Many students aspire to get into their dream colleges or pursue higher education from reputed universities away from home.However, the rising costs of education, exacerbated by high education inflation, can make this dream challenging. You will have to eventually rethink your choices if you don’t have the money to finish your studies. An education loan often seems like the easiest solution. Yet, it’s crucial to approach this option with caution, as you’ll need to repay it under specific terms and conditions.
When evaluating loans, it’s essential to look beyond just the interest rates and repayment schedules. Research the program you’re interested in and weigh its benefits against the total loan you’d need. Also, honestly assess your ability to repay the loan. This might be one of the biggest financial decisions you’ll make, so it’s vital to think it through.
Also Read: Step-by-Step Guide: Securing an Unsecured Education Loan in India
With various education loan structures offered by different lenders, and the diverse costs associated with institutions, students should consider several factors. Doing so can make the loan process smoother and potentially reduce the financial strain. Here are some key points to keep in mind when seeking an education loan.
5 Key Considerations Before Applying For An Education Loan
1. Loan Amount, Eligibility and Margin Criteria:
The student loan should ideally cover significant costs like course fees, laptops, equipment, hostel charges, and books. For domestic courses, the maximum loan amount is approx 10 lakh. Lenders, however, might be willing to provide larger loans for courses from renowned institutions such as IIMs, IITs, and ISB. It’s essential for students to compare loan offers from various lenders to get the best deal for their chosen course.
Different lenders have specific eligibility criteria for student loans in India. On occasion, a co-applicant is needed. In some cases, a co-applicant, which could be a parent, guardian, or spouse, might be necessary.
Lenders frequently expect students to pay a part of their education expenses. Yet, for loans up to Rs 4 lakh, there’s often no requirement for this ‘margin money’. For loans above Rs. 4 lakh, the margin money required could be 5% for courses in india. Some lenders even waive this fee for students attending premier institutions.
2. Collateral/Guarantor Requirements:
Lenders usually don’t ask for collateral or a third-party guarantor for loans up to Rs. 4 lakh. Some banks or NBFCs extend this no-collateral feature for loans up to Rs 7.5 lakh. For loans between Rs. 4 lakh and Rs. 7.5 lakh, a third-party guarantee might be necessary. However, if the lender is confident about the co-borrower’s repayment ability, this might be relaxed. For loans exceeding Rs 7.5 lakh, lenders might ask for tangible collateral such as real estate, mutual funds, bank deposits, or insurance policies.
Also Read: 5 things to remember before finalizing a college
3. Repayment Terms and Interest Rate:
Beyond the course duration, lenders typically offer a moratorium period of one year, during which EMI payments are not mandatory. After this, borrowers have a repayment window of 15 years. However, it’s important to note that interest starts accruing from the time the loan is disbursed, and this accumulated interest is added to the principal amount. If a borrower cannot complete the course within the stipulated time or wishes to start a business, the lender might extend the moratorium by an extra two years. Interest rates and processing fees are the primary expenses for students throughout the loan’s tenure. These rates vary depending on the course type, college, and academic performance. Moreover, the presence of collateral and the borrower’s credit scores also influence the interest rates. To secure the most favorable rates, students or their guardians should strive to maintain or improve their credit scores before applying.
4. Estimate Future Earnings to Determine EMIs:
Students considering loans for higher education should closely examine the placement records and average salaries associated with their chosen institutions. This data can help them estimate potential monthly earnings and, consequently, set realistic EMI and loan durations. To maintain their credit score and future loan eligibility, borrowers should refrain from adopting an aggressive repayment plan. Defaulting on EMIs due to unforeseen unemployment or lower-than-anticipated income can tarnish one’s financial reputation. On a brighter note, if a borrower decides to settle their student loan earlier than planned, there’s typically no prepayment penalty.
5. Bank/NBFC and College Collaboration:
Educational institutions often collaborate with banks and NBFCs to facilitate student loans. If you’re considering higher education, it’s worth reaching out to your desired university or institute to see if they have special loan arrangements with any banks or NBFCs. Such partnerships can potentially expedite the loan process and even offer loans at reduced interest rates.
When seeking an education loan, keep the aforementioned factors in mind. Always read the terms and conditions thoroughly before settling on a lender. Also, take note of the specific requirements, as they can vary among lenders. Ensuring all necessary documentation is ready before you apply is essential for a smooth loan application process.
Education loans are available from a variety of lenders but finding the best loan providers in India is a challenging task. Varthana is driven to help students like you with financial assistance to make your educational journey as smooth as possible.
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