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Make Your Dreams Come True

Education doesn’t come cheap. But don’t allow the high fee structure to keep you away from that coveted B-School degree. Opt for the right loan and chase your dreams.

Mallika’s happiness knew no bounds when her daughter, Suman, got admission to a prestigious university in the US for higher studies. The joy soon gave way to signs of concern when Suman told her that the fees and other costs would work out to as much as Rs 15 lakh.
Quite a big sum considering that her husband, Ramanathan, a middle-level executive in the private sector, is set to retire in few years and the family had spent most of the savings on their elder daughter’s marriage a year ago.

How it is possible to ensure that Suman does not lose out on the opportunity and at the same time, the family avoids getting into any long term financial commitment. This kept bothering Mallika until her close friend told her about Education Loans.

Relatively a new personal banking product, it is a loan that has helped thousands of students, who would have otherwise discontinued their education, pursue higher education. Apart from students, the banks also provide the loan to working professionals aged up to 30 to pursue various courses.

Remember the days when illustrious students that you know had to jump in to the job market prematurely because of family circumstances. Of course, we have also heard about those who had pursued higher studies in the face of odds, with the help of scholarships. But there aren’t enough scholarships for everyone and not all the students are eligible for one.

It is against this backdrop that the Central government came up with the idea of education loans. Most of the nationalized banks deal in education loans. Considering that education has becoming expensive, the disbursement is for studies both in India and abroad and for courses starting with graduation.

Which courses are eligible?
A pointer to the importance attached to the disbursement is the categorization of education loans under the priority sector lending. The loans are available for all courses, including courses in polytechnic colleges. The list include arts and science programmes, masters and research programmes, courses like ICWA, CA, CFA and computer courses of reputed institutes affiliated to either Department of Electronics or universities, evening courses by approved institutes, and other courses approved by Governments, AICTE, UGC, and similar statutory bodies.

“It is advisable to check beforehand with banks the prospects of getting a loan for the course that you want to pursue. This is important as banks typically have their own lists of courses that are eligible for loans. With several new courses being launched every year, the list may not be comprehensive for study abroad,” says Mohan Rammurthy, senior manager in a nationalized bank, who handles educational loans.

“What makes the loan attractive is the easy repayment option and the competitive interest rate,” Mallika’s friend told her.

The interest rates charged vary from one bank to another, unlike in the case of many other personal banking products and deposits. Therefore, it is necessary to check the details with every bank.

For instance, State Bank of India charges per annum 11.25 per cent interest on education loans up to Rs.4 lakh; 12.75 per cent on loans between Rs.4 lakh to Rs.7.50 lakh; and 11.75 per cent on loans above Rs.7.50 lakh.

Whereas Indian Bank levies an annual interest of 12 per cent on loans up to Rs.7.50 lakh; and 12.25 per cent above Rs.7.50 lakh. The rates keep changing depending on various market conditions.

Many of the banks offer a concession of 0.50 - 1 per cent in the applicable rate of interest on fresh educational loans for girl students for studies both within the country and abroad.

Bank of Baroda under its Baroda Vidya education loan for school education charges no processing or documentation fee and there is no need for any collateral. Loans up to Rs.4 lakh are charged an interest of 10 per cent, and above that at the rate of 12 per cent.

Considering the intense competition in the market, every bank has something unique to offer in their education loan products.

What all are covered?

  • Almost all the cost associated with the course is covered.
  • Fees payable to college/school/hostel
  • Examination/Library/Laboratory fees
  • Purchase of Books/Equipment/Instruments/Uniforms
  • Caution Deposit/Building Fund/Refundable Deposit (maximum 10% tuition fees for the entire course)
  • Travel Expenses/Passage money for studies abroad
  • Purchase of computers considered necessary for completion of course
  • Cost of a Two-wheeler up to Rs. 50,000/-
  • Any other expenses required to complete the course like study tours, project work etc.

As regards the maximum Education Loan that one could avail, it is normally Rs 10 lakh for study in India and Rs 20 lakh for abroad. This amount varies from bank to banks.

One of the highlight of the loan is that there are no processing fee/upfront charges. Many of the banks, however, collect a deposit of Rs.5000. Even this they adjust against the margin money. The money put in by student/parents towards the education is called margin money. For example, if parents put in Rs.1 lakh out of total education cost of Rs.5 lakh, then the Rs.1 lakh is called the Margin Money. Standard margin for loans up to Rs 4 lakh is nil. For loans above Rs 4 lakh in India, it is 5 per cent and for studies abroad it is 15 per cent.

Repayment options
One of the reasons why so many families opt for education loan is the easy repayment options. The onus is more on the student to repay on completion of their studies. In most banks, the repayment commences one year after completion of the course or six months after securing a job, whichever is earlier. The repayment period is usually 5-7 years.

Simple, streamlined
Over the years, the applications have been made simpler and are more streamlined. The qualifications for such loans have also been made lenient.

Another highlight of education loan is the collateral. For the loans up to Rs.4 lakh, no security is required. For amounts ranging from Rs 4 lakh to Rs 7.50 lakh, collateral security in the form of suitable third party guarantee is required. The bank may, at its discretion, in exceptional cases, waive third party guarantee if satisfied with the net-worth/means of parent/s who would be executing the documents as ‘joint borrower’. For amount going above Rs 7.50 lakh, tangible collateral security of suitable value, along with the assignment of future income of the student for payment of installments is required.

All loans are required to be secured by parent(s)/guardian of the student borrower. In case of married person, co-obligator can be spouse or the parent(s)/ parents-in-law.

Tax benefits
Earlier, you could claim deduction under Section 80E of the Income Tax Act only in respect of interest on loan taken, for pursuing higher education in specified fields. But now you can claim deduction for all courses, including vocational studies, after completion of school.

Banks have, to date, disbursed Rs 20,000 crore for education loans and 12.5 lakh students have benefited from this initiative.

Here are few banks which offer education loans along with their current rate of interest (subject to change by the respective banks without any notice):

Interest rate on EDUCATION LOANS
(% per annum)
Particulars Loans upto Rs 4 lakhs Loans above Rs 4 lakhs
State Bank of India
Indian Bank
Bank of Baroda
Andhra Bank
Federal Bank
Canara Bank
Vijaya Bank
Indian Overseas Bank
Syndicate Bank
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