Aarti is a small town girl, she just received an admission offer from her dream college in Mumbai, but then she realised that the fees are very high, and she can’t afford them due to her family’s poor financial condition.
When she is worried about the financial condition, her Mohan uncle told her about education loans and schemes, and told her to apply for any of them. Many public banks have many loan schemes under which they cover students’ different educational needs. Aarti is relieved now, and she has applied for the loan that covers her tuition fees, hostel fees, and other expenses.
To help students like Aarti, we have created this blog, and we will give you a step-by-step guide on how to get an education loan in India. Also, we will talk about different types of loans and other important details one should know before applying for an education loan.
What is An Education Loan?
An education loan is a financial service offered by banks or other loan providers to help students pursue technical, educational, or other courses in India or abroad. This loan covers expenses like tuition fees, books, accommodation, and more.
The great thing about an education loan is that students don’t have to start paying it back immediately. You can begin repaying the loan only after completing your course. Most loan providers offer a grace period of six months to one year, giving you time to find a job and start earning before the repayment begins.
Education loans are available for both undergraduate and postgraduate courses. Banks and financial institutions offer these loans with different loan interest rates, repayment options, and eligibility criteria, depending on your course and the institution you plan to study at.
Types Of Education Loans in India
In India, there are different types of education loans based on where you study, the kind of security you can offer, and what course you’re taking. Let’s look at them:
By Location
- Domestic Loan: This loan is for students who want to study in India. You must be enrolled in a recognized Indian institution. The loan covers fees, books, accommodation, and other expenses.
- International Loan: If you plan to study abroad, this loan helps cover not only your tuition but also travel costs, living expenses, and other costs related to studying in another country.
By Collateral
- Secured Loan: This loan requires you to provide something valuable, like property or savings, as security. If you are unable to repay, the bank can take that asset.
- Guarantor-Based Loan: You don’t need to provide any assets for this loan, but you will need a guarantor. A guarantor is usually a person, like a relative or a bank employee, who agrees to pay back the loan if you can’t.
By Course
- Undergraduate Loan: This loan is for students pursuing a bachelor’s degree. It covers 3 to 4 years of study.
- Postgraduate Loan: If you’re studying for a master’s degree or any advanced qualification, this loan is for you. It typically covers 2 years of study.
- Career Enhancement Loan: This loan is for professionals who want to take short-term courses to improve their skills or get certifications. It’s perfect for those looking to boost their careers.
How to Get an Education Loan in India: Step-by-Step Application Process
Step 1: Identify the Bank or Financial Institution
First, check which bank or financial institution offers the best education loan options for you. Popular banks like the State Bank of India (SBI), Bank of Baroda, and Canara Bank provide student loans. You can also check with private banks like HDFC and Axis Bank.
Step 2: Visit the Bank’s Official Website
Once you have chosen the bank, you can apply online, go to their official website. On the website, you will find information about the education loan and how to apply. You can also find details about interest rates, eligibility, and required documents.
Step 3: Fill Out the Application Form
Next, complete the application-cum-consent form. This form will ask for your personal information, contact details, and information about the course you plan to study. Make sure to fill in the correct details.
Step 4: Provide Your Academic and Financial Information
Once you submit the application form, the bank may contact you to get more details. You will need to share your admission letter, academic records, and financial details (like your parents’ income proof).
Step 5: Submit the Required Documents
You will need to provide important documents along with the application. These may include:
- Proof of identity (Aadhaar card, passport, etc.)
- Proof of address (Utility bills, bank statements, etc.)
- Admission letter from the educational institution
- Income proof of your co-applicant (usually a parent or guardian)
Step 6: Finalize the Loan Approval
After the bank reviews your application, they will contact you to finalize the process. You can either get the loan documents delivered to your home or visit the bank to complete the process.
Step 7: Loan Disbursement
Once the loan is approved, the bank will disburse the loan amount. For domestic education loans, the money is directly paid to the institution for tuition fees. If you’re studying abroad, the loan may be given in installments based on your institution’s requirements.
Calculate Your EMI Interest Rate With Our Education EMI Calculator
Eligibility Criteria to Apply For An Education Loan in India
To apply for an education loan in India, an individual must meet certain criteria. Here’s what you need to know:
1. Eligible Courses
The education loan is available for a variety of courses, including:
- Undergraduate programs (like bachelor’s degrees)
- Postgraduate programs (master’s degrees)
- PhD and doctoral courses
- Job-oriented courses and technical/professional courses
- Diploma courses with a duration of six months or more
2. Enrollment in Recognized Institutions
You must be enrolled in or have secured admission to a recognized educational institution. This can include:
- Government institutions
- Professional institutions
- International colleges and universities
- Private institutions that are recognized by the government
3. Educational Qualification
- For undergraduate courses, applicants should have completed 10+2 (12th standard).
- For postgraduate courses, you must have a bachelor’s degree.
4. Nationality
- Indian citizens are eligible to apply for the loan.
- Non-Indian residents (NRIs), Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs) can also apply.
- Students born to Indian parents abroad who wish to study in India can apply as well.
5. Collateral Requirements
For loans above a certain amount, banks may ask for collateral (security). Common forms of collateral include:
- Residential or commercial property
- Plots of land
- Fixed deposits
- Life insurance policies
This collateral is required to secure the loan, especially for larger amounts.
Documents Required
- Admission letter from the educational institution
- Marksheets (previous education – school/college)
- Age proof
- ID proof
- Address proof
- Signature proof
- Salary slips
- Recent bank account statements
- ITR with the income computation
- Audited balance sheet
- Recent bank statements
- Proof of turnover (service tax return/sales receipt)
- Completed application form with signature
- Latest passport-size photographs
- Appropriate Visa for studies abroad
Benefits Of An Education Loan
- Financial Support for Your Studies: An education loan provides the financial help you need to cover tuition fees, books, accommodation, and other study-related expenses. This allows you to focus on your studies instead of worrying about money.
- No Collateral for Smaller Loans: If your loan amount is up to a certain limit (usually ₹7.5 lakhs), you don’t have to provide any collateral, such as property or savings, as security. This makes it easier for students who may not have assets to offer.
- Flexible Repayment Options: Banks offer flexible repayment plans for education loans. You don’t have to start repaying until after you finish your course, and many banks provide a grace period of 6 months to 1 year to help you find a job before you start repaying.
- Tax Benefits: You can claim a tax deduction on the interest paid on your education loan under Section 80E of the Income Tax Act. This helps reduce your tax liability while you repay the loan.
- Builds Your Credit History: Repaying your education loan on time helps you build a good credit history. This can be useful in the future when you need a loan for other purposes, like buying a car or a house.
- Covers Studies Abroad: If you want to study abroad, an education loan can cover not just tuition fees but also living expenses and travel costs. This makes studying in countries like the US, UK, or Australia more affordable.
- Competitive Interest Rates: Education loans usually come with lower interest rates compared to personal loans or other types of loans. Some banks also offer special rates for specific courses or students from certain backgrounds.
What is the Education Loan Repayment Process
After you complete your course, you’ll need to start repaying your education loan. The repayment usually begins 12 months after completing your course or 6 months after finding a job, whichever comes first. This waiting period is called the moratorium period.
Here’s how the repayment process works:
- Start Paying EMIs: Once the moratorium period is over, you’ll begin paying EMIs (Equated Monthly Instalments). The EMI amount depends on the amount you borrowed, the interest rate, and the length of your loan.
- Moratorium Period: During the moratorium period, you don’t have to make any payments. This period gives you time to settle into your career or find a job before you start repaying the loan.
- Repayment Duration: The repayment period can be anywhere between 5 to 15 years, depending on the loan amount and your bank’s terms.
How to Repay: You can repay your loan in different ways:
- Internet Banking: You can make payments through the bank’s website or mobile app.
- Cheque: You can drop a cheque at the bank branch.
- Direct Debit: Set up automatic payments from your bank account every month.
- Demand Draft: You can also make payments using a Demand Draft.
- Part Payments and Pre-Payments: If you have extra money, you can make part payments to reduce the loan balance. Some banks also allow you to pay off the entire loan early (pre-payment), but check if there are any fees for doing so.
- Delays and Penalties: If you miss any payments, the bank may charge a penalty, and your credit score may be affected. So, it’s important to make your payments on time.
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Conclusion
So now that you have read this blog, we hope that you have a clear idea of how to get an Education Loan in India. We all know that education is very important for growth, but it is not accessible due to financial instability, and education loans help many students to get quality education.
Many government banks often provide loans to needy students pursuing their higher studies, and cover all the expenses related to the program, and banks also provide moratorium facility in which the repayment of the loan starts after completion of the course plus 6 to 12 months of period, during this time students can search for jobs and make themselves financial stable.
Frequently Asked Questions
Q1: Can I get an education loan without a co-applicant?
Ans:Most banks require a co-applicant, usually a parent or guardian. However, some banks may offer loans without a co-applicant for smaller amounts or under specific conditions.
Q2: What is the maximum amount I can borrow for an education loan?
Ans:For studies in India, you can borrow up to ₹10 lakhs. For studies abroad, you can borrow up to ₹20 lakhs or more, depending on the bank.
Q3: What happens if I cannot repay my loan on time?
Ans:If you miss a payment, the bank may charge a penalty, and your credit score can be affected. It’s important to make payments on time.
Q4: Can I claim a tax deduction on my education loan?
Ans:Yes, you can claim a tax deduction on the interest paid under Section 80E of the Income Tax Act.
Q5: Is it possible to prepay my education loan?
Ans:Yes, you can pay off your loan early, but some banks may charge a fee for early repayment.