Q-1 Who should opt for an education loan and why?
ANS -Usually, middle-income group people apply for education loans. However, because of:
- Rapidly rising costs of education
- Income tax benefit under 80 E of IT act
- Students wanting to take their own financial responsibilities to preserve the parent’s savings
- build the positive credit history
Even affluent families are going for education loan
- Q-2 Who is eligible for an education loan?
Ans – Students who wish to pursue higher education. You need to be an Indian resident having secured admission in any of the bank’s list of approved course or universities.
Q-3 Which courses can I take an Education Loan for?
Ans-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
- Online / Distance Learning courses.
Wherever it is a private institution, the same has to be recognized by the relevant/competent government body.
- Fine Arts and Designing – Graduation + Post Graduation
- Architecture – Graduation
- Hotel and Hospitality – Graduation + Post Graduation
- Agriculture – Post Graduation
- Pure Science – Graduation + Post Graduation
- Courses such as SAP, ERP, GNIIT, Air Hostess Training programmes
Besides the above mentioned, other Institute to be rated on the basis of their listing with the AICTE etc.
Q-4 What is the age criteria for taking the education loan?
ANS- Anyone in the age group of 16-35 years can take this loan.
Q-5 What are the expenses covered under this loan?
1- Fee Payable to College/School/Hostel
3-Caution deposit / Refundable deposit asked by the institution/Building fund – supported by Institution bills/receipts
4-Purchase of Books/equipments/instrument/uniforms
5-Travel expenses/passage money for studies abroad
6-Purchase of computers – essential for completion of the course
Any other expense required to complete the course – like study tours, project work, thesis, etc.
Q-6 Do I have to pay part of the fees?
ANS- 100% loan is available for select courses. Margin ranges from 5-15 % for courses in India & Abroad.Depends on Bank to Bank.
Q-7 Is there moratorium/repayment holiday available?
and-Yes. A moratorium/repayment holiday is available for select courses.
Q-8 What is the moratorium period?
ANS-Moratorium Period is a holiday on repayment which would be for the course period + 1 year or 6 months after the student gets a job/start earning whichever is earlier. Some banks will also allow you a moratorium on payment of interest. This means that you can defer payments of even the interest during this period. Hence, there is no need to pay anything to the bank at all. If you opt for this option, then the interest is compounded quarterly and added to the principal sum for repayment. This option carries a higher rate of interest but is a boon to those who cannot repay the loan during the course.
Q-9 Is there any kind of repayment that has to be made in the moratorium period?
ANS- Interest would have to be paid during the moratorium, the interest servicing would be of simple interest calculated on the loan amount disbursed payable monthly. Some banks will also allow you a moratorium on payment of interest. This means that you can defer payments of even the interest during this period. Hence, there is no need to pay anything to the bank at all. If you opt for this option, then the interest is compounded quarterly and added to the principal sum for repayment. This option carries a higher rate of interest but is a boon to those who cannot repay the loan during the course.
Q-10 What would be the mode of repayment?
ANS- Repayment is done on an EMI (equated monthly installments) basis at the time of starting the repayment, by giving standing instruction to the bank, having an ECS(electronic clearing services) with the bank or by giving PDC(post dated cheques) to the bank.
If you are unable to complete the course, you will have to start paying the EMIs immediately. Some banks might give you a grace period, either to continue your studies or to start repaying the loan, but this is entirely at their discretion.
Q-11 What would be the tenure of the loan?
ANS- Maximum tenure of the loan can be 7 years including moratorium period.
Q-12 Is there a need for a co-applicant?
ANS- Yes, a co-applicant is required for all Full-Time courses. The co-applicant can be your parents, siblings, spouse or Family Relative. Loan eligibility would be calculated on the basis of the co-applicants income. In case of Part-Time courses, No Co-applicant required. However, in order to increase the eligibility, a co-applicant may be added.
Q-13 What is the quantum of the loan?
ANS- For loans with Moratorium :
Studying in India – Max Rs. 10 Lakhs
Studying abroad – Max Rs. 20 Lakhs
For Loans without Moratorium :
Studying in India – Max Rs. 7.50 Lakhs
Studying abroad – Max Rs. 10 Lakhs
Q-14 How is the loan amount disbursed?
ANS- The fee for all years is normally disbursed to the college/institute directly by the bank. 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. Every year, you are required to submit a form to the bank which gives the details of the money required, after which the bank directly disburses the loan to the college/ institute.
Although the bank may be in India, you can get your education loan amount in dollars for studies overseas; the amount is paid directly to the institution abroad. Banks charge you a fee for the remittance.
Q-15 Would the loan be disbursed in favor of the Institute?
ANS- Yes. Tuition & hostel fee will be disbursed directly to the educational Institute as per the schedule of fee given by the Institute/college ( semester – wise/yearly).
Q-16 Is there any documentation required post the sanction of the loan?
ANS- Progress reports being provided at the time of every disbursement. Progress report includes mark sheets or a letter from the Institute, in case the mark sheets are not available while processing the fresh disbursement.
The following documents have to be submitted post the sanction of the loan
Education Loan Agreement
SI/ECS Mandate as applicable
Post Dated Security Cheques as per Policy
Any other documents which might be required as per policy
Q-17 What are the acceptable collaterals for taking an educational Loan?
ANS-Collaterals are required only for educational Loans above Rs.7.5 lakhs. The acceptable collaterals are:
Q-18 Do I get any tax benefit by taking an educational Loan?
ANS- Once you start repaying the loan, you can deduct the interest amount from your total income while calculating the tax. So, the effective interest rate on the loan works out to a lower amount for that particular year.
Q-19 What is the interest benefit that I get on the Educational Loan?
ANS- Banks offer lower interest rates if you start repayment during the moratorium period.
If you have opted for a floating rate loan, you cannot switch to a fixed rate option mid-course. However, you can transfer your loan from one bank to another, if you find a more attractive offer. Normally, one percent of the outstanding loan amount is charged to the borrower in the case of a loan takeover. You need to work out whether the amount you save by switching to a lower-cost loan is more than the switching cost.
Q-20 Is there a prepayment penalty?
ANS- Depending on the bank offering an educational loan, there is a prepayment penalty of 5% on the outstanding principal amount. There are some banks which do not have a prepayment penalty.
Q-21 Can I get another loan for further education?
ANS- Second time Education Loan can be sanctioned to the same student borrower for completion of next higher course at the discretion of the Bank. A student who has taken the loan for a Bachelors degree can apply for another loan for the completion of Master’s degree.