It's the advent of the new academic year. Students and their parents are not only anxious about their results and admissions, but also education loans. Edu loans are a priority for banks. Banks in Coimbatore district have lent around Rs. 105 crore to around 8, 200 students from April 1, 2009 to January 31, 2010. These loans have made professional education and foreign studies a reality for a large proportion of students.
It is largely the public sector banks that offer loans. They offer up to Rs. 10 lakh for studies in India Rs. 20 lakh for studying abroad. For loans of up to four lakh, no collateral security is needed, i.e. you do not need to mortgage your house or land. Parents are made co-guarantors to the loan, to help in repayment.
For loans between four and seven-and-a-half lakhs, a third guarantor (the first two being the student and a parent) is needed. In case a third person isn't available, banks usually settle for collateral. Borrowers also need to pay margin money, five per cent of the loan for studies in India and 15 per cent for studies abroad, for loans more than four lakhs.
For loans of more than 7.5 lakhs, collateral is imperative. Loans cover expenses like tuition and examination fees, accommodation, books, travel to study abroad. They do not cover capitation fees, donations and external coaching fees.
There's no such thing as an instant loan. It is safe to begin your loan application process at least three months before you need the money. Also, check the amount of commission charged for transfer of funds. Banks pay the loan amounts directly to the educational institutions, even those abroad.
Applicants say that it is safer to plan for 15 to 20 per cent more than what you need, due to all the additional expenses involved.
Repayment
Repayment of the loan must start within a year of completing the course or six months after finding a job. The repayment must finish within five to seven years. Rates hardly vary between banks. It is usually 10 to 12 per cent simple interest.
A common problem banks face is that of borrowers, now settled abroad, refusing to pay up. The burden then falls on their parents in India who signed as co-guarantors. Many loans are now non-performing assets, for which banks need to make provisions for from their other monies.
Indian Overseas Bank Chief Manager D. Venugopal explains, that the demand for students is high in foreign varsities and they easily get admission. It is also tough to verify the credentials of all foreign institutions.
“Financial literacy is lacking and foreign education is now simply a matter of prestige. Many do not think if they can repay and they demand loans as their right,” he adds.
Consumer activist K. Kathirmathiyon says that bad loans cannot be equated to non- performing assets. “It may be a loss to the bank, but an educated citizen is an asset to the nation,” he says. Though even the educated and well-to-do default on loans banks lend based on family income. This defeats the policy of using education loans to popularise higher education.
“Loans should be given based on merit and the government should specify what this merit is. There should not be delays which put the student in dilemma,” he adds. Banks often club loans of two children. This despite the fact that it is an individual loan. “Why penalize the second child for studying,” asks Kathirmathiyon.
Bank managers agree that on principle, “A deserving candidate must never be refused a loan.” Rules apart, if you have good marks and have got admission into a reputed institution which will lead to a job that can repay the loan, then you deserve it. If refused or delayed, complain to higher officials in the bank or the Reserve Bank of India.
Public banks are known to act quickly on complaints. Private banks usually ignore student loans. This is because they can be held accountable for denying loans solely on financial criteria. Though these regulations are in public interest, they do not make business sense for private players.
What applicants need to show the bank
Education records- Banks prefer students with 70 to 80 per cent marks. Carry your mark sheets along.
Proof of admission- Bring your admission letter, course details and duration, details of the university (should be accredited, preferably by a government agency). Admission should be on merit.
Identity- Banks insist on checking your passport, PAN card and proof of age.
