Education Loans

Student loans also known as Education loans or higher education loans are financial aids provided by the Private financial institutions, Banks and Government organization to help the needy but otherwise eligible students to attain higher education in reputed professional institutes. It is designed to help students pay for college tuition, books, and living expenses. Unlike other financial aids like scholarships, grants, and stipends, a student loan must be repaid by the recipient although with some ease than the other loans. Most of these loans are to be repaid after the completion of the course of education.

Some two decades ago, it used to be a big question in the minds of the middle-class families how to fund higher education to their otherwise intelligent and desiring wards. There were a few government aids in the form of scholarships etc. but those were too few to give a chance to many.

Gone are the times when one had to run from pillar to post to borrow money to fund his/her study. Today we have the facility of bank loans for education; thanks to the government’s policies which enable a deserving candidate the ever important higher/professional education.

Education costs, especially for higher education, have increased to such an extent in the last couple of decades that it has become tough for not only the middle class but also upper middle class to bear the educational expenses by their own. So student’s loans come in handy for people with financial constraints to a large extent.

Majority of us require student educational loans either for higher studies in the country or for overseas professional studies in the developed countries.

Although these students’ educational loans have made the distant dream of higher education a practical reality yet the applicants should keep in mind that paying off student loans is a responsibility of students although after completing their education.

The first thing you need to determine before applying for a student loan is how much amount you have, and how much more would you need to take as lone to meet your requirement taking into consideration the tuition fee as well as boarding and lodging expenses etc. Thus before taking the loan all the possible expenses should be calculated precisely.

If you have some doubt about your calculation’s rationality and not able to finalize the amount of loan you should take then there is a tried and tested golden rule of taking loan i.e limit your debt so that your loan payments after you educations don’t eat up more than 10% of your expected monthly income or in other words you should not borrow more in total for your education than you expect to earn in your first year of employment after completing your education. Although this rule is not applicable to all the profession it can be a handy tool in most of the case to prevent the prospective students from being over-indebted

After determining how much loan you really require to meet all your expenses the second thing to finalize is the type of loan you should take.

Broadly student loans can be classified into two main categories i.e. Government loans also known as federal loans (in the USA) provided by Government banks or other government financial institutes and  Private loans i.e loans provided by private institutions.

Usually, Government loans are preferred by the Students largely because of the lesser rate of interest. Besides these loans are highly subsidized by the Governments to encourage students for higher studies, Moreover, these loans require the interest to be paid after completion of education and that too in easy to pay installment.

Students or their parents may also consider obtaining an education loan from a private institution. But before going for this option you should carefully check the reputation of the financial institutions and look for those institutions giving loans at competitive interest rates. A thorough research on all the terms and conditions regarding the payback etc should be done before going for such loans.

Once decided the amount of education loan and the agency from which to sanction this loan there comes the question of how to get the loan.

Most large public sector/nationalized banks like State Bank of India and private sector banks like ICICI and HDFC etc. offer educational loans for students to study in India and abroad with the varying condition. Students can approach these back with some initial knowledge about the various schemes and their pros and cons and strike the right deal for them.

Details of student Education Loan provided by State Bank of India (One of the Largest Public Sector Bank of India)
The purpose for which a Student can Apply for Education Loan are:-

1. Tuition and other fees
2. Maintenance costs, books & equipments, etc.
3. Cost of passage (for studies abroad)
4. Caution fund/building fund/refundable deposit.

Eligibility for Education Loan

1. Should be an India National.
2. Secured admission to professional/ technical courses through Entrance Test/ Selection process
3. Secured admission to foreign university/ Institution.

Maximum Amount of Education Loan

Although the educational loan is subject to the need of the individual  repaying capacity of the parents/ students  yet there are following  margins and ceilings.

1. Studies in India - Maximum Rs.7.50 lacs
2. Studies Abroad - Maximum Rs.15 lacs

Margin

• Upto Rs.4 lacs: No margin
• Above Rs.4 lacs
  1.    Studies in India: 5%
  2.    Studies Abroad: 15%

Student Loan Rate of Interest

State bank of India apply the lowest interest on the students loan provided by it.

While interest is not required to be paid during the moratorium period, payment of the same before the start of repayment would entitle you to concession in interest rate applied during the repayment holiday

Repayment of Loan:
Repayment Holiday - Course period + 1 year or 6 months after getting the job, whichever is earlier.
The loan to be repaid in 5-7 years after commencement of repayment. Prepayments are permitted without any penalty.

Details of Education Loan provided by HDFC Bank (One of the Leading Private Sector Bank of India)

Purposes for which a Student can Apply for Education Loan are:-

• HDFC gives loans to student partly meet their educational expenses / costs for pursuing specific higher educational courses at institutes approved by HDFC.

Eligibility to Apply for Student Educational Loan

1. Loans are given to students who are citizens of India. The student should have a consistently good academic record, and admission to an approved Educational Institute for pursuing a recognized course.
2. Students should have an earning parent / guardian as a co-applicant to the loan.
3. Applicant should be a student of select leading national educational institutions.

Amount of Education Loan:
 HDFC provides Student Education Loan up to a maximum limit of 90% of the total cost of the course or Rs.2,00,000 whichever is minimum.

This loan would generally cover expenses incurred towards the course fee, library charges, hostel and mess charges, cost of books and equipment.

Student Education Loan Rate of Interest
HDFC bank applies a flat rate of 14% p.a on the student’s loan provided by it.

Repayment Schedule of Education Loan
The period of the loan is determined on the merits of each case but normally would not exceed 5 years. The repayment can also be accelerated on completion of the course, considering the earning capacity of the student.

Once completed the education and joined a job it is the turn to repay your debts as early as possible. It cannot be considered sensible to take loans for a couple of years and keep on repaying it for next 10-15 years and it is very clear that one cannot escape the educational loan in any scenario. Thus paying off the student loan as early as possible will be sensible so as to maintain your credibility and avoiding worries in the future.

Consolidation of  Education Loans - refinancing of all present loans in full with a new loan taken at a low fixed interest for a new term - thereby extending the term of the loan from 10 to 30 years easy installments can be a smart move  towards paying the debts in an easy manner. However, by extending the term of a loan the total amount of interest paid is increased but it can be compensated by making more than the minimum payment each month to cut the repayment period down and reduce the amount of interest paid.