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Everything you must know about Education Loans

If you have the desire to study and to improve your career prospects, then you can find a lender who can fund your educational aspirations. Lets understand what are the nuances of education loans.

Who is eligible for education loans? Who can apply?
What is the amount of loan I can get, and how much does it cost?
By when am I expected to repay my loan?
What is the best place to get a loan?
Which courses are eligible for education loans?
What expenses are covered?
What are the documents required?
Can I get a tax benefit if I take an education loan?

Who is eligible for education loans? Who can apply?

Any Indian National between 16 - 35 years who has secured admission to one of the eligible courses and institutions can apply for an educational loan.

For full-time courses you will likely need a co-applicant, who can be your parents, spouse, sibling or relatives. Your loan eligibility is calculated on the basis of your co-applicant's income. While you do not need a co-applicant for part-time courses, you can improve your loan eligibility by including a co-applicant. Alternatively, some banks might not require a co-applicant, but might require a guarantor for the loan.

What is the amount of loan I can get, and how much does it cost?

The amount of loan depends upon whether your course is in India or abroad. For courses in India, the maximum limit is typically up to Rs 10 lakhs, whereas for courses abroad the maximum is typically Rs 20 lakhs. The amount is disbursed to your chosen institution directly.

As of mid-2009, you can get education loans starting at approximately 11% - 11.50% interest rate. For girl students, one might be able to get a slightly cheaper rate by up to 0.50%. Rates can vary depending upon prevailing market rates of interest. Check with your bank for the latest rates. In any case, please do not take a personal loan from the bank towards your education. Personal loans are given at a much higher rate of interest than education loans. For instance, currently personal loans are at least 3% - 5% more expensive than education loans.

For loans above Rs 4 lakhs, you might be expected to put up some tangible security as collateral.

By when am I expected to repay my loan?

Every lender will have its fixed rules, but the industry standard is a repayment period of up to 5 - 7 years. Usually, you will get a period of one-year from the completion of the course or six months after being employed, whichever is earlier, after which you are expected to start repaying your loan. This period is known as the moratorium period. During this time you are not expected to pay back the principal amount on the loan, however you will be expected to pay the interest component of the loan.

The maximum tenure of the loan is 7 years including the moratorium period.

What is the best place to get a loan?

Many banks offer education loans but you are likely to get the best rates at the PSU banks. Usually foreign banks do not offer education loans.

Which courses are eligible for education loans?

Your banker has some discretion regarding which courses and institutions are eligible for loans. Usually, their decision-making criteria will depend upon their view of your earnings and income potential after the course. Your chosen course can be full-time or part-time, undergraduate or post-graduate, degree or diploma, at a government or private institution within India or abroad. It is best to check with your bank. In any case, the following courses are typically accepted for such loans:

• Management
• Engineering
• Medicine
• Computer Science
• Architecture
• Hotel and hospitality
• Agriculture
• Fine Arts and Design
• Pure Science/B.A./M.A./B.Com/M.Com
• Some vocational training and technical training courses, for instance aviation and air hostess training

What expenses are covered?

All reasonable expenses, such as those listed below, associated with the completion of the course are covered. In case of doubt, check with your lender.

• Admission and tuition fees payable to the educational institution or hostel
• Facilities fees like library and lab fees
• Purchase of books, equipment, instruments, uniforms
• Caution deposit or refundable deposit required by institution
• Travel expenses for studies abroad
• Purchase of computer

What are the documents required?

The documents required depend upon whether your course is in India or abroad. You will require some documentation related to your course and from your chosen institution. Please check with your lender in advance so that the loan approval process or the disbursement is not delayed because of delays in providing documents. Typically, the following documents will be necessary:

• Completed loan application form and photographs
• Letter of admission from educational institution
• Mark sheets from relevant examinations passed
• Detailed break-up of costs of the course
• KYC documents of the applicant and co-applicant
• Income and asset details of the co-applicant

Additionally, the following documents are required for courses abroad.

• Student visa documents
• I-20 document if studying in the US
• Travel documents
• Standardized admissions test scores (GMAT, GRE, SAT etc.)

Please keep in mind that sometimes the embassy granting you the student visa might require proof of funds before you get a visa. In this case, talk to you lender about waiving its requirement of student visa documents which in itself could be contingent upon getting your funding approved.

In addition to the above, you might be required to sign a declaration that no other education loan has been taken from another lender.

Can I get a tax benefit if I take an education loan?

You can claim a tax deduction under Section 80E on the interest paid on loans taken for higher education for yourself, your spouse and children. There is no limit on the amount of deduction you can claim. The only thing to keep in mind is that the course for which the loan is taken should be a graduate or post-graduate program in engineering, medicine or management or a post-graduate course in the pure or applied sciences. Please check with your accountant for your eligibility.

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