Education Loan: Type of Education Loan in India

Each student goes the extra mile in order to obtain a quality education. But the cost of education has been increasing recently, and opting for an education loan seems to be the only way to make up the difference.

A student may take out an education loan to meet the financial requirements associated with completing their course. Education loans from banks and NBFCs in India are available at competitive rates for promoting educational advancement among the upcoming innovators and leaders.

However, the cost of education is rapidly rising. As a matter of fact, the price of studying at a reputable institution is rather high.

As a result, many parents who want their children to receive the best education invest their money in long-term investments, such as mutual funds (MFs), fixed deposits (FDs), unit-linked insurance plans (ULIPs), etc.

The types of loans available for financing education programs are as varied as the loans themselves. Student loans are available for diploma courses, study abroad programs, skill-based student loans, etc. To put them in a broader context, they are classified as follows:

1. Student Loans for Domestic Students
2. Student Loans for Education Abroad

These study loans can be further categorized based on the educational level of the applicant as well. They are also categorized based on secured loans and non-secured loans depending upon the necessity and availability of collateral/guarantee from the applicant. 

Types of Education Loans in India

A variety of educational programs can be funded with education loans or student loans. In general, they are classified as follows: 

Location-based loans

• Those who wish to pursue an education in a domestic institution are eligible to apply for domestic education loans. Loans are approved only if the applicant gets acceptance to an institute that meets the requirements of the lender, and there will be many eligibility requirements the lender will have. 
• Study abroad education loans:

 Loans for foreign education are intended to assist students in pursuing their education abroad. In order to qualify for an education loan, the applicant must be accepted into an institute that is on the lender’s approved list. 

Course-based loans

According to the borrower’s course selection, financial institutions offer loans. This is often done for the purpose of completing a basic degree or studying at an elite institution like the IIT or IIM. 

• Undergraduate education loans: Students can borrow money to pursue and complete a degree program as an undergraduate. Graduates from an undergraduate program will have plenty of job prospects upon completing the course. To be eligible for the loan, a student should have finished secondary education or be pursuing it. 
• Graduate student loans:

 Applicants interested in pursuing advanced degrees in colleges within the country may apply for these loans. The program is intended for students who plan to pursue a postgraduate degree or pursue any other type of professional course. To qualify for this loan, you must have completed your undergraduate degree. 

• Career education loans: 

Career education loans are often offered by banks and other financial institutions to help pay for courses and training that help people develop their careers or gain employment. These loans are available to applicants attending career-oriented programs at colleges and technical and trade schools in India.

Loans based on collateral types

There is collateral necessary when applying for a secured loan so that the loan can be guaranteed. Here are some examples of loan types 

• Loan against the property: 

A bank requires a pledge of immovable assets such as land, residential property, flats, houses, etc

• Loan against deposits:

 Alternatively, fixed deposits and recurring deposits can be pledged as collateral

• Loans against securities: Financial assets such as bonds, debentures, and equity shares may be used as collateral
• Third-party guarantee: Loans can be obtained more easily with a certificate of guarantee from a bank or employee. 

Additional Reading: State Bank Of India Education Loan

The cost of education has become increasingly difficult for parents because they want to provide their children with the best education. Parents who fit this description can apply for education loans from some banks, which even cover up to 100% of the education costs. In addition to the parents, relatives can also apply for this unsecured loan to cover educational expenses like transportation, books, tuition fees etc. This loan can be used for many reasons related to the education of a child. 

College parent loans: 

The educational loan covers tuition, books, and other expenses related to education. The customer can apply for unsecured loans without collateral, but the loan must be co-signed by a parent if the applicant has a job and is enrolled in school. 

Student Loan Repayment in India

In addition to providing funds for academic fees, education loans also cover the costs of related expenses. This type of loan has the same payment terms as any other loan, in which interest must be paid on the principal. Repayment will begin when the loan is repaid but will proceed in EMIs to be paid throughout the agreed-upon term.

Unlike popular belief, education loans are not just for studying abroad for higher education. After passing the 10th and 12th standards, they can also be used for doing professional courses. 

Benefits & Features of Student Loans 

• Both in-country and overseas education loans are available 
• Up to 1 crore of loans are available 
• 15-year repayment period 
• 7.30% is the starting interest rate 
• After completing a course or getting a job, a moratorium period of up to one year may apply 
• Female students receive special concessionary interest rates 
• Banks offer loans of up to Rs 7.5 lakh ($9400) without collateral and without third party guarantees 
• You may use residential or commercial real estate, insurance, or fixed deposits as collateral
• Options for repayment by Equated Monthly Installments (EMIs) that are pocket-friendly 
• Section 80-E of the Income Tax Act provides tax benefits for interest paid during the year
• Some lenders make loans available before students are admitted or before visas are applied for 

Who can provide education loans?

Education loans are provided in India only by institutions that are approved by the Indian Banking Association (IBA). Banks are obliged to comply with the CSIS (Central Sector Interest Subsidy Scheme) and other regulations in order to offer services that will benefit student loan applicants. In India, study loans can be taken out from either of the following two types of institutions:

1. Registered banking institutions
2. A Non-Banking Financial Institution (NBFC)

Bank education loans (features/benefits/conditions)

• Transactional accountability
• Taking out a loan at a lower interest rate
• Duration of student loans is higher
• Additional features such as health insurance and part payment.
• Tax credits and interest rate subsidies

Non-registered banks/NBFCs offering education loans features:

• Access to higher education loans
• Processes quickly
• The collateral requirement is low or non-existent (even for large student loans)
• An increase in interest rates
• Timelines for repayment are strict
• Additional features include loans against movable property/gold (gold/diamond deposits loans)
• Candidates can apply to a broader range of courses and institutions
• Charges for processing are higher
• Shorter moratorium period (holiday period during which applicants can select not to pay their EMIs)

For students interested in studying abroad, we strongly recommend that they apply for loans at a banking institution regulated by the RBI and IBA. Only these institutions offer loans that are considered secure in terms of financial security and anti-theft norms.

There are more NBFCs offering study loans than banks in general, with quick service and easier norms making them more popular. In addition to finding the best combination of services from both NBFC’s and banks, students can also find the best combination of services from NBFCs. 

The table below shows the rate of interest for a loan of more than Rs. 7.5 lakhs offered by different banks.

Banks	Interest Rate
State Bank of India	8.65% - 10.90%
Punjab National Bank	7.30% - 9.70%
HDFC Credila	11.85% - 12.05%
Federal Bank	9.36% - 10.60%
Axis Bank	10.25% - 15%
Union Bank of India	8.40% - 10.05%
Canara Bank	7.55% - 10.10%
Indian Overseas Bank	11.40%

Education Loan Eligibility

Education loans are offered to students who are unable to meet the costs of their higher education and are academically talented. Therefore, the main eligibility criteria for students seeking education loans is academic excellence and achievements. Accordingly, candidates are assessed based on their academic performance as documented in their previous test scores.

In order to qualify for an education loan, candidates must meet these criteria:

• Loans can only be granted to Indian residents.
• Students must be admitted to recognized institutions in India or abroad.
• When applying for a loan, the applicant must be between the ages of 18 and 35.
• They must be enrolled in a graduate/postgraduate program or be pursuing a postgraduate diploma.
• In order to be accepted, programs at a college or university affiliated with the UGC/AICTE/Govt must be UGC/AICTE/Govt accredited. etc.
• If the student is pursuing full-time courses, they must be accompanied by a co-applicant, either a parent or a guardian.

How to Apply for the respective loan?

You can fill out an online application or contact the bank of your choice to find out how to apply for a loan. The bank will begin the loan process once your application is submitted by verifying your documents, evaluating the educational program for which you need a loan, and evaluating your collateral. Afterward, you will receive a notification from the bank.

Documents Required

• KYC documents
• Results of the 10th and 12th grades, the graduation examination, and the entrance examination
• Letter of acceptance
• Detailed fee structure
• In some cases, KYC for co-applicants and proof of income is required

Occasionally, you may need to provide additional documents.

Tax Benefits on Education Loan

After you begin repaying the loan, you have access to this facility for eight years, or until the loan is repaid in full or until the interest is paid back. You can claim an income tax deduction for the interest portion of the education loan you pay every month under Section 80E when you begin repaying the loan. However, you cannot claim the deduction for the principal repayment.

Furthermore, you can declare a limitless amount as repayment of education loans. The bank must issue you a certificate as proof of your status. 

Education Loan EMI Calculator

The EMI calculator for education loans is provided by several banks. This handy tool calculates the amount you must pay to the lender as an EMI each month. To calculate your EMI and plan your finances, you input the following values: Principal amount (P), Time duration (N), and Interest Rate.