With each passing year, the cost of education in India, as well as abroad, is increasing. Finding out how to pay the college fee is increasingly becoming stressful, and complicated. This is the reason there has been an inherent increase in the demand for education loans in India to cover the expenses of higher education.
The expenses that are covered by an education loan include tuition fees, registration fees, examination fees, traveling expenses, lab equipment charges, etc. However, while applying for an education loan, students need to know many things about how to find the best education loan that can suit their EMI.
Public sector banks, private banks, NBFCs
While applying for an education loan, students need to explore options from three kinds of money lenders — Public sector banks, Private banks, and NBFCs.
Banks approve loans based on several factors such as student’s academic record, entrance test scores, ranking and quality of the institute and the course in which admission is sought.
From a borrowers perspective, apart from the process of approval and disbursal, the rate of interest is also an important factor to consider.
The education loan approval process in public sector banks is bit tedious but the rate of interest is quite low. Private sector banks and NBFCs are quicker and also liberal in limits but it (may have) higher costs. Some of the leading banks in offering education loan includes Dhanlaxmi Bank, Andhra Bank, Oriental Bank of Commerce, Union Bank, Axis Bank, and Punjab National Bank.
State Bank of India’s effective rate of interest at present is 10.45%, which is at 1-year MCLR (7.95%) plus a spread (2.50%). For HDFC Credila, the effective rate is calculated with the benchmark lending rate (BLR) plus a spread. Current BLR is 11.85% and spread is determined by the risk profile in each case.
Documents and collateral
While looking for the best education loan, students also need to keep in mind that banks ask for documents from them such as a letter of admission from the university, detailed cost break-up of the educational programme, visa approval paper, study permits, academic record, income tax documents of parents etc.
If students are applying for education loans of higher amounts, usually above INR 10 lakh, then they have to submit collateral. However, some banks also waive this if a student has confirmed admission to a top institute.
Loans for poor students
There are many government-managed banks that offer some benefits in the form of interest-subsidy for students coming from the economically weaker strata of society. Students need to check with such banks for education loan.
While finding the best education loan, students need to look for banks which has a liberal repayment policy. Generally, the repayment starts when the course is completed. Some banks even provide a relaxation period of one year after securing a job. The repayment period is generally between 5 and 7 years but can be extended beyond that as well, according to some banks.
It is crucial for students as well as guardians to spend a lot of time in understanding the process of getting an education loan approved. The prime objective is to gain the high-quality education that in turn can provide high-paying jobs.