How to fund your education

With the cost of medical, management, engineering and other professional courses touching the sky, cobbling up resources has become crucial for students.

Many banks are offering education loans at varied rates of interest and students need to do extensive research to ensure that they get the best deal.

Look out for stiff upper limits and collateral requirements before you take the plunge. It’s no secret that studying professional courses means shelling out big bucks. Be it in India or abroad, a medical/management/engineering degree can burn a sizeable hole in one’s pocket.

Obtaining an education loan is the only viable alternative for most students opting for professional courses. Because of the good job prospects and little risk in recovery, most nationalised banks readily provide assistance in the form of subsidised loans.

Bank officials say the interest rates for education loans are distinctly lower than those for personal loans and the amount is not compounded for the education period, which means that the recovery of loan starts after the studies are over.

First, approach banks with whom your institution/college has a tie-up; these banks may offer loans at lower rates and may be more responsive. If you can’t find such options, consider the bank in which your parent/ guardian has an account or the banks that are in your locality.

The process of applying for education loans has also been made easy. Many banks have started accepting online applications wherein you need to fill your details and the bank representative will get back to you.

*The candidate should be an Indian national. All courses having employment prospects are eligible for an education loan.

*Graduation courses/post-graduation courses/professional courses/other courses approved by UGC/Government/AICTE.

*Loans are subject to the merit of the student and his place of permanent address.

The criteria are more or less the same for most banks. A few banks, however, only consider students who have secured admission to professional/technical courses through entrance test/selection process.

*Mark sheets of last qualifying examination

*Proof of admission of scholarship, studentship

*Schedule of expenses for the course

*Two passport-size photographs

*Borrower’s bank account statement for the last six months. Some banks ask statement for the last two years.

*Income tax assessment order of last two years.

*Brief statement of assets and liabilities of the co-borrower.

*Proof of income (i.e. salary slips/Form 16 etc).

*Any other document necessary to avail loan.

Pursuing higher education may call for many expenses other than the course fee. Make sure you factor in these while applying for the loan. The following expenses are considered for the loan:

*Fees payable to college/school/hostel.

*Examination/library/laboratory fees.

*Purchase of books/equipment/instruments/uniforms.

*Caution deposit/building fund/refundable deposit (capped at 10 per cent of tuition fees for the entire course).

*Travel expenses/passage money for studies abroad.

*Purchase of computers considered necessary for completion of course.

*Additional expenses required to complete the course, such as study tours, project work.

The public sector banks offer a maximum loan of Rs. 20 lakh for studies abroad and Rs. 10 lakh for studies in India. Loans up to Rs. 4 lakh requires no margin. Loans above Rs. 4 lakh for studies in India require five per cent margin. For studies abroad, it is 15 per cent. Loans up to Rs. 4 lakh need co-obligation from parents and no security while loans above Rs. 4 lakh require co-obligation of parents together with collateral security in the form of third party guarantee.

Nationalised banks are unwilling to grant educational loans above Rs. 7.5 lakh to farmers’ children because mortgaging agricultural land as collateral security is not permitted for purposes other than agriculture in Karnataka.

Interest rates on the loans are on floating basis with respect to the bank’s benchmark prime lending rate. Generally all banks offer interest rates between 10 per cent and 13.5 per cent depending on the amount of loan taken.

The advantage of floating rate over fixed interest rate is that if the market rates decline, your interest outgo will also be lower. But your interest rates can climb if market rates go up. Banks such as Syndicate Bank offers one per cent rebate on interest rate if parents/guardians pay interest amount during the study course.

Usually, education loans carry no processing fee or upfront charges, but a few banks charge a processing fee on loans above Rs. 4 lakh for overseas studies.

Banks may ask for deposits for studies abroad, which will be adjusted in the margin money.

The student needs to start repaying the loan amount one year after the completion of the course, or six months after finding a job, whichever is earlier. Loans of less than Rs 7.5 lakh have to be paid back within five-seven years. Those exceeding that amount have to be repaid in five-seven years, with some banks extending the period up to 10 years.

Special concession of 0.50 per cent in interest rate is given for girl students and one per cent in interest rate for full tenure of the loan if full interest is serviced during the moratorium period (including course period).

Under 80E of the IT Act, tax exemption can be claimed for the education loan for spouse and children. Interest on the education loan is totally exempt from tax for the beneficiary. You will have to take loan only from banks or from employer.

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