Guide to getting the right education loan

An investment in knowledge pays the best interest — Benjamin Franklin

Higher education does not come cheap, whether a student opts to study in India or overseas. Parents and students spend stressful days, even weeks, hunting for the dream combination, in a dream college, which in most cases is tantalisingly out of reach, unless that ‘most suitable loan’ is found, which will cover all financial requirements.

Given the present day competitive scenario, the thrust towards professional courses and a university education is viewed as a necessity to unlock economic opportunity. Governments recognise this need. Educational institutions depend on this need and banks thrive on this need. This explains the sudden boom in education funding. Banks are vying with each other to study the education market and work out loan packages for degree, post-graduation and professional diplomas.

Plenty of options

What a student or their parents look for in an education loan is a clearly spelled out plan which is quick and easy to process, with a low rate of interest and the flexibility to cover all costs of the study programme. Both nationalised banks and private banks have invested a lot of time and effort to study the education market. There are other private loan providers who liaison with banks on behalf of the student or parents, for a fee.

Seema, a montessori teacher and a single mother, found that “while it is very encouraging to have so many funding options these days, choosing the right university, convincing the bank that the college and programme are appropriate and working out a suitable loan plan is quite a task.” She is currently negotiating a loan plan with her bank to send her daughter to Canada for an undergrad programme.

Banks are able to sanction loan amounts from Rs 50,000 to Rs 4,00,000 without margin money (where the borrower pays an agreed percentage of the loan amount required.) The ceiling for an upper limit is different for different banks. Some banks have processed loans up to Rs 75 lakh or even more. Most loan amounts above four lakh would require a guarantor or security. The loan amount would depend on the market value of the professional course or research study, as the case may be.

How it works

When a student approaches a bank or any other loan provider, he or she would do well to remember that the sanctioning of the loan amount is based on two leading criteria, the accreditations and certification of the university in question and the ability of the borrower (student) and/or co-borrowers (parents, siblings or any other relative) to repay the loan within the stipulated time. The quantum of education loan will be determined subject to eligibility of the applicant and cost, which would differ from case to case.

Eligibility and documents

Any bank that you approach will require the Know Your Customer personal details, proof that you are a citizen of India, relevant documents of educational qualification, university and programme details, admission letter, fee structure and other costs. The official websites have all the details and a step by step procedure to take you through the various stages from filling in the application, tabling the request with all documents in place (including collaterals if required) to receiving approval and disbursement of amount.

Enrolling for higher studies calls for careful planning, researching colleges and universities, applying and securing admission and finding a friendly bank to come to your aid. A common complaint of parents is being caught in a chicken and egg situation — whether to approach the bank first or to pick the university.
Dr Anupama, principal of a management school in Bengaluru, is of the view that banks generally rank educational institutions and professional programmes based on the recognition and accreditation the institution has earned. “In India, it is easy to obtain a loan for Indian Institutes of Management, Indian Institutes of Technology, National Institutes of Technology and Medical Sciences programme as against a regular Bachelor’s or Master’s degree,” she points out.

Pitfalls in securing a loan

While loans for education that provides funds upfront can seem like a blessing, procuring a hassle-free loan is not easy. Getting the loan and paying it back, even if in easy instalments, after completion of the study programme, is not simple. There are so many different factors that determine the approval of the required loan. Banks have to deal with inflation and resultant changes in lending rates. They try to be competitive but we are seeing a steady rise in the equated monthly instalments payable by the student borrower.

Applying with parents as co-borrower or applicant(s) is better than going it alone even if you are confident of being able to repay when you start working. A healthy credit history of the bank account will speed up the approval process.

Some universities ask for insurance coverage. This is an additional expense and must be taken into account.

For working individuals who want to apply for research programmes, a company-sponsored opportunity may work out easier, provided you meet the eligibility.

Research your subject or course worth in terms of placement or job openings, before choosing one. For a fresher, humanities and liberal art courses may not fetch a high placement immediately.

Keep the budget realistic. A comparative study of expected expenses as against yours or your co-applicant’s ability to repay instalments without default is important. Check to see if your bank allows multiple co-applicants to be built into the loan plan, to divide the load. Do not make the mistake of relying on student loan for your living expenses. A part-time job is a good way to start earning.

Tailor-made packages

Most banks have a fixed rate for a category of students. Some leading banks and private lending agencies actually offer to tailor the loan to fit the need of every student, which is as it should be. They are prepared to work out rates based on the strength of the academic background of the student, the institution, co-borrower details and kind of collateral security offered. There are fast-track and round-the- clock sanctions available too.

The higher education loan is probably the first in your credit history. Make sure your credit slate is clean.