While higher education can bring in improved prospects, it usually comes at a steep price. When there is not enough personal savings or a scholarship, students move to an education loan to support themselves while studying. The loan is designed to finance tuition, expenses, books, and every other educational requirement so that quality education becomes possible.
Let's see what an education loan is, how it's done, and what you should know before applying.
An education loan is a financial tool given by banks and financial institutions to assist students in financing their education. It can be utilised for education within India or overseas. The loan amount usually caters to:
● Tuition and exam fees
● Hostel or accommodation fees
● Books and study material cost
● Travel costs (overseas education)
Typically, the student is the primary borrower, and the parent or guardian is a co-borrower.
Banks advance you the amount needed, which is deposited directly into the educational institution's account or your account for related costs. Once you finish the course, you receive a repayment holiday, commonly referred to as a moratorium period, giving you time to secure employment before you begin repayment.
The repayment period typically extends from 5 to 15 years based on the lender's policy.
One of the foremost things to verify is the education loan interest rates. They may be fixed or floating:
- Fixed rates: Remain constant over the period of the loan, so it is simpler to budget EMIs.
- Floating rates: Vary in accordance with the market, which may lead your EMIs to rise or fall over a period of time.
Government banks tend to have lower rates than private lenders. Some even give rebates to female students or students studying certain courses.
You generally require:
● Admission Proof from a Recognised Institution: You need to provide confirmation of admission to a recognised institution, either in India or abroad. This can include an admission letter, fee receipts, or enrolment confirmation from the institution you plan to attend.
● Academic Documents: You will need to submit academic records, such as mark sheets, degree certificates, or any other proof of previous qualifications, depending on the level of the course you're pursuing. These documents help the lender assess your academic standing and eligibility for a loan.
● KYC Documents for Students and Co-borrowers: As part of the Know Your Customer (KYC) process, you and your co-borrower (often a parent or guardian) will need to provide identity and address proof, such as an Aadhar card, a passport, a voter ID, or utility bills. This ensures the verification of your identity and legal residence.
● Co-borrower's Income Proof: Most lenders require proof of income from the co-borrower to ensure that they have the financial capacity to repay the loan in case the student is unable to. This could include salary slips, tax returns, or bank statements from the co-borrower.
Access to quality education: You are able to learn in quality institutions without having to pay any initial fees.
● Flexible repayment terms: Most lenders let you repay after the completion of your course.
● Develops financial discipline: Repayment of a loan teaches you how to handle credit effectively.
● Tax advantage: In most instances, you are eligible for tax deduction on the interest paid under Section 80E of the Income Tax Act.
● Compare interest rates on education loans offered by various banks to select the cheapest one.
● Compute your EMI to know what you will pay post the moratorium period.
● Take only the loan amount you require so that you don't incur extra debt.
● Verify the repayment conditions thoroughly, such as prepayment or foreclosure fees.
You can approximate your subsequent payments and budget your finances better by using a web-based loan calculator.
An education loan can be a great solution to fund your higher studies without exerting too much strain on your family's finances. Still, you need to borrow judiciously, know the conditions, and keep an eye on how education loan interest rates would impact your repayment amount.
With proper planning, an education loan can make higher studies within your reach while providing you with an opportunity to work on your career objectives.
Disclaimer: This content is part of a marketing initiative.