The cost of education is increasing by leaps and bounds. There is school fees to be paid, running into several thousands. Add to that, there are private coaching classes, the fees for which can run into lakhs. All parents want the best for their children. But if you are in a temporary cash crunch and feel there would be a gap in his education plan, there’s a way to bridge it.
Apart from regular education loans available for professional courses at the college level, some banks have gone a step ahead and provide loans for school education and even for coaching classes.
Funding school fees
At present, Bank of Baroda (BoB) and Central Bank of India (CBI) offer loans—Baroda Vidya and Cent School, respectively—to fund school fees.
While BoB gives a loan for studies from nursery to senior secondary school, CBI offers it for studies for classes VIII to X in recognized schools as well as for technical courses approved by All India Council for Technical Education.
Expenses covered: Both the loans cover school and hostel fees, including books and uniform, to name a few. BoB also covers the expense of a laptop or a personal computer, wherever required. CBI, on the other hand, covers purchase of bicycle and moped if your child commutes to school every day.
Loan amount: The maximum loan amount is Rs 4 lakh for BoB, while CBI gives up to Rs 30,000 per year. However, the loan amount is restricted to a maximum of six months’ gross salary of the parent.
Security: With BoB you do not need to keep a security amount or pay any margin money. But if the loan is used to buy a laptop or a personal computer, the same remains in the name of the bank until the loan is repaid. CBI does not ask for any security, but you need to pay 10% margin money in accordance to pro rata disbursements made on pro rata basis.
Interest rates: BoB offers a floating rate of 11% per annum. It also offers a 1% concession for girl students. Says Babu Ganesh, general manager (retail banking), CBI: “Cent school loan is available at all branches of the bank and designed keeping in mind our customers’ need for a loan to fund their schoolgoing child’s education. Our loan has a floating rate of 13% as of now.”
Processing fees: The good part is that both banks do not charge any processing fees.
Repayment: CBI extends a short-term loan and you need to repay it within 10 months or before the due date for repayment of fee for the next academic year. If there are special expenses, the tenor can go up to 20 months. For BoB, you need to repay each year’s amount in 12 equated monthly instalments (EMIs). However, the first EMI is due 12 months after the first disbursement of each year’s loan component.
Funding coaching fees
Competition, especially for professional courses, is intense these days. Getting a degree is not enough any more, securing it from a good institution matters more. And that’s where coaching classes become important. They are supposed to give your child an edge over others. But they are expensive.
Corporation Bank recently launched a loan for parents to fund their children’s coaching class fees. Addressing the inauguration function of the product few days ago, Corporation Bank chairman and managing director Ramnath Pradeep said: “Today given that there is competition for every mark, a good coaching class is important and it often comes with a heavy price tag, this should not be a deterrent to the parents.”
Students who want to enrol for coaching classes for entrance exams of professional courses such as CAT, CET, IIT-JEE, AIEEE, GATE, CA/CS/ICWA and UPSC in reputed registered coaching institutes that have been around for three years can avail this loan.
Ramnath added: “Right now the loan will only cover the fees of the coaching classes. However, later we may consider including living expenses for students staying in hostels. For instance, IIT aspirants at Kota. The process for loan applicant may also be taken online.”
CBI also offers a similar product called Cent Comp Exam.
Who can apply: Corporation Bank targets this product specifically at parents and hence the loan can be taken by the parent or the spouse or the parent-in-law of the student. If you apply with CBI, the borrower is the parent or the guardian jointly with the student if he/she is above 18 years of age.
Loan costs: The maximum loan amount is Rs 2 lakh and the margin amount 10%. In case of Corporation Bank, the minimum amount is Rs 50,000 and the processing fee is 0.05% subject to a minimum of Rs 500. The processing fees for CBI is Rs 200.
Interest rate: Corporation Bank charges a floating interest rate of 13.15% per annum, while CBI offers a floating rate of 14% per annum. You need to repay the loan in EMIs in two to three years. The CBI gives a moratorium period of three months, which means the EMIs start after this period. If you plan to prepay the loan, you won’t be charged any fee.
Security: If you have a salary account with Corporation Bank, you don’t need to keep a collateral. However, you will need to look for a loan guarantor. If you don’t have a salary account, you need to provide a collateral, usually in the form of a National Savings Certificate, life insurance policy, fixed deposits and the like. You won’t need a guarantor for the loan. In exceptional cases, immovable assets such as jewellery can be accepted as security.
Producing a liquid security such as a life insurance policy, bank fixed deposit or government securities, whose face value covers 50% of the loan amount will fetch you a concession of 0.50% in the interest rate if you go to CBI.
What to do
Ideally, you should plan for your kid’s education in advance. However, if you haven’t or are into a temporary financial crisis, you can arrange for a year’s fees through these loans.
Unless you get a personal loan at competitive rates, this loan makes sense. For instance, in case of CBI, a personal loan will cost you the same, but if you opt for this loan and produce a security, then you can get a 0.50% concession in the interest rate. Similarly, if you have a Corporation Bank salary account then, opting for this loan will give you a better deal as compared with a personal loan, which will come at a higher price tag of 15-16% per annum.
Look at other funding options, too. There are loans against different assets, which you may want to consider. Says Shankar S., certified financial planner, Credo Capital, a financial planning firm, “In case of Corporation Bank especially, if you do not have a salary account, then you have to back this loan with a security. Then why not take a loan against the security itself.”
Weigh your pros and cons to get the best deal available.