Students aspiring for higher education must assess the merits and demerits of the education loans on offer before making the decision.

An education loan is probably the single avenue for a vast majority of Indian students aspiring to fulfil their dreams of pursuing advanced education. Though education finance has been a stepping stone for many deserving students to accomplish their dreams over the years, common doubts and ambiguities still remain, especially relating to processes, repayment, processing fees, course of choice and subsequent financing.

Some of the common hurdles faced by students while applying for education loan are:

Rising cost of education vis-a-vis limitations on maximum loan amount. For instance, the average tuition fees incurred for pursuing higher education abroad is minimum Rs. 25 lakh, while the maximum loan available generally is Rs. 20 lakh.

Education loans are available in specific branches only. Hence the applicant may not be able to get the loan from branches outside of home town if he/she has relocated for studies and may have to travel many times for processing.

For all the education loans for studying abroad there is a margin amount that needs to be arranged by the student. Minimum margin amount is 15 per cent.

Tedious documentation and cumbersome education loan process.

Tackle the hurdles

Given below are 12 quick points that will help you understand education loans better and tide over some of the challenges listed above. This will enable you make the best of this proposition and choose from the best available options in the market.

Begin with assessment of your current available funds before opting for an education loan. Funding through scholarships, for example, would reduce your loan burden considerably.

Are you eligible for an education loan? This is an important question that needs to be answered. It can be easily checked with the eligibility calculator available with most education loan providers, even on their websites. The eligibility calculator will help you determine the approximate eligibility value.

Check if the institute that you have applied to has any association or affiliation with banks or NBFCs for education loans. This affiliation expedites loan processing.

Look up for information on your institution, its placement history, average remuneration for campus placements and earning potential after completion of your course. Don’t just concentrate on your school’s overall ranking or graduation rate, as starting salaries greatly influence the loan repayment period.

After you have decided on the actual amount of loan required, identify a loan provider who would not only meet your requirements in terms of the loan amount but also agree to fund your choice of programme. There are lenders who can provide you 100 per cent loan amount without any margin money. Certain NBFCs can provide loan as high as or Rs 1 crore.

Check the expenses covered within the loan amount, that is, whether the loan covers complete tuition fees and living expenses for the entire duration of the programme.

Explore whether one’s parental income will suffice to meet the eligibility criteria or an additional co-borrower would be required. Do you have sufficient collateral security such as house, flat, non-agricultural land or fixed deposit to support the loan? This may help negotiate better terms with the lender.

Compare not only the rate of interest of the education finance but also other benefits in terms of easy repayment options, flexibility to pay from abroad, online customer services, etc. from your loan provider. Non-banking financial companies and dedicated education loan providers provide for flexibility on all these counts.

Obtain a checklist from the lender beforehand and prepare all the necessary papers and documents to ensure expedition of the process. Generally, documents required for any education loan are Know Your Customer (KYC), educational qualification certificates, proof of income (of parents) and collateral security document copies.

Decide the repayment option in consultation with your parents. That is, if you want to start EMI, or simple interest or want to go for moratorium. If you start simple interest payment or monthly instalments, it will reduce the loan burden once you graduate. It is advised not to go for moratorium unless required, since it adds to the loan burden.

Know the terms of your loan — what is the interest rate, what is the repayment period, and when precisely the payments will begin. Do not shy away from asking questions — as trivial as they sound to you.

The writer is CEO, Avanse Education Loans.