Checklist For Applying an Education Loan in India

In India there are a number of banks both Public and private sector from which you can avail an education loan. There are also dedicated loan Companies from which you can avail an education loan. Many a time these Companies have a tie up or are supported by a bank.

One needs to know the following before applying for an Education Loan

Nationality : You should be an Indian National to avail an education loan in India.

Age : You should be 18 years of age to avail an education loan or your parents can take the loan in their name. Banks might set an upper age limit of 35 years and no educational loan is given if you are above this age.

Admission to an educational course : You should have secured admission for a professional, technical or a management course in India or abroad. You should have secured at least 60% in all your previous qualifying examinations.

Documentation : You will have to fill the loan application form and submit documents such as an address proof, mark sheets, admission letter for the course. The co borrower (Parents or the third party Guarantor) has to show proof of income (salary slips) as well as the income tax statements of the past 2 years.

Loan Amount : You can avail a loan for a maximum amount of INR 10 Lakhs if you are studying in India. For foreign studies a loan amount of INR 20 Lakhs can be availed.

Collateral for the loan : You do not need to place collateral (security) for loans up to 4 Lakhs. If you avail a loan between 4-7.5 Lakhs you require this loan to be guaranteed by a third party. For a loan above 7.5 Lakhs banks take collateral such as your house or a property a fixed deposit or a life insurance policy.

Margin (Amount you pay from your pocket) : If you avail an education loan for an amount under 4 Lakhs and meet the requirement criteria the bank will disburse (pay) the entire loan amount .You do not have to pay anything from your pocket.

For an educational loan between 4-10 Lakhs you have to shell out (pay) 5% of the loan amount from your own pocket. For an educational loan taken for foreign studies you will have to pay 15% of the amount from your own pocket.

Tie-ups with educational institutions : Banks have a tie –up with educational institutions and if you get an admission in any of these institutions your loan can be sanctioned within 20-30 days.

Time Period of the loan : Banks give you an educational loan for a time period of 10-15 years including the years of study (time taken to complete the course).You have to repay the educational loan through EMI either within 6 months after you get a job or after a year of completing the course whichever is earlier called Moratorium period.

Past credit history : Your credit score is maintained with CIBIL (Credit information Bureau of India Limited) called CIBIL TransUnion Score on a scale of 300-900. An ideal score is around 750.If you have defaulted on your past loans then you will not be able to avail an educational loan due to a bad credit score.

Processing Fees : You have to pay a processing fee for an educational loan taken for foreign studies. No processing fee if the loan is availed to study in India.

Prepayment Charges : If you prepay your loan there are no prepayment charges.RBI has recently abolished prepayment penalty on all floating rate loans (Loans whose interest rate fluctuates with the market or the economy).

Disbursement of the educational loan : The loan amount will be disbursed in stages directly to the institution where you have secured admission.

Types of interest rates : Private banks and foreign banks offer educational loans at a fixed rate where the rate of interest remains constant across the tenure (time period) of the loan.

Nationalized banks offer educational loans at a floating rate where the rate of interest fluctuates with the market (economy) rates.

What are the tax benefits of availing an education loan in India?

You can avail tax benefit on your educational loan under Section 80 E of the income tax act if the loan is taken in your name for a higher education or for your spouse and children.

You can claim a tax deduction on the interest portion of your educational loan. You can avail these tax deductions for a period of 8 years after you start paying back the EMI on your educational loan.

You cannot claim a deduction on the principal of your educational loan.

What is the student loan moratorium?

If you had availed an educational loan before March 31st 2009 and you are unable to repay the interest component of the loan even after December 31st 2013 the Government will bear the interest burden on the education loan. (You do not have to pay any interest on the education loan if even after December 31st 2013 there is interest pending/outstanding)as per the interim budget in February 2014.
What happens if I pay the interest on the educational loan in the moratorium period?

Banks allow you to repay the educational loan through an EMI either within 6 months after you get a job or after a year of completing the course whichever is earlier called Moratorium period (grace period) .You can start making your interest payments on the educational loan as soon as your course starts. If you pay back the interest on the education loan in the moratorium period you get a discount (cut) on the interest rates by 1% in this period.