Educational Loans for higher studies in India and abroad

Educational Loan/ Student Loan scheme for pursuing higher studies in India and abroad:
Education is the key point for the human resource development and overall development of any country. Every country in the world use to frame policies to look after the basic educational needs of the population. Here important role comes for financial institutions like public sector and private sector banks to provide financial support by providing loans and financial assistance to the meritorious students

Indian Banks association had prepared a model for Educational loan scheme in 2001. Reserve Bank of India had advised all the banks to implement the educational scheme vide circular no.
RPCD.PLNFS.BC.NO.83/06.12.05/2000-01 dated April 28, 2001

Todays meritorious youth want to make a career in Management, Engineering, Medical, Information Technology etc but the huge expenses of 5-10 lacs deter their parents and makes them hopeless. Though these type of courses are cheap in normal universities in India and middle class and lower middle class can easily afford but doing professional course from reputed Institutes are very costly. The aim of educational loan is to help those meritorious students who cannot afford professional courses, through various banks.

The broad guidelines of IBA for Educational Loans are as under:

Eligibility: Student should be Indian National. He must have secured admission in Professional/Technical courses in India or Abroad through entrance test or Merit based selection.

Eligible courses:
  • Graduation course like B.Com. B.A. B.Sc etc
  • Post Graduation Courses like PhD MA, etc
  • Computer related courses of Institutes accredited to department of electronics or Institutes affiliated to Universities.
  • Professional Courses like Engineering, Agriculture, Medical, Law, C.A. ICWA
  • Courses conducted by IIM, IIT, IISC, XLRI etc.
  • Courses offered in India by foreign Institutes
  • Other Degree/Diploma courses conducted by universities and colleges approved by Govt. AICTE, UGC
  • Many other eligible courses for which banks should be contacted.
Education Expenses covered for Loan:
  • Fee payable to school/college
  • Purchase of Books, Uniforms, equipments, etc.
  • Examination Fee, Laboratory/Library fee
  • Travel Expenses for studies abroad
  • Purchase of Laptop or computers essential for course
  • Insurance premium paid for borrower
  • Any other expenses which are necessary for completion of course

Quantum of Education Loan: Loan is granted according to the need and repayment capacity of parents.
  • The maximum amount of loan for studies in India is 7.5 lacs.
  • Studies Abroad: the maximum amount of loan is 20 lacs
However some banks like HSBC gives Education loan upto 25 lacs for studies abroad.

Security:
  • For loans up to Rs. 4 Lacs no security is required. Loan is granted on appraisal of Income and financial status of parents.
  • For Education loan above 4 lacs to 7.5 lacs- Co-obligation of parents along with collateral security in the form of third party guarantee is required. It is on the discretion of banks to wave of third party guarantee if satisfied with the net worth of parents.
  • For loans above 7.5 lacs- Co-obligation of parents together with tangible security of suitable value and assignment of future income for payment of installments is required.
Rate of Interest:
  • For Loan up to 4 lacs - BPLR (Benchmark Prime Lending Rate)
  • For loans above 4 lacs - BPLR + 1%
  • Penal Interest are charged as fixed by respective Banks.
Repayment of Education Loan: Repayment Holiday/Moratorium is Course period plus 1 year or 6 months after getting job, whichever is earlier. The Educational loan is to be repaid in 5 to 7 years from the commencement of repayment.

Documents required for Education Loan: A form is filled for applying for Education loan from banks. The following other documents are generally required:
  • Photograph
  • Proof of Identity
  • Residence proof
  • Income Proof
  • Certificates of Educational qualification
  • Mark sheet of senior secondary school
  • Graduation or Post Graduation Mark Sheet for MBA course
  • Other documents as required on case to case basis by banks
Tax benefit of Education loan: Under 80E of Income Tax Act of India repayment of an educational loan is eligible for deduction. The deduction will be available for the maximum of 8 years from the starting date of repayment .The yearly limit of deduction is Rs. 40,000 (for both principle and interest) The claim for deduction is only for loans taken for higher education, Full time studies in any graduate and post graduate, professional and pure and applied science courses.

Important points to remember before applying for Education loan:
  • Check and compare various banks for rate of interest, repayment and other details.
  • The education loan amount should not be more than required so that you can easily repay.
  • Analyze various courses and then apply for loan.
  • Take education loan/Student Loan for those courses only which can guarantee you an assured job.
Links of various Indian Public sector Banks for Education loan schemes>
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