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How, what and where of educational loans

Education is central to the Human Resources Development and empowerment in any country. But in a developing country like India finance occupies a primary concern for education. This becomes even more important for poor yet meritorious students.

Today, most of the public sector banks provide education loans to meritorious students for pursuing higher or professional or technical programmes in India and abroad. A few criteria required to avail this loan include (a) a student should be an Indian national, (b) who has secured admission in professional or technical courses through an entrance test or (c) has secured admission to a foreign university or institution.

Courses

Banks generally provide education loans to fund education at the school level including the plus two stage; B.A, B. Com and B. Sc programmes, Master's and PhD; professional courses like engineering, medical, agriculture, veterinary science, law, dental, management and computers; computer certificate courses of reputed institutes accredited to the Department of Electronics or institutes affiliated to universities; courses like ICWA, CA and CFA, professional programmes in IIMs, IITs, IISc/, XLRI and NIFT.

Apart from these, loans are given to courses offered in India by reputed foreign universities; evening courses of approved institutes; other courses leading to a diploma or a degree conducted by colleges or universities approved by the UGC or the government or AICTE or AIBMS or ICMR. Loans can also be secured for pursuing courses offered by national institutes and other reputed private institutions. Banks may even have the system of appraising other courses offered by institutions depending on future prospects or recognition by user institutions.

Education loans are available for studies abroad at the graduation level, for job-oriented professional or technical courses offered by reputed universities and MCA, MBA, MS programmes at the PG level.

Expenses considered for loan

The sanctioned loan is for paying through college or school hostel, examination, library and laboratory fee. Purchase of books, equipment, instruments, uniforms, caution deposit, building fund, refundable deposit supported by institution bills and receipts are covered by education loans. Moreover, travel expenses, passage money for studies abroad, purchase of computers and other essentials like study tours, project work and thesis are covered by the loan amount.  

Loan amount

You can get a maximum of Rs.7.50 lakh for studying in India and Rs.15 lakh for studying abroad. The rate of interest charged up to Rs.4 lakh will be on the basis of Prime Lending Rate (PLR), at the time of availing of loan. Presently, this is 12 per cent per annum. For loans above Rs.4 lakh PLR plus one per cent at the time of availing the loan is charged. This amounts to 13 per cent per annum. Moreover, the rate of interest prevailing at the time of the first loan availment shall prevail throughout the repayment period and interest to be debited quarterly or half yearly on a simple basis during the repayment holiday or moratorium period.

Moreover, for loans up to Rs.4 lakh, the margin money, which the bank will not finance and has to be borne by the student himself or herself, is nil. However, for loans above Rs.4 lakh, the margin money within India will be 5 per cent and for studies abroad it will be 15 per cent.

Also, the security required for loans up to Rs.4 lakh is nil and for loans above Rs.4 lakh, personal guarantee of your parents and collateral security in the form of NSC or KVIP or LIC Policy or Gold shares or debentures or immovable properties have to be kept with the bank.

Repayment

You are allowed a repayment holiday or moratorium during the course period plus one year, or six months after getting a job, whichever is earlier. This provision should indeed provide students a much-needed breather. The loan has to be repaid in five to seven years after the commencement of repayment. Moreover, interest is charged on a simple basis during study period or up to the commencement of repayment. Students are offered 0.5 per cent concession in interest during the moratorium period if 0.5 per cent of the loan amount is paid every month towards part payment of interest. A one per cent concession in interest can be offered during the moratorium period if full interest is paid during this period.

Checklist

One should do his or her homework before approaching any bank for education loans. This may differ from bank to bank but overall, it tends to remain the same.

Paperwork includes:

  • Mark sheets of the last qualifying examination for school and graduate studies in India
  • Proof of admission to the course
  • Schedule of expenses for the course
  • Copies of letter confirming scholarship
  • Copies of foreign exchange permit, if applicable
  • Two passport size photographs
  • Statement of bank account for the last six months of borrower
  • Income tax assessment order not more than two years old
  • Brief statement of assets and liabilities of borrower

If you are not an existing bank customer you would need to establish your identity and give proof of residence. Following are the links from where a student can harness educational loans:

For Comments: psjamwal@amity.edu

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