Opting for higher education in a premier university abroad comes with a price tag, and Indian students are often deterred by the amounts. But then, it shouldn’t. Because there are umpteen educational loans available today to fit different budgets and students from different strata. More than five lakh Indian students went abroad for higher studies every year till 2019, and all of them are not from affluent backgrounds. Also, that degree from a reputed university could be your ticket to a dream career as well as the financial capacity to repay the loan. Below are few points that you should keep in mind when applying for a higher education loan.
Eligibility
To be eligible for a loan, you have to be a citizen and resident of India, at least 18 years of age, have a good academic background, and possess proof of having secured admission at a recognised university. There are various kinds of financial institutions offering student loans, and the most popular ones in India are banks. Remember that most public sector banks provide only 90 per cent of the total expenses. Also, you are the one in whose name the loan will be issued, not your parents or family members, even if they will be the ones paying it back.
Aligning Your Interests
Before you think of anything else, you need to be sure that your interests and aptitude match a particular course and subject, and that you are the one making that crucial decision. Choosing a stream, you are not particularly keen on just because everyone else is doing it could end up affecting your career adversely. Before deciding on the university or country, calculate the expenses that you will be accruing in their entirety. For example, many European countries offer free tuition, but the living expenses like rent, transport, and health insurance might be on the higher side when compared to other countries. Also look out for work prospects offered by the country and university, the most crucial aspect for eventually repaying the loan.
Matter of Principal
You can avail of a loan of up to Rs 4 lakhs without collateral (assets like a house, non-agricultural property, even fixed deposits). For amounts between 4 and 7.5 lakhs, you need to have a co-applicant, like a parent or a spouse. Most banks will require the co-applicant to be financially stable with a steady monthly income, though the amount might vary. For loan amounts higher than Rs 7.5 lakhs, each bank has its own rules and rates of interest and you will have to provide collateral as well. The loan will be sanctioned only after the collateral is inspected and approved by the bank authorities.
Interest Rates, Duration, and Moratorium
Study in detail the interest rates, the duration of repayment, late payment fees, and moratorium period offered by each bank as well as your repayment capacity before you choose one. Usually, the interest rates range between 9 and 15 per cent and this will be compound interest; so, your repayment amounts might increase over the years. Banks offer short-term as well as long-term repayment schemes, and higher loan amounts will be allowed longer repayment periods. For students, longer repayment periods would make more sense, as most won’t be in a position to start repaying large amounts in the beginning stages of their careers. Also, instead of availing the entire loan as a lump sum, ask for instalments according to the expenses of each semester. This will cut down on the interest rates. Choose a bank with a favourable moratorium period – a window of time allowed after the completion of the course for the student to find employment, during which time the student need not start the repayment.
Government or Institutional Schemes
The Government of India has launched a Credit Guarantee Fund Scheme (CGFSEL) for education loans under which students can avail loans up to Rs 7.5 lakh without co-applicants. The loans can be repaid throughout 5 to 7 years with a moratorium of one year. Under the Indian Bank Association Model Scheme, an education loan of up to Rs 20 Lakh can be availed by students for abroad studies.
Public sector banks offer govt schemes for girl students, where the interest rates are often less than normal. Tax exemption is also offered on the interest paid (not the principal amount) on an education loan under Section 80E of the Income Tax Act, for 8 years.
When it comes to educational loans, students must hope for the best, but also be ready for the worst. In the unlikely event of you not being able to procure a job on time, there’s no need to panic, as many banks will extend the moratorium period. And if at all your parent or co-applicant is forced to start repaying your loan, remember that you can always repay them at a later stage.
The author is Co-founder & CEO, Edumpus
DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.
