Should you be afraid of applying for an education loan?
With careful planning and responsible borrowing, education loans can be a step towards a brighter future.
Higher education is a crucial stepping stone to better career opportunities. However, the high cost of education can pose a significant barrier for many aspiring students. This is where education loans come into play, offering a viable solution to finance educational aspirations. Yet, despite their potential benefits, many are apprehensive about taking education loans. The reason is simple: They do not want to be in a debt trap, and do not fully understand the product.
Education loans are a unique financial tool to help you boost your opportunities not only in India but abroad as well. They have many features that help you prepay the loan smoothly. This article seeks to simplify education loans, addressing common concerns and providing a clear understanding of the process for prospective borrowers.
What Is Education Loan?
Education loans help students cover the cost of their education, including tuition fees, books, accommodation, and other related expenses. These loans can be availed for undergraduate courses to postgraduate and professional degrees, both in India and abroad.
Key Features
Loan Amount and Interest Rates
The loan amount depends on the course and institution. For domestic education, banks generally provide loans up to Rs 7-15 lakh or higher, whereas for studying abroad, the limit can go up to Rs 1 crore or higher.
Interest rates on education loans vary across banks and financial institutions. Typically, the rates range between 8% and 15%, depending on factors like the bank’s policies, the borrower’s creditworthiness, and the course of study.
Repayment Terms
One of the significant advantages of education loans is the moratorium period, which is the time during the course and an additional period (usually 6 months to a year after course completion) when the borrower does not have to make any repayments. This period allows students to find a job and stabilize financially before starting repayment.
Collateral Requirement
Loans up to Rs 7 lakh typically do not require collateral. For loans above this amount, banks may require collateral in the form of property, fixed deposits, or other assets.
Steps to Avail an Education Loan
Research: Start by researching various banks and financial institutions to compare their education loan offerings. Look at interest rates, loan amounts, repayment terms, and any special schemes available.
Eligibility: Ensure you meet the eligibility criteria, which usually include admission to a recognised course and institution, a good academic record, and a co-applicant (often a parent or guardian).
Application Process: Fill out the loan application form available online or at the bank. You’ll need to submit documents like admission proof, fee structure, academic records, identification, and address proof.
Loan Approval: The bank will evaluate your application, including the course’s credibility and your repayment capacity. Once approved, you’ll receive a sanction letter detailing the loan amount, interest rate, and terms.
Disbursement: The loan amount is typically disbursed directly to the educational institution in instalments, as per the fee schedule.
Common Concerns
* Fear of Debt
The prospect of debt can be daunting, but education loans come with flexible repayment options tailored to students’ needs. The moratorium period provides breathing room to secure employment before repayments begin.
* Job Security
Concerns about job security post-graduation are valid. However, education loans can be a catalyst for better job opportunities. Many courses funded through education loans lead to high-demand careers, increasing employability.
Adhil Shetty, CEO of Bankbazaar.com, says, “One must not be afraid of applying for an education loan if their child is eligible and holds good academic records. The loan application process may seem complex, but most banks have simplified procedures to guide applicants through each step.”
“Remember education will enable your children to pursue quality education without financial constraints, allowing them to attend prestigious institutions and courses in the country and outside. Additionally, under the Income Tax Act, interest paid on education loans is eligible for tax deduction and timely repayment of an education loan can help build a positive credit history,” adds Shetty.
With careful planning and responsible borrowing, education loans can be a step towards a brighter future. So do not hesitate and go for the education loan if you are in need of it.