- Date : 24/02/2020
- Read: 4 mins
Student loans these days are more than just a means to secure finances for an expensive professional course; they come with a host of fringe benefits as well.
Over the years, fees at sought-after colleges in India have shot north to such an extent, that it has become well nigh impossible for most middle-class parents to finance these courses, even if their wards get through the entrance exams. Professional courses – and in some cases general courses in private colleges – have become the domain for the well-heeled or those who have a property to mortgage.
The value that Indian parents put on their child’s education – especially when it is a future-determining professional course such as medicine, business management or the law (among several others) – is so high, that they have been known to mortgage property to raise the course fees. Those who do not own property are known to have pawned family jewellery. And for those with lesser means, a general government college is all that can be hoped for.
Fortunately, over the past two decades, the concept of “student loans” has started catching on, and come as a godsend for deserving students from middle- or low- income families. Today, banks and finance companies offer financial solutions in the form of education loans, which have evolved significantly over the years.
Availing of education or student loans, even if the candidate is fortunate enough to have the necessary financial backing to cover his or her college expenses on their own, has its benefits. This has made such loans a very viable option. Let us look at a few of these benefits:
- Blanket financing: One of the most attractive features of student loans in India is that they are designed to cover all education-related expenses of the applicant; in addition to the course fees, these loans take into account the applicant’s travel and living expenses as well as other course-related expenses like purchase of laptops, books, study material, cost of entrance exams and even caution money/deposits that colleges ask for.
- High loan amounts: A growing middle-class with ever-growing aspirations means there has been a spurt in demand for such loans; NBFCs have not only fed this demand, but they have taken loan amounts to levels unheard of, often more than Rs 30 lakh. As a result, studying abroad has become more accessible. Banks sometimes fund up to 90% of the expenses (sometimes even all of it), the exact amount depending on several factors including the applicant’s academic record).
- Easy collateral terms: No collateral or third-party guarantee is required for loans up to Rs 4 lakh. A third-party guarantee is required (not collateral) for loans ranging from Rs 4 lakh to Rs 7.5 lakh. However, collateral such as LIC/NSC/KVP, fixed deposit and property documents may be asked when loans above Rs 7.5 lakh are requested.
- Smooth process: The application process at most NBFCs are extremely easy. The entire process, ranging from filling the form, paying the processing fee and submitting of the required documents, is conducted online. Plus, approvals and transfer of the loan amount to the applicant’s bank account can take as little as 48 hours.
- Affordable rates: Another attractive feature is the affordable range of interest rates, from 6.6% to 15%. This is significantly lower than a personal loan. The processing fee is about 1-2%, and this is often waived off. Female students are usually offered a 0.5% discount.
- Attractive moratorium period: Most lenders allow the borrower sufficient time to finish his or her course and find a job before calling in the EMIs; some will give an additional 6-12 months for the repayment to begin. The period when no repayments are required to be made is called the moratorium period.
- Tax benefits: Under of the Indian Income Tax Act, Section 80E provides tax deduction on the interest paid on education loan. Tax benefit can be availed for the entire amount of interest paid and not on the principal amount, as there is no upper limit.
Every bank has its own eligibility criteria for approving education loan, but a few conditions are common among them; for instance, lenders usually require the applicant to be in possession of documents that confirm his or her admission to the institution being cited. Also, as education loans are for higher studies (upward of higher secondary), the applicant has to be at least 16 years old, and no more than 35 years of age.
Some banks independently verify the employment records of the loan co-signer, who are typically the parent or guardian or the spouse of the student if he or she is married. They may even reject the loan application. In case the details provided cannot be verified. Calculate now to see how much money you will need for your child’s education and how much you need to save and invest on a regular basis