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Many students pursuing studies in India are looking to transferr their education loans to public sector banks (PSBs) to reduce their outgo.

“On average, the student borrower saves around 4% when they do a balance transfer," said Arjun Krishna, co-founder, WeMakeScholars.com, an online loan and scholarship consultant.

According to Krishna, public sector banks offer loans around 9.3%, and students who have existing loans from private non-banking financial companies (NBFCs) are paying around 13-14%.

Government banks also charge lower rates for premier institutions such as IIT (Indian Institute of Technology) and IIM (Indian Institute of Management).

Many PSBs waive off processing fees when they take over the education loan and offer higher repayment tenures.

When taking a new loan, private lenders are more flexible. They offer higher loan amounts and for a variety of courses. PSBs provide lower interest rates but have a list of institutes for which they lend.

It’s also possible to get a moratorium from PSBs during the course tenure. In the case of private lenders, they charge a portion of interest soon after disbursement.

“Government banks take over the loans once the full repayment starts. The student borrower doesn’t get any moratorium on loan transfer. The primary reason for shifting the loan is the interest rate gap," said Krishna.

The eligibility, however, varies from one government bank to another. For example, the State Bank of India takes over loans up to 1.5 crore and offers 15-year repayment tenure. However, it requires the minimum outstanding loan amount of 10 lakh and collateral covering 100% of the loan amount.

If you have collateral with the existing lender, it will be transferred to the government bank. If there is no collateral, the student borrower will need to provide fresh collateral that covers 100% of the loan amount.

The borrower will also need a co-borrower, which acts as a guarantor.

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