An education loan is probably the most important step for a vast majority of Indian students aspiring to fulfill their dreams of pursuing studies abroad. Though financing education has been a stepping-stone for many deserving students to accomplish their dreams over the years, common doubts and ambiguities still remain, especially relating to processes, repayment, processing fees, the course of choice and subsequent financing.
Some of the common hurdles faced by students while applying for education loan are:
- Rising cost of education vis-a-vis limitations on maximum loan amount. For instance, the average tuition fees incurred for pursuing higher education abroad is minimum Rs 25 lakh, while the maximum loan available generally is Rs 20lakh.
- Education loan is made available in specific branches only. Hence the applicant may not be able to get the loan from branches outside of hometown if he/ she has relocated for studies and may have to travel multiple times for processing.
- For all the education loans for studying abroad, there is a margin amount that needs to be arranged by the student. Minimum margin amount for education loan for abroad is 15 percent.
- Tedious documentation and cumbersome education loan process.
Here are 11 quick points that will help you understand education loans better and tide over some of the challenges listed above. This will enable you to make the best of this proposition and choose from the best available options in the market.
- Before opting for an education loan, the first thing to do is to assess funds available with you. Funding through scholarships, for example, would reduce your upfront loan burden considerably.
- Are you eligible for an education loan? This is an important question that needs to be answered. It can be easily checked with the eligibility calculator available with most education loan providers on their websites. The eligibility calculator will help you determine the approximate eligibility value.
- Check if the institute that you have applied to has any association or affiliation with banks or non-banking finance companies, NBFCs, for education loans. This affiliation expedites loan processing.
- Look up for information on your institution, its placement history, average remuneration for campus placements and earning potential after completion of your course. Don’t just concentrate on your school’s overall ranking or graduation rate as starting salaries greatly influence the loan repayment period.
- After you have decided on the actual amount of loan required, identify a loan provider who would not only meet your requirements in terms of the loan amount but also agree to fund your choice of programme. There are lenders who can provide you 100 percent loan amount without any margin money. Certain NBFCs can provide loans as high as Rs 100 lakh or Rs 1 crore.
- Check the expenses covered within the loan amount i.e. whether the loan covers complete tuition fees and living expenses for the entire duration of the programme.
- Explore whether one’s parental income will suffice to meet the eligibility criteria or an additional co-borrower would be required. Do you have sufficient collateral security like a house, flat, non-agricultural land or fixed deposit, to support the loan? This may help negotiate better terms with the lender.
- Compare not only the rate of interest on your loan but also other benefits in terms of easy repayment options, flexibility to pay from abroad, online customer services etc. from your loan provider. Non-banking financial companies and dedicated education loan providers provide for flexibility on all these counts.
- Obtain a checklist from the lender beforehand and prepare all the necessary papers and documents to ensure expedition of the process. Generally, documents required for any education loan are KYC, educational qualification certificates, proof of income (of parents) and collateral security document copies.
- Decide the repayment option in consultation with your parents. That is if you want to start EMI, or simple interest or want to go for a moratorium. If you start simple interest payment or monthly installments, it will reduce the loan burden once you graduate. It is advised not to go for moratorium unless required since it adds to the loan burden.
- Know the terms of your loan — what is the interest rate, what is the repayment period, and when precisely will the payments begin. Do not shy away from asking questions — as trivial as they sound to you!
Note- It is important to know and understand that any default in EMI payments reflects in your credit report, lowering your credit score for any future borrowings. Another important point to remember is that if parents co-sign on the loans, they are liable for the loan.