Top 10 Education Loan Details That You Should Know Before Applying for an Education Loan

    Updated on: 24 May 2022

    Education loan for studying abroad is the silver lining in the dark clouds for all those students who dream of pursuing higher education but are unable to do so because of financial constraints. With the ever-increasing fees for almost every course, it becomes quite impossible for students from modest financial backgrounds to give shape to their higher education dream in the absence of education loans.

    Today, getting an education loan in India – from banks, NBFCs and FinTech companies – has become relatively simpler. However, in the absence of proper information, many students tend to either take education loan on a Higher Rate of Interest or make some other totally avoidable mistake. In order to help such students, we have compiled below a list of 10 questions that every student - aspiring to take an education loan - should know. So, without further ado, let us get started.

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    1. What Does an Education Loan Cover?

    Any student who is taking an education loan for the first time must definitely know the answer to this question. An education loan covers the basic course fee along with other course-related expenses. Examination fee, accommodation charges, exam and library fee, books and materials needed for the course are mostly covered by the education loan.

    2. Who Can Apply for an Education Loan?

    Any student can apply for the education loan and s/he is the main borrower. The parent, sibling, spouse or guardian can be the co-applicant for the education loan.

    3. How Much Education Loan can a Student Get?

    The maximum amount of education loan that a student can get differs from bank to bank and even from loan to loan. For example, a student taking SBI student loan will get a maximum loan of 20 lacs while a student taking an education loan under the premier SBI Global Ed-Vantage Scheme (education loan for abroad) will get a maximum loan amount of 1.5 crores. Similarly, a student taking a loan from Bank of Baroda under the Baroda Gyan Scheme and applying for courses like Medical or Aviation can get a maximum loan amount of INR 80, 00,000. Students taking Baroda Scholar Loan for higher education abroad too can get a maximum loan of INR 80 Lacs. NBFCs like Avanse and Auxilo have no upper limit on the maximum loan amount for students taking an education loan while Incred caps the education loan at INR 1 crore.

    4. What Documents are Needed to Apply for an Education Loan?

    Submission of correct documents plays a very important role in whether or not your education loan will get sanctioned and if yes, then how fast. Listed below is a tentative list of documents needed by most education loan lenders.

    We advise students to also meticulously check with the bank they are applying to for the list of documents required.

    • Letter of Admission from the University or College
    • Know your Customer Document
    • Photographs
    • Completed Application form for the Loan
    • A detailed break-up of the cost of education and other related expenses
    • Certificates of 10th, 12th and Degree course ( as applicable)
    • Student’s Aadhar card, PAN card and proof of identity
    • Parent’s Aadhar card, PAN card
    • Proof of residence
    • Last 6 month’s bank account statement of the student, co-borrower and guarantor
    • Proof of income or parent or co-borrower
    • Last two years IT statement of student/parent or co-borrower
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    5. What is the Difference Between a Secured and Unsecured Loan?

    When a student takes a secured education loan, he or she needs to pledge a tangible or intangible asset as security against the loan. The security is often referred to as collateral, is seen as a backup means of repayment in case the borrower fails to repay the loan. An unsecured education loan or education loan without collateral, on the other hand, needs no security or collateral to be pledged when taking an education loan. Different banks, NBFCs and FinTech companies follow different guidelines when sanctioning a secured or unsecured loan. It is thus best to check with the bank you are applying to for more details on this.

    6. What is the Rate of Interest for Education loans in India?

    As mentioned earlier, the Rate of Interest for education loan varies from lender to lender. The rate of interest varies for different banks. The interest rate on the education loan, offered by banks, is the sum of the MCLR (Marginal Cost of Funds based Lending Rate) and an additional spread (currently between 1.35 and 3%). The interest rate for education loans from leading NBFCs is between 11.5% and 12.7%.

    7. What is Margin Money when taking an Education Loan?

    Margin money is the amount of money that the student has to pay out of his own pocket to finance his education. For example, if a student needs a loan amount of INR 10 lacs, the bank would finance 80% (this varies from bank to bank) of this amount. It means that a student would have to pay INR 2 lacs and the remaining INR 8 lacs would be given by the bank. However, RBI guidelines state that for a loan amount less than INR 4 lacs, banks cannot charge any margin money. To get a clearer picture of margin money and how it might affect your education loan, refer here.

    8. Does the Education Loan Qualify for Income Tax Deductions?

    The interest paid on the education loan taken from banks qualifies for deductions under Section 80E of the Income Tax Act. However, education loans from NBFCs and FinTech companies do not qualify for tax deductions.

    9. What about Loan Repayment?

    A student has to repay the loan after completion of his or her course. Some banks do provide a grace period of six months after course completion for s student to start repaying the education loan. A student can repay the loans in 15 years. Again, the repayment duration varies from lender to lender and scheme to scheme and hence should be checked properly.

    10. Which are some of the Best Lenders for Education Loan?

    Some of the most popular banks giving education loans to students in India are State Bank of India, Axis Bank, Bank of Baroda, Canara Bank, Punjab Bank, and others. NBFCs like Auxillo, Avanse, and Credila too are popular education loan providers in India. Some students also take education loans from international players like Prodigy Finance.

    Now that most of your education loan-related questions are answered, take our help and get started on your study abroad dream.

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