How to fund your education

Funding your education out of your parents’ pockets is no longer an easy option, what with the rising cost of education and aspirations to study abroad. If getting admission into a private college is a costly affair, things are worse now with even premier government institutes such as the IITs and IIMs hiking their fees.

Education loans have been classified as priority sector lending. Banks have, to date, disbursed Rs 20,000 crore for education loans and 12.5 lakh students have benefited from this initiative.

Why not consider an education loan to foot the bill for your course? Here’s how you go about getting one.

Availing an education loan

First, approach banks with whom your institution/college has a tie-up; these banks may offer loans at lower rates and may be more responsive. If you can’t find such options, consider the bank in which your parent/ guardian has an account or the banks that are in your locality.

The process of applying for education loans has also been made easier. Many banks have started accepting online applications wherein you need to fill your details and the bank representative will get back to you.

Eligibility for an education loan: India’s largest bank, SBI, has the following eligibility criteria for education loans:

The candidate should be an Indian National.

All courses having employment prospects are eligible for an education loan.

Graduation courses/ post-graduation courses/professional courses/other courses approved by UGC/Government/AICTE.

Loans are subject to the merit of the student and his place of permanent address. The criteria is more or less the same for most banks. A few banks, such as Bank of India and Union Bank of India, however, only consider students who have secured admission to professional/ technical courses through entrance test/selection process.

What’s covered

Pursuing higher education may call for many expenses other than the course fee. Make sure you factor in these while applying for the loan. The following expenses are considered for the loan.

Fees payable to college/school/hostel

Examination/library/laboratory fees

Purchase of books/equipment/instruments/uniforms

Caution deposit/building fund/refundable deposit (capped at 10 per cent of tuition fees for the entire course)

Travel expenses/Passage money for studies abroad

Purchase of computers considered necessary for completion of course

Additional expenses required to complete the course, such as study tours, project work

The total loan amount is capped at Rs 10 lakh for studies in India and Rs 20 lakh for studies abroad. The requirements are the same for all the PSU banks.

Collateral Required

No security is required for loans less than Rs 4 lakh. However, security in the form of third party guarantee is required for loans ranging between Rs 4 lakh and Rs 7.5 lakh.

There might be exceptions if the bank is satisfied with the net-worth of parents who would be executing the documents as “joint borrower”. For loans above Rs 7.5 lakh, tangible collateral security of suitable value, along with the assignment of future income of the student for payment of instalment, has to be produced.

All loans should be secured by parent(s)/guardian of the student borrower. In case of married person, co-obligator can be either spouse or the parent(s)/ parents-in-law.

Rate of Interest Interest rates on the loans are on floating basis with respect to the bank’s benchmark prime lending rate. Generally all banks offer interest rates between 11.5 per cent and 13.5 per cent depending on the amount of loan taken.

The advantage of floating rate over fixed interest rates is that if the market rates decline, your interest outgo will also be lower. But your interest rates can climb if market rates go up.Other charges

Usually, education loans carry no processing fee or upfront charges, but a few banks charge a processing fee on loans above Rs 4 lakh, for overseas loans.

Banks may ask for deposits for studies abroad, which will be adjusted in the margin money.

Repayment Tenure

Repayment will commence one year after completion of course or six months after securing a job, whichever is earlier.

The repayment tenure for the PSU banks is between five and seven years.

DOCUMENTS REQUIRED

Mark sheets of last qualifying examination

Proof of admission scholarship, studentship

Schedule of expenses for the course

Two passport size photographs

Borrower’s bank account statement for the last six months

Income tax assessment order, of last two years

Brief statement of assets and liabilities, of the Co-borrower

Proof of Income (i.e. Salary slips/Form 16, etc).

Tax Benefits

Under 80E of the IT Act, tax exemption can be claimed for the education loan for spouse and children. Interest on the education loan is totally exempt from tax for the beneficiary. You will have to take loan only from banks or from employer.