As a student, you aspire to study in your dream college. But sometimes, this comes at a cost — literally, as your marks and a strong resume are not the only factors to consider, to gain admission into the said college. And this is where an education loan comes into play.
These loans are offered by banks and some financial institutions, to students who wish to study either in India or overseas. The maximum amount offered in both cases is different and also varies from one bank to another. Be it a full-time or a part-time course; a vocational course, graduation or post graduation in the filed of your choice — education loans cover them all. Ajay Bohora, Co-founder, MD and CEO of HDFC Credila, tells us more...
How can one apply for study loans?
Education loan specialists have introduced quick, convenient and student-friendly steps for the application process. It is now simple, convenient and involves quick service with the facility to apply online. One can initiate the process through a call/SMS too. Some banks also offer door-step service to clear queries and pick-up the documents. Post evaluation of the documents, money is disbursed for the sanctioned cases. Applicants must submit their KYC documents, admission details, academic record-related documents in addition to their financial details and other supporting documents along with the loan application.
How does the bank assess these students? On what factors do you base the decision of the amount of loan to be offered — marks, college or other criteria?
The education loan sector is very complex. There are many parameters and dynamic factors which affect the credit analysis of these loans. There are over 900 universities and over 49,000 educational institutes in India. Each institute offers courses, which present varied employment opportunities to students. Accreditation is assigned at the course level. In addition to this, different credit variables need to be applied when reviewing a loan application for overseas studies. Multiple parameters get evaluated which includes but not limited to academic background of the student, co-borrower, collateral security offered, course, college and university selected for higher education. Depending on the holistic credit evaluation of each application, loan approval is decided.
What is the duration of the repayment?
Education loans offer the flexibility of paying only simple interest (PEMI) during the course period, and principal plus interest (EMI) after the completion of studies and grace period. Usually, a longer tenure of as much as 10 years is given to facilitate smooth transition of student from campus to corporate. This way, they can start their earning and professional lives with positive credit histories that help them to take other loans in future.
What are the rules and regulations pertaining to loan repayment once the course is over?
Banks may provide a 12-month grace period after completion of the course for repayment. After that period, EMI starts on the disbursed loan amount. Students can also opt to start EMI during the course period itself. On completion of the course, any undisbursed sanctioned amount lapses.
How can one evaluate how much loan to avail of?
If students get opportunities in the destination country to work after graduation, then they start prepaying part of their loans. Comparing the payback period of investment is becoming one of the key factors while deciding on the course and the institute.
In cases where parents can support part of the EMIs of loan repayments, at least for the initial few years, students find it easier to manage higher amount of loans to pursue their dream course at the dream university. On the other hand, those students who have to take care of loan repayments on their own, they typically tend to calculate how much money they’ll be able to save after they get employment post graduating from that institute and then do reverse calculations about what does that translate into in terms of the amount of loan they can comfortably repay without any support.
How can students reduce the amount of loan they need/expenses on education?
Financially disciplined students and parents use creative ways to save on expenses. To save on tuition fees, some students pursue pre-requisite and other fundamental courses in less expensive community colleges or state institutes and apply for credit transfers. To save on living expenses, one can use Skype and other tools to regularly interact with family instead of making frequent visits to India during study period, live off campus on shared accommodations, and during vacation time, travel around the country in groups to share driving costs.
The Indian government has provided income tax benefits under section 80E of the Income Tax Act, to students and parents on the interest of their education loan. This benefit is also offered by some education loan companies, wherein the interest amount is exempt from taxes.
Factors to consider
- Choosing the right education loan lender is an important decision for every student and parent. Some of the key factors that should be kept in mind are:
- 100% cost coverage:Check if the loan provider covers the complete education expenses, including living costs, and other expenses like books, laptops, travel costs and so on, which usually constitute a large chunk of the cost, in addition to the tuition fee.
- Flexible repayment terms: Customer can pay full or partial interest during the course of their studies and longer repayment tenure to ease the burden in the initial years.
- Flexible co-borrower terms: This is important to increase the eligibility of the borrower. Many reputed banks accept any relative of the applicant who is willing to act as a guarantor, including acceptance of a multi-city co-borrower.
