Admission time is here again: time to stand in long queues battling the heat and dust and of anxious nights for students as well as parents. With class XII results out last week, you know which colleges and institutions you are eligible for. This is also the time when results for professional courses such as engineering, business administration and law, come out.
Watching your name in the list of the institution of your choice gives a heady feeling, but to ensure you secure the seat you’ve been chosen for, you would need to be clear about funding your fees.
Most educational institutions, barring a few government ones, charge hefty fees. The figures may go up manifold for professional courses. “In case of private institutions, the fees for profession courses such as B-Tech or law may vary between Rs3 lakh and Rs10 lakh per annum,” says Shobha Mishra Ghosh, director, education, health and young initiative, Federation of Indian Chambers of Commerce and Industry.
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Your parents may not have such large savings. But that doesn’t mean you give up your dreams. Education loans are meant to fill this gap and come to your assistance at such junctures.
Where to get
Most banks extend this loan, but government-owned banks are most active. “To meet their social obligations, it is government-owned banks that are more aggressive in the education loan space. And they provide loans for a host of courses ranging from regular graduate courses to technical and professional courses,” says Satkam Divya, business head, Rupeetalk.com, a Net Ambit venture.
Banks generally provide loans only for recognized courses and institutions (including foreign courses and institutions). “We provide loans for mostly recognized courses as they provide higher employment opportunities. Unrecognized courses and institutes very rarely enjoy good track record and, hence, banks generally avoid lending for such courses,” says Vivek Mahatre, general manager, retail banking, Union Bank of India.
You can take into account the hostel fees, caution deposits, expenses on study tour and project work besides tuition fees, to calculate the exact amount of loan you require.
Many banks even include computers (if considered necessary to complete the chosen course). Some banks, including the State Bank of India (SBI), also provide money for buying a two-wheeler.
“We provide loan for buying two-wheelers under the head of education loan but only if we feel it is absolutely necessary for the student albeit within the overall limit set by the bank,” says Malti Krishnan, deputy general manager, SBI.
Government-owned banks provide loans up to Rs10 lakh for studies in India and up to Rs20 lakh for studies abroad. Private sector banks too provide loans in the same quantum, but the amount may go up in certain cases. The trend is mixed among foreign banks. While some foreign banks, such as HSBC India, give Rs5 lakh to Rs1 crore, banks such as Citibank India do not give education loans at all.
How to get the loan
You would need to submit a few documents and also arrange for the margin money.
Documentation: Along with the education loan form, you will need to attach certain documents. The mark sheet of the last qualifying examination along with proof of admission to the new institution and details of scholarship, if any, are few of the documents you would need to give to the bank.
You will also need to submit the schedule of expenses for the specified course.
Also, the bank will ask for a co-borrower, usually the parents. The co-borrower will have to prove his repaying capacity by giving documents such as bank account statement for the last six months, income-tax returns for the last two years, statement of assets and liabilities and proof of income such as salary slip or Form 16.
Collateral or guarantor: While most banks do not require any collateral for loans up to Rs4 lakh, for higher amounts of loan they require either a guarantor or collateral or both. The bank may ask you to arrange for a guarantor or a collateral/security if the loan amount is above Rs4 lakh.
Typically, banks ask just for a guarantor if the loan amount is between Rs4 lakh and Rs7.5 lakh.
A guarantor is the person whom the bank will approach in case you default on the loan and, therefore, this person needs to submit some documents, too.
For loans above Rs7.5 lakh, banks require a collateral, such as property, fixed deposit, National Savings Certificate, life insurance policies and units of mutual funds.
Margin money: Like in every other loan, you need to pay some initial amount to secure the loan. If the loan amount exceeds Rs4 lakh for studies in India, you need to pitch in at least 5% of the total fees. The number goes up to 15% on the same loan amount if you are taking the loan for studies abroad.
What’s the cost
Interest rates: The rates vary widely between banks and ranges between 12% and 18%. Typically, banks charge less for loans up to Rs4 lakh.
You will be charged simple rate of interest during the tenor of the course and the moratorium period, which includes the tenor of the course and extends up to a year after the completion of the course. However, if you get a job within six months of completing the course, the moratorium period ends then.
You may reap benefits for repaying the loan on time. “If the interest accrued during the moratorium period which includes course tenor and up to one year after the course ends is paid on time, we also provide an interest rate concession of up to 100 basis points,” says Ranjan Dhawan, chief general manager, Punjab National Bank.
The resulting amount due is credited to the account of the customer retrospectively.
Processing fees: Government-owned banks may not charge at all for studies in India and Rs500 for studies abroad. Private and foreign sector banks generally charge up to 2-2.5% of the loan amount as processing fees.
Discounts: However, some banks offer a 0.5-1% discount for women and on loans taken for studies in premium Indian institutions, such as the Indian Institute of Technology and the Indian Institute of Management.
Moreover, if the income of your parents is less than Rs4.5 lakh per annum, you will get an interest subsidy. In its bid to help students from economically weaker sections, the government provides this subsidy under which no interest is charged up to the moratorium period.
As per section 80 E of the Income-tax Act, you get a tax deduction on the amount of interest you pay on the education loan. Earlier, the limit was capped at Rs50,000, but now the upper limit has been removed and you can claim deduction on the entire interest amount you pay.
This provision reduces the effective cost of the loan. However, remember that you will not get this deduction if you have taken the loan from a foreign bank. Deductions can be availed on loans taken by banks that come under the Banking Regulation Act applies and foreign banks are out of the ambit.
So don’t let go of the institution you always wanted to get into just because you don’t have enough funds. Take an education loan instead and secure your future.