Many parents often find it difficult to meet the rising cost of education, especially when their children aspire to study abroad. In any case, opting for an education loan can be a smart resort to bolster your finances. With the borrowed amount, you can easily cover the expenses without having to dip into your savings. However, before you apply for a loan, there are a few things you must be aware of. Here is a simple guide to some of the most important points you must consider before taking an education loan.
Points to Keep in Mind When Taking an Education Loan
Education loans in India are typically offered starting from Rs.20 Lakhs and can easily go up to Rs.5 Crore. The money is enough to cover all expenditures related to the course. This includes tuition fees, library fees, laboratory fees, examination fees, hostel fees, cost of stationery and books, transportation cost, cost of living, and any other expenses related to educational tours, projects and thesis. With a financial backup as strong as this, your child can easily afford to study at an elite institute overseas.
Education Loan Schemes
The Government of India has designed four types of loan schemes for students coming from different backgrounds. So before applying for loan, you must be aware of these schemes. Here the four government schemes run by the government of India.
Padho Pardesh Scheme
The Padho Pardesh loan scheme is designed to provide funds to eligible students from the minority community who want to pursue higher education abroad.
The Vidyalakshmi loan scheme gives you the option of applying to multiple institutions by submitting a single application.
Dr. Ambedkar Central Sector Scheme of Interest Subsidy
This particular scheme offers interest subsidies to deserving students from the OBC (Other Backward Classes) and EBC (Economically Backward Classes) categories, aspiring to study in a foreign country.
Central Scheme of Interest Subsidy for Education Loan
The Central scheme offers subsidies on the loan interest to students from the EWS (Economically Weaker Sections) of the society who want to enrol for a technical or professional course.
Under Section 80E of the Income Tax Act, you can enjoy tax deductions on the interest paid on loan repayment. However, the benefit is only applicable to borrowers paying interest for themselves, or for their children/spouse or for students whom they are a legal guardian to.
Know Your Eligibility
As a student, you may opt for an education loan with parents or a guardian as co-applicants. However, you need to sure of the basic criteria set by most lenders. These are as follows:
- The applicant must be a resident citizen of India
- Applicant must be between 23 years and 62 years of age
- Those applicant (parent/guardian) must be a working professional with a steady source of income
Your CIBIL or credit score is one of the most crucial factors when it comes to determining education loan interest rates. The lender will take this into account to evaluate your creditworthiness i.e. how reliable and capable you are of paying off the loan. Usually a score of 725 and above is consider ideal as it keeps you in good light. However, if your score is lower, you can always work towards improving it by clearing off your dues on time and paying off your credit card bills or any outstanding loan and debt before taking an education loan.
Collateral or Guarantee
Lenders offer education loans in both unsecured and secured variants. They may ask for a collateral or a third-party guarantee for a higher loan value. Collateral may be in the form of an insurance policy in favour of the bank. Alternatively, you can also pledge your house or a property as collateral for the tenor. This is known as taking an education loan against property.
Repayment of loan typically begins a year after the student has completed the academic session or within 6 months of being employed, whichever is earlier. The lender will charge simple interest on the loan during this period. Repayment schedule is quite flexible spanning up to 18 years. To make loan repayment easier and affordable, the payable amount is divided into smaller EMIs that need to be paid on a monthly basis. Furthermore, to get a clear estimate of the monthly instalments, you can use an education loan against property EMI calculator.
The list of documents required to apply for an education loan includes ID and Address proof, IT Returns, salary slip, bank account statements, and property papers in case of a loan against property in India. Make sure you have all of these in place to ensure smooth and hassle-free loan processing.
Encourage your child to pursue the dream of studying overseas – an education loan will see to your financial woes. Find a lender that offers the best interest rates and benefits, along with easy and minimal documentation.