Last Modified : June 06, 2018
Quoting Benjamin Franklin, “An Investment in Knowledge pays the best Interest”. Our constitution terms Education as a fundamental right, yet huge chunk of population fails to afford it. With cost of education on a never falling rise, Banks and Financial Institutions come into action. They successfully aim at bridging your dreams to reality and help you afford education in India and Abroad.
There are various scheme that are launched by Government of India to extend a helping hand to minority community or backward classes and promote academic importance amongst them.
Why Take Education Loan? What are the benefits? Who are the best providers? Whom I should trust, Bank or NBFC? Am I eligible to take an education Loan? When is the right time to apply for the same? Is it even worth it? These are some of the many questions that might rise in your head while you decide to take up an education Loan. To answer all your queries, collegedunia have curated all the imperative details.
This is the one of the most general question that come up in our minds. We often find ourselves questioning why we need education loan when it will bind us in EMIs for years to come. The answer is simple as we might be reluctant in exhausting all our savings for an education when instead we can keep those savings intact and let banks pay for our education.
Few of these benefits are listed below:
Another question that pops up in our mind is when is the right time to apply for education loan? Should I apply before my admission is approved or after that. This often puts us in dilemma as many banks ask for a confirmation letter while sanctioning loan and most of the universities also look for assured funding before granting admission. So when is the right time to apply?
It surely depends on the university/ institute you dream to pursue your course in. Some banks offer loan without the letter of admission to make journey to your dream college a cake walk.
Banks are always at your service to provide education loan. It is your discretion as and when do you need to apply for loan. Listed below are few benefits of applying in advance. Have a look:
There is often a myth that application procedure for education loan is lengthy and tiring. It is not so anymore, with banks acing up in the race, they have tied their shoes to be instantaneous in their approach.
Borrower can apply online (through official website or Vidyalakshmi Portal) or by visiting the nearest branch office of the bank
For Offline Mode of Application
Borrower have to visit the nearest branch to collect the application form, fill in the details and submit the application along with documents required to your loan officer.
Further proceedings will be carried out thereafter. The loan officer will then guide you further procedure and the documents needed.
For Online Mode of Application
Easy and Quick Loan approval post completion of all the necessary formalities.
Launched on August 15, 2015, by Finance minister of India, Vidyalalshmi Portal is an education loan information portal and gateway to apply for students aspiring to pursue their studies in India or Abroad. Supported by Government of India, it has now been registered with nearly 40 banks.
NOTE: If the status informs “On Hold”, it signifies that there is some incomplete information and more information has to be provided for your loan application to be processed.
Some of the Banks that are registered with Vidyalakshmi Portal are as follows
|Abhyudya Bank||Allahabad Bank|
|Bank of Baroda||Andhra Bank|
|Dena Bank||Central Bank of India|
|Bank of India||Canara Bank|
|Co-Operative Bank||Federal Bank|
|Vijaya Bank||Axis Bank|
|UCO Bank||Union Bank of India|
|Union Bank||Syndicate Bank|
|State Bank of India||Punjab National Bank|
Education Loans have lately been one of the necessity for students who wish to pursue studies in India or Abroad.
Various top rated banks and Non-Banking Finance Companies (NBFC) offer a plethora of schemes and loans to students aspiring to pursue their studies in India or Abroad. There are a lot of factors that play an inevitable role in determining which education loan provider is best suited for your needs.
Here are some of the differences tabulated to help you determine which one suits you the best.
Types of Courses offered
Banks provide education loan to variety of graduate, post-graduate, diploma courses offered by top reputed universities/ institutes in India and Abroad.
NBFC’s are comparatively relaxed on the types of courses offered. It offers education loan schemes to a variety of courses studied worldwide.
The Loan amount varies with each bank.
Most Banks offer
INR 10 Lacs for studies in India, and
INR 20 Lacs for studies in Abroad
NBFC’s does not cap on the loan amount. The loan sanctioned by NBFCs depends on the borrower’s requirement and the course he/ she enrolled for.
The security asked by banks varies according to the amount of loan sanctioned.
Upto amount INR 4 Lacs: No security, parents/ guardian to be co-borrowers
Between amount INR 4 to 7. 50 Lacs: Third party guarantee required
Above INR 7.50 Lacs: Collateral security equal to amount of loan after providing requisite margin
Security asked by NBFC’s is based on the loan amount and credit history of the borrower.
Loan Processing Time and Fees
Most of the banks are prompt and process the loan faster. Banks provide quick approval if the borrower meets all the guidelines.
Processing Fee: range between 0.5% to up to 2%.
(Most of the Banks do not charge processing fee)
NBFCs are also very quick in approving loans after the borrower meets all the guidelines.
Processing Fee: range between 1% to up to 2%.
Interest Subsidy by Government
Interest Subsidy schemes are offered by government for the weaker sections of the society.
The Interest Subsidy Schemes are applicable during the moratorium period.
NBFC’s do not provide any Interest Subsidy Schemes.
The banks calculate interest rates based on current base rate of the bank. Education Loan interest rates range from 10% to 17% on average, depending on bank.
NBFC’s offer interest rate on Education Loan as floating interest rates.
Moratorium/ Holiday Period
Moratorium Period/ holiday Period ranges from 6 months to 1 year.
Moratorium Period/ holiday Period ranges from 6 months.
Repayment to the banks can be done between 7 to 15 years (depends on the bank)
Repayment will start after the moratorium period as monthly instalments after the borrower has got a job.
Repayments to the NBFC’s can be done within 7 years.
Repayment will start after the moratorium period as monthly instalments after the borrower has got a job.
Education Loan offered by Banks cover: Tuition/ Hostel/ Lab Fee, Library Fee, Examination Fee, Cost of Books and equipment’s needed, Caution Deposit and other miscellaneous expenses.
NBFC’S Education Loan scheme cover 100% of the tuition fee and other same expenses as the bank viz. Hostel Fee, Lab Fee, Library Fee, Examination Fee, Travel Expense, Caution Deposit Books and equipment’s needed, and other related expenses.
Documents required by the bank are: Admission Letter, Loan, Application Form, 2 passport photographs, ID Proofs, Residence Proofs, Bank account statement for last six months, Income Tax Returns Statements, Proof of income, etc.
Documents required by NBFC’s: ID Proofs, Residence Proofs, Signature Proofs.
0.5% concession is given to the girl child.
1% concession is given to the students applying for admission in top premier institutes in India and Abroad (depends on the bank).
No Concession feature is available with NBFC’s.
Mostly the Banks do not charge any pre-closure or pre-payment charges.
NBFC’s might charge pre-closure charges depending on the reason of closure.
There are various banks providing Education Loan but the question lies which one to choose. Every Bank have some of the key feature to offer the borrowers, yet most of them fall under the same guidelines of RBI and IBA Model.
Below curated are some key details about the loan offered by some top banks and financial institution.
|Name of Bank||For India||For Abroad||Rate of Interest per Annum||Repayment period||Processing Time|
|State Bank of India||10 Lacs||30 Lacs||Upto 7.5 Lacs- 11.01%|
Above 7.5 Lacs- 10.75%
|5-7 years||20 days|
|Allahabad Bank||20 Lacs||50 Lacs||Upto 4 Lacs- 11.45%|
Upto 7.5 Lacs- 11.45%
Above 7.5 Lacs- 10.95%
|Up to INR 7.5 Lacs: 10 years|
Above INR 7.5 Lacs: 15 years
|Axis Bank||10 Lacs||20 Lacs and beyond based on requirement||Upto 4 Lacs- 16.50%|
Upto 7.5 Lacs- 17.50%
Above 7.5 Lacs- 15.50%
|7 years||14 days|
|HDFC Credila||10 Lacs||100% Finance (No limit. Based on requirement)||12.10%+ floating rate(depends on the risks points of the applicant)||NA||7 days|
|Punjab National Bank (PNB)||10 Lacs||20 Lacs||Upto 7.5 Lacs- 11.25%|
Above 7.5 Lacs- 11.85%
for education at premier foreign universities- 9.85%
|Loans upto Rs.7.5 Lacs : 10 years Loans above Rs.7.5 Lacs : 15 years||15 days|
|IDBI Bank||10 Lacs||20 Lacs (Based on requirement of the borrower)||Upto 10 Lacs-10.45%|
Above 10 Lacs-11.45%
|Indian Overseas Bank (IOB)||Upto 30 Lacs||Upto 40 Lacs||Upto 4 Lacs- 11.50%|
Upto 7.5 Lacs- 12.00%
Above 7.5 Lacs- 12.25%
|Avanse Financial Services||No limit. Based on requirement||No limit. Based on requirement||11.5%+ floating rate(depends on the risks points of the applicant)||120 months||4 days|
|Syndicate Bank||10 Lacs||20 Lacs||Upto 4 Lacs- 11.00%|
Upto 7.5 Lacs- 11.25%
Above 7.5 Lacs- 12.25%
|Canara Bank||10 Lacs||20 Lacs Based on requirement||Upto 4 Lacs- 11.15%|
Upto 7.5 Lacs- 11.65%
Above 7.5 Lacs- 11.15%
|15 years||1 hour|
Most of the Banks work on the guidelines set by Reserve Bank of India (RBI) or IBA model. Hence, when they all are same, they need to distinct themselves in a way which lures customers towards them.
Below mentioned are some key details about each bank:
Axis Bank provide only a single variant of education loan,Axis Bank Education Loan
ICICI Bank have similar type of loan for both India and Abroad. ICICI Education Loan is a distinctive loan scheme that provides all the benefits to students who wish to pursue their studies in India and Abroad.
There is a single variant for education provided by Allahabad Bank, Allahabad Bank Education Loan
Karnataka Bank offers an education loan scheme that caters to the needs of students who wish to pursue their studies in either India or Abroad. Read about it at Karnataka Bank Education Loan
Kotak Mahindra Bank Education Loan is distinctive variant of Kotak Bank’s Education Loan Scheme that work under the guidelines of IBA to meet all the financial needs of the students.
Two segments of Education Loan offered by Oriental Bank of Commerce are Oriental Bank of Commerce Education Loan and Oriental Bank of Commerce Education Loan for Abroad
Saraswat Bank Education Loan is a distinctive variant of education loan offered by Saraswat Bank to meet the financial needs of students.
Syndicate Bank have two segments of loan, one is Syndicate Bank Education Loan and other is Syndicate Bank Education Loan for Abroad. Both the segments work for helping students to pursue their studies in India or Abroad.
Bank of Maharashtra Education Loan is one segment offered by Bank of Maharashtra with variants of loan to meet the financial needs of students aspiring to study in India and Abroad
Variants of Bank of India Education Loan are accumulated under one segment namely Bank of India Education Loan
Corporation Bank Education Loan is a segment with variants of Education Loan offered by Corporation Bank for promoting education amongst students by meeting their financial needs.
Dena Bank offers variants of education loan under single segment, Dena Bank Education Loan
Dhanlaxmi Bank Education Loan covers all the variants of education loan offered by Dhanklaksmi Bank to bridge the dreams and reality of students by financially assisting them.
IOB fulfils economic needs of students through IOB Education Loan. It meets the financial needs of students and support them on their journey to academic excellence.
After all the necessary discussion about Education Loan and lenders, the next query to pop up in our minds is what are all the pre-requisites that one should have while applying for the loan. The banks often ask for a co-borrower with a good credit score, documents for ID proof, Residence Proof, Income Proof and etc.
Below are some details about the pre-requisites for Education Loan
Banks ask for several of documents proving your authenticity and credibility to avail loan. Some of these documents are mentioned below:
A co-borrower or a co-signer can be your parent/ spouse/ guardian can be a co-borrower. A co-borrower should be your immediate family member, should have a steady source of income, and a good credit history.
What are the documents needed from my co-borrower?
Documents that are required from your co-borrower are:
Credit Score is inclusive of various factors such as credit history (Loan history or credit card). If you do not have a credit score, banks calculate it by considering factors such as University, College and the Course of admission. Banks consider the academic background of student and credit history of co-borrower.
How to build a credit score?
It is very obvious that being a student, you might not have a credit history, hence not counting to a good credit score. Hence, you need a co-signer with a good credit score.
The ways to build a Credit Score:
Is it possible to improve my credit score in 30 Days?
A good credit score is always a plus point when applying for education loan. When the time is less and you have to have a good credit score, consider the points below:
What is considered good credit score?
A good credit score is generally above score of 700. Score of 800 or above falls under the category of excellent and makes it easy for a borrower to avail loan. Most credit scores fall between 600 and 750.
Under Section 80E of Income Tax Act, loan borrowers can avail the tax benefits. This benefit is only available over and above INR 1,50,000. Tax benefits can be availed once the borrower starts paying interest on loan. The borrower can benefit until he/ she pays off full interest amount on loan or for maximum of 8 years (whichever is earlier)
Who can avail for tax benefit on education loan?
Tax benefit is availed on the interest paid on an education loan. An individual can avail it for self, spouse, children or any borrower for whom the individual signed as a legal guardian.
On what basis is the tax exemption claimed?
An individual who is also a tax payer can claim the benefit on actual interest paid on an education loan
What courses are available for the tax benefit?
Tax benefit can be availed for full time courses for any graduate/ post-graduate courses in professional or technical fields viz. engineering, medicine, management, applied science or pure science with mathematics and statistics as subjects of study. From April 2009, the benefit can be availed for vocational courses as well.
How can I prove that I have paid interest on education loan?
The bank or financial institution who have sanctioned you loan, is required to provide you a certificate stating the proof that you have paid specific amount to the bank or financial institution as interest on the education loan.
Borrowers often tend to make mistakes or leave some loopholes while applying for loan. It more often than not can land them in a conflict of what to do next. It is always advised to plan your stuff before applying for an education loan. We have curated some tips for you to help you acknowledge the key points to work on before finally applying an education loan.
Decide on your course: Banks do consider what type of course have you opted for to pursue your studies in India or abroad, yet the course you choose should not be just for the sake of moving abroad or taking admission in top premier institutes. Choose course that you have interest in and wish to pursue your studies in because only then you will be able to excel in it and land in a promising job, which in turn will help you in paying your loan amount. Explore career options of your course and whether it will land you in a well-paying job, then opt for it and decide to pursue your studies in the same field.
Select your dream institution: After opting for the course, research more about the institute as it holds major importance while applying for loan and also as your career prospect. Research about whether your course is taught there, does they ensure placements, and your university must not be blacklisted or even under investigation. Banks prefer top premier institutes as they hold a name and are more likely to get you placed, which will help you to repay your loan amount. Always be double sure about the institute you choose as it will prevent you from various unnecessary problems.
Choose your bank: Another one of the major factor is to choose your bank correctly. Research in detail about the bank, the interest rate, the concession, repayment terms, quantum of loan, and additional benefits it provides. The right bank will help you throughout your journey, choose it wisely. Make sure your bank is supportive of your career and prompt in disbursing your loan. Make sure the bank you choose offers you best loan terms rather than high finance. Make sure you have all the details about the bank and education loan provided before opting for that bank. Key benefits and features of various banks are mentioned above for your help.
Calculate EMI: There is a fact that longer the duration, lesser the EMI. It might be true but you will be under the debt for longer duration, the cost of loan and interest paid will also much higher. Calculate your EMI on loan amount to determine the duration in which you can repay your loan. Be sure of your course and if you have a good prospect of a well-paid job, then opt for a shorter loan tenure to repay the loan. In this scenario, your EMI might be higher, but your loan will be cheaper and you will get through it faster.
Get your loan sanctioned in instalments: Most of the banks charge interest on the amount of loan disbursed. The bank disburses the loan every semester or every year. So it is advised to take loan as and when required. This is how the interest calculated will be lesser. Hence, make sure the bank disburses loan amount as and when required or you ask for it.
Have a plan for repayment: Make sure you have a plan to repay your loan and do not default it at the later stage. Hence, choose a course that gives you a good career prospect of having a well-paid job or keep a secondary source of cash to repay the loan amount. Start saving during your course period, cut down on expenses and strategize your repayment terms. It is always advised to focus on paying it off as quickly as possible. Loans tend to turn into a burden after a while, prefer paying it off as early as you can.
Pay before the due date: You will have to pay the loan someday, do not procrastinate and leave it until the due date. Save your money, cut down on expenses, and use your bonus cash to repay the loan as soon as possible. You can start paying off the interest on loan during your moratorium period to avoid any last moment burden. Work towards paying off your loan to avoid landing into an unnecessary problem.
Answer: You need to meet certain eligibility requirements set by most of the banks. They are:
Answer: Yes any scholarship or assistantship will be a part of margin charged on education loan
Answer: Yes, a scholarship alone cannot finance all your education abroad. It is beneficial to pay the margin amount of the loan and pay the remaining expenses through Loan
Answer: The loan amount disbursed to foreign country will be according to the exchange rate on that day of that particular country.
Answer: Margin amount is the amount that a borrower has to pay through his/ her own sources in form of a down payment as his/ her contribution towards the education.
Answer: Paying the margin amount is also a big task for someone who cannot afford it but it is compulsory. Banks like credila gives 100% finance that is no margin money is required but most of the banks have margin amount. Borrowers have to arrange for this money, either through scholarship or any other source. Margin amount is nearly 15% of the total education cost.
Answer: MCLR stands for Marginal Cost of funds based Lending Rate. It refers to the minimum interest rate of bank below which it cannot lend.
Answer: The loan is disbursed directly to the institute/ university that you have taken admission to. Hence, an applicant is supposed to submit institute brochure with proper division of the fee
Answer: Then the loan is sanctioned through a demand draft payable at that location or through RTGS in the operative account
Answer: Institutes that are affiliated to state/ central universities and comes under UGC or AICTE are considered as recognized institutes. Reputed institutes are those which are well known and have standard course of repute. More often, banks provide the list of institutes they consider for loan. (You can contact nearest branch for the same)
Answer: The interest is charged at simple rate during the moratorium period, which is from the date of disbursement till the commencement of repayment of loan. Post that, compound interest is charged on reducing balance.
Answer: Pan Card is one of the mandatory document required by banks these days. It is mandatory because:
Answer: KYC requirements are the documents as a proof of personal identification and residence proof of the applicant as well as the co-borrower.
Answer: EMI stands for Equated Monthly Installments. It can be calculated by using the formula given below
EMI = [P x R x (1+R) ^n] / [(1+R)^ n-1]
(P stands for Amount of Education Loan, R stands for Rate of Interest and n is Tenure of the Loan)
Answer: The banks ask for insurance policy as one of the collateral security in lieu of the loan sanctioned. The insurance policy is supposed to be equal to or more than the amount of loan sanctioned. In scenario of untimely demise of the borrower, the bank recovers amount from the insurance policy
Answer: NRIs are eligible for the loan if they have Indian citizenship and are Indian passport holder.
Answer: Both co-borrower and guarantor are a part of borrowers pre-requisites of an education loan. There is a fine line difference between both. A co-borrower signs to be equally responsible to repay the loan with the borrower. Whereas, a guarantor is only liable to repay the amount if loan when bank proves that the borrower has defaulted.