaying the loan if you are not able to complete the course. However, some banks may offer you a grace period, either to continue your studies or to start repaying the loan.
What is the maximum tenure of the education loan?
Maximum tenure of the education loan may be 7 years including moratorium period.
Is a co-applicant needed for an education loan?
Yes. A co-applicant is required for loan on all full-time courses. The co-applicant can be your parents, siblings, spouse or relative. Your loan eligibility is calculated on the basis of the co-applicant's income. For funding part time courses, no co-applicant is required. Kindly note that even in part-time course, having a co-applicant can enhance your loan eligibility.
How is the loan amount disbursed?
Banks normally disburse the loan amount directly to the college/institute. While applying for a loan, the bank will verify the tenure of the course and determine its total cost as applicable at that point of time. You have to submit a form to the bank every year detailing of the money required. After this process, the bank directly disburses the loan to the college or institute. In case of study overseas, banks pay in dollars to colleges directly. They charge a remittance fee in that case.