QUESTIONS AND ANSWERS:
What is education loan? Back
Central Government facilitates education loan through 27 nationalized banks to help students for their education.Indias National asset is the young population and their brain power. The student loans are offered by financial institutions based on the guidance issued by Government. Each bank has its own eligibility criteria, interest rates and repayment options.The education loan can be used for any level of education including school, graduation, post graduation and doctorate. Loans are given for study in India and in foreign universities.The students, who have good academic record and dont have any option to study further due to financial condition of the family, can go for loan option. Once the loan is approved, the financial institution will guarantee your education but you should be ready to study hard and work hard to repay the loan.
Who is eligible for the education loan?Back
- You must be a citizen of India
- Secured admission to the course through selection process or entrance exam in India or Abroad
- You may be expected to have certain percentage of marks. For example 50% for SC/ST Students and 60% for others
- Some banks may have some age criteria. For example, age should be between 16 and 28
- Some banks offers loan for only full-time and certain specified courses like computer courses
What is the age limit for Education Loan?Back
What do they consider to approve the loan?Back
- The course you choose
- The Institution you choose
- The amount you require
- Your education performance
- Repayment capacity of you and your family based on the discussion with you
- Annual income of the family
- Familys assets, etc
What are the courses are eligible for Education Loan?Back
Education in India:
- School education including plus 2
- Graduation Courses: B.A., B. Com. B. Sc., etc.
- Post Graduation Courses: Master degree and Ph.D.
- Professional Courses: Engineering, Agriculture, Medical, Veterinary, Law, Dental, Management, Computer, etc.
- Computer certificate courses of reputed institutes accredited to Department of Electronics or institutes affiliated to university
- Courses like CA ,ICWA, CFA, etc. or courses conducted by IIT, IIM, XLRI, IISc, etc
- Courses offered by National Institutes and any other reputed private institutions
- Courses offered in India by reputed foreign universities
- Evening courses of approved institutes
- Other courses leading to diploma / degree etc. conducted by colleges / universities approved by UGC / Govt. / AICTE / AIBMS / ICMR etc.
- Courses conducted by CIMA - London, CPA in USA etc.
- Graduation: For job oriented professional / technical courses offered by recognized universities
- Post Graduation: MCA, MBA, MS, etc.
How much loan I can get?Back
Generally upto Rs. 15 lakhs for studies in India and upto Rs. 25 lakhs for studies abroad.
Can I get a loan for Correspondence/distance/part-time education?Back
Some Banks provide loan to certain professional course if your college and course is approved one. You can check with your local banks once you finalized the course that you are going to study. But most of the Banks dont offer loan for part-time/distance education course.
How and when should you start paying the loan?Back
You dont have to pay the loan until you complete the course. After your course, you will get grace period to find a job which may be between 6 to 12 months. After that the actual repayment of the loan begins.
If I discontinue my study or do not complete my course or do not find my job within the grace period what will happen to the loan repayment?Back
You should start your loan payment immediately.Some institution will allow you to complete your course but it is a rare case.
Is the interest amount for the loan applied during the course of study? Back
Simple Interest is charged and kept in a separate account till the course is completed. The student has the option to repay or not to repay the interest till the course is completed. After the grace period is over, the interest is transferred and credited to the Principal loan amount and from that time the interest becomes compounded interest.
How much is the interest rate and how will I get tax-benefit? Back
Interest Rate: The interest rate for the education loan is between 10% and 15% depends on the bank and the course you choose.
Income tax Act provides two types of deduction for education. These are
- Tuition fee paid for children under section 80C subject to maximum Rs 1, 00,000.
- Interest on education loan for studies of self or spouse of children without any limit under section 80E
Loans taken for education are not eligible for tax benefit.
Based on the new rule, the interest paid against the education loan will be deducted from taxable income. There is no maximum limit for the interest payment. Your principal amount will not go against tax deduction If you take a loan for long term, it is better to pay off within eight years. After that the tax benefit will not apply to your interest payment.You will not be eligible for tax deduction if you get the loan from your employer, family or friends.
Tax benefits will be available even for loan that was taken against securities. But the securities to be taken by banks and the loan should be used for higher education of self, spouse or your children.Not for brother or sister.
Do I have to give any property or collateral documents in order to get the loan?Back
For loans up to 4 Lakhs security is not required. Documents have to be signed both by student and parent/ guardian. For loans of above Rs. 4 lakhs but below Rs. 7.50 laksh, in addition to the documents, third party guarantee has to be signed. But loans above Rs. 7.50 Lakhs require you to provide security documents to the Bank. The security documents can be National Savings Certificates (NSC), insurance policies (surrender value), Kisan Vikas Patra, bonds, bank deposits, government securities, shares (if the bank accepts it), vehicle, house, land, property, gold etc.
The security should be some form of investment you surrender to the bank. If you dont repay the loan the bank can sell the security and recover the loan amount. For loans more than 4 Lakhs, the bank may ask either third party guarantor or security or both. If you dont pay, the bank has the right to recover the loan amount from the guarantor or else they can take the legal action against guarantor.
I am from a middle class family and my father is not working and we dont have anything to show as regular income and we dont have any property document or financial document to show as security. What is the possibility of getting my education loan?Back
You are eligible for education loan. The education loan is given based on your educational performance. You should make sure that the loan is paid on time without any issue. The educational loan scheme aims at providing financial assistance on reasonable terms to:
- Poor and needy to undertake basic education.
- To the meritorious students to pursue higher/ professional/ technical education.
The main emphasis is that no deserving student is denied an opportunity to pursue higher education for want of financial support.
What are the expenses covered by education loan? After getting my education loan, should I have more money to take care of the other expenses?Back
The education loan not only covers your tuition fee. It includes other expenses related to your study.You have to check with your bank to verify what are the expenses covered by their loan. It depends on the Bank. The other expenses mostly covered are:
- College/school/hostel fees which includes tuition fees.
- Exam fees, library and laboratory fees.
- Non-Refundable deposit, refundable deposit, building fund, supported by the institutions receipts or bills.
- Purchase of books, uniforms, equipment, instruments and buying computers
- Expenses related to education tours, project work and thesis work.
- Some banks cover the cost of the computer if the same is required for your education.
- Travel expenses for overseas study.
Check up with your institutions for the expense details and confirm with your bank as what are the expenses covered by them.
Since the education loan interest rate is high, I want to pay the loan completely as soon as I find my job. Is there any pre-payment penalty applied?Back
Unlike other loans, most of the banks dont charge any pre-payment penalty when you want to repay the loan in full. It is better to check with your bank to make sure you will not face any penalty in the future. Some Banks will allow you to repay after 6 or 12 months after the course completion or after finding your job.
After taking my education loan, I get less interest rate from some other bank; can I move my education loan to the second bank?Back
Yes, you can do so. But, your current bank may have some refinance charge for your outstanding amount (example 1%). If the second bank gives 1% less than your current bank, you dont gain anything. So, carefully calculate the benefit when you transfer your loan.
Both of my parents are working and we have enough money to pay for my course but my friend says that it will be good to take the loan. Is that true?Back
No. If you can pay from your pocket, it is better to do so. Taking a loan involves some maintenance work; you can avoid them if you can. If you are really in need of the loan, you can apply for this.
I am from a remote village and I dont have any bank in my village. How and where to apply for my education loan?Back
You can contact the bank in your nearest town/city and ask for loan.
My education loan was not approved. Is there any way I can find out why my education loan request was denied?Back
Yes, you can. When the bank denies your application, they will give a reason for why your application was not approved. If they dont give any valid reason, you can file a RTI (Right to Information Act) petition to ask for the reason. If you need any help in filing RTI petition you can send an e-mail to firstname.lastname@example.org
Getting scholarship or taking a loan which one is better?Back
You can try for both. Refer to our scholarship section for various details<LINK>. If you get scholarship for your entire study it is well and good. Sometimes the scholarship amount will be one time payment which may be small amount that will not be enough to cover your complete course expenses. So, you can still get them and use it for your study. Today many institutions, charities, foundations, trust, NGOs, State/Central government are offering scholarship to the students. There is no condition that you can only apply for one scholarship. You can apply for whatever you are eligible and get them.
My friend suggested me that since we get the loan we can study in USA/UK? What is your advice? Back
Think twice before taking the loan. Taking a loan is not a simple think and it is not free. When the bank gives you the loan, they will make sure that they recover their money from you. If you dont pay the amount and there is no genuine reason, the bank will not leave you. So, ask yourself whether you have interest or passion to do that course and you want to get settled with the field related to your study. You should have confidence on yourself on completing the course, getting the job related to your study and repaying the loan. If you are not sure, dont go for the loan. It will be a burden for you as well as to your family and your property.
Will the loan amount cover the 100% of my education expenses?Back
Not always. The bank charge a margin of 5% for studies in India and 15% for studies abroad for loans above Rs. 4 lakhs, i.e., they offer to give a loan of 95% or 85% of your total expenses only. The balance has to be met by you. If the loan amount is less than Rs. 4 lakhs, the bank covers the entire amount.
Do I have to pay any processing fees for my education loan?Back
Generally banks do not charge processing fee for educational loans.
How long do I have to repay the loan?Back
Mostly, the loan amount should be paid within 5 to 7 years. But a large amount may take a long time; a small amount will take less time. Tax deduction can be used for education loan for up to 8 years. If you are taking loan for more than 8 years, after 8th year whatever interest you pay will not get any tax benefit.
What are the documents required to apply for a loan?Back
This again depends on the Bank. The bank will give you the document checklist when you get your application form. The commonly asked documents are:
- Proof of your course admission / scholarship details
- Schedule of the fees and expenses
- The certificate and mark sheet of your last qualifying examination.
- Last 6-12 months bank statement/ Income tax statement of past years
- Document related to proof of income, asset and liabilities etc.
- If you dont have bank account you should give the identity proof.
Will the Banks have any preferred Institutions?Back
Some banks have a list of institutions. If you join them you will get the loan easily or some institutions will have tie-up with banks. Please check with your institution and bank for the details.
Is there any other benefit that comes with the Education Loan?Back
- Some banks offer some benefits like .5% to 1% less for girl student
- Some banks offer personal accident insurance
- Some banks offer group life Insurance
Is there any limitation like how many people should take the education loan from the same family? Or my sister got an education loan, Will I be eligible for my education loan?Back
Yes. There are no restrictions. But your familys viability to repay the loan will be verified. Suppose if you sister has taken more than 4 Lakhs by pledging a property document, you can also claim the same property to get the loan provided the property value is high and the bank accepts it.
Is there any insurance policy that covers my guarantor?Back
Yes. Some banks will ask you to take one time payable insurance policy to cover your loan amount. If the bank is not able to recover the money from you or your family, the insurance will pay the loan amount.
Can I get the education loan as cash? How the loan amount is given to me?Back
The college fees are paid directly to the college/institution. For each year students should submit a form with expense details, based on that the amount will be sent to college/institution. For foreign institutions the fees will be paid in respective currencies and remittance charge is mostly paid by students.
You can use the following simple checklist while applying for education loan. This will cover most of the details that you should ask before taking the loan.