Education Loan

What is an Education Loan?

Education involves a significant financial investment which may be well out of reach of some students. Education loan is a financial tool to bridge the gap between the students aspirations and affordability. An education loan or a student loan, as it is also called, assists students and their families to fund their higher education expenses post school. The loans may cover any or all of the expenses incurred on tuition fees, books, equipment, and other allied educational costs like hostel expenses.

Eligibility for Education Loan

The eligibility criteria for obtaining education loans differ from one lender to another. Broadly, the criteria can be grouped under the following heads.

Domestic and International Universities : Loans are provided for pursuing higher education in India as well as in the approved International Universities.

Age limit : Education loans are available for students between the age of 18 and 35 years. There could be slight variations in the age criteria depending upon the policy of the loan providers.

Admission to recognized institutions : In order to be eligible for the loan, the students need to secure an admission into a recognized University in India or abroad.

Approved courses : The course of study that is chosen by the student should be approved by a competent regulatory authority.

Co-applicant or Guarantor : Generally, the loan application requires a guarantor, who can be a parent or guardian, or in some cases even a friend or relative who will stand as a guarantor for the repayment of the loan.

Interest rates for education loans

Factors like the loan amount, the repayment schedule and the course chosen for study determines the interest rate levied on the loan.

Interest rates :The interest rates on education loans can be either fixed or floating. Fixed rates refer to the interest rates remaining fixed throughout the loan period regardless of the changes in the repo rate. The fixed rate provides predictability. Floating rates of interest may change based on market conditions. The interest rates for education loans in India may range from around 8% to 19%. Subsidized education loans by the Government may offer lower interest rates for the needy students.

Collateral requirements :In most cases, there is no requirement for collateral on loans below 7.5 lakhs. For larger loan amounts the collateral may be in the form of fixed deposits or other assets like property. The Central Scheme for Interest Subsidy (CSIS), provides interest rate subsidies for economically weaker sections, specifically for students whose family income is below 4.5 lakhs. In some cases the need for collateral for certain loan amounts is completely eliminated.

Repayment of education loans

Education loans have flexible repayment options. Following are the features of repayment of education loans:

Grace period :Most education loans offer a grace period during which the borrower is not required to make any payments from either the interest or the principal. This period extends from the date of the course completion to six months or in some cases even one year

Payment through equated monthly installment (EMI) : After the moratorium period ends, borrowers can start repaying the loan through EMIs. These EMIs are calculated based on the loan amount, interest rate, and tenure. Borrowers can choose between fixed and flexible EMI options to suit their financial situation.

Income-based repayment : Some financial institutions also offer income-based repayment options. This means that the EMI amount is linked to the borrower's salary; so when the salary rises the EMI also increases. This makes it easier for students to repay the loan.

Before choosing a suitable education loan to cater to individual students' needs, it is necessary to evaluate the scheme. Education loans should be treated as an investment into the future, where students can get the necessary funds to achieve the higher education to reach their career goals and aspirations.