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Updated: July 4, 2011 18:41 IST

Bank loans come to students' rescue

R. Ravikanth Reddy
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Now students can aim high and get into the best of institutes in India and abroad with the bank loans available for higher education

Higher Education was not in the reach of the common man for two factors – availability and affordability. As availability issue is being sorted through various means, affordability is still an issue for the middle and lower classes.

But the Education Loan scheme devised by the Central Government in 2001 to a certain extent has solved this issue. Now student can aim high and get into the best of institutes in India and abroad with the bank loans available for higher education.

Eligibility

Student should be an Indian National and secured admission in professional or technical courses in India or abroad through entrance test or some merit-based selection process.

Courses

Loans are offered for diploma, graduate, post-graduate and Ph.D courses in the faculties of engineering, technology, architecture, medicine, dental science, agricultural science, veterinary science and computer certificate courses of reputed institutes accredited to department of electronics or affiliated to university. Students pursuing courses like ICWA, CA, CFA and courses conducted by IIM, IIT, IISc, XLRI, NIFT are also eligible apart from courses offered in India by reputed foreign universities. Banks may have the system of appraising other institution courses depending on future prospects and recognition by user institutions.

Expenses considered for loan include fee payable to college, hostel, examination, library and laboratory fee apart from purchase of books, equipments, instruments and uniforms.

Travel expenses for studies abroad and purchase of computers, insurance premium for student borrower and expenses for study tours, project work and thesis are also covered.

However, students should understand that getting a loan is not as easy.

The rate of interest is another factor to be kept in mind while applying for education loans. Banks offer loans at varied rates of interest and students need to do extensive research to ensure that they get the best deal. Since the banks don't give the entire education loan component, students still have to mobilise money if they want to get admitted to professional courses.

Nationalised banks offer a maximum loan of Rs. 20 lakh for studies abroad and Rs. 10 lakh for studies in India. Loans up to Rs. 4 lakh require no margin while loans above Rs. 4 lakh for studies in India require five per cent margin and 15 per cent for studies abroad. Loans up to Rs. 4 lakh need co-obligation from parents and no security while loans above Rs. 4 lakh require co-obligation of parents together with collateral security in the form of third party guarantee.

Interest rates

Interest rates on the loans are on floating basis with respect to the bank's benchmark prime lending rate. Generally all banks offer interest rates between 12 per cent and 14 per cent depending on the amount of loan taken. The SBM rates vary from 12.50 per cent for Rs. 4 lakh loan to 14 per cent up to Rs. 7 lakh loan. The advantage of floating rate over fixed interest rate is that if the market rates decline, your interest outgo will also be lower. But your interest rates can climb if market rates go up. Simple interest will be charged during the repayment holiday or moratorium period.

Other charges

Though banks should not charge processing fee for education loans a few banks charge a processing fee on loans above Rs. 4 lakh for overseas studies.

The student needs to start repaying the loan amount one year after course in completed, or six months after finding a job, whichever is earlier. Loans of less than Rs 7.5 lakh have to be paid back within five-seven years. Those exceeding that amount have to be repaid in five-seven years, with some banks extending the period up to 10 years.

Special concession in interest rate is given for girl students and one per cent in interest rate for full tenure of the loan if full interest is serviced during the moratorium period.

Banks can also issue the capability certificate for students going abroad for higher studies.

Some of the foreign universities require the students to submit a certificate from their bankers about the sponsors' solvency and financial capability.

There is no specific restriction with regard to the age of the student to be eligible for education loan. Banks may consider top up loans to students pursuing further studies within the overall eligibility limit.

ELIGIBILITY:

The candidate should be an Indian national

Should be opting for graduation courses/post-graduation courses/professional courses/other

courses approved by UGC/Government/AICTE

Loans are subject to the merit of the student

DOCUMENTS NEEDED:

Mark sheets of last qualifying examination

Proof of admission of scholarship, studentship

Schedule of expenses for the course

Photographs

Borrower's bank account statement for the last six months. Some banks

ask statement for the last two years

Income tax assessment order of last two years

Brief statement of assets and liabilities of the co-borrower

Proof of income (i.e. salary slips/Form 16 etc)

Any other document necessary to avail loan

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