A thousand miles away from home, or a few – if you have set your eyes on a specialized or vocational branch of study, you are going to need financial aid to cover it. You’ve reached an age where you are all set to fly the nest; take the first stride in the world of adult responsibility. It’s only appropriate that you take out a loan to finance this leg of your educational journey, without dipping into your parents’ savings. Even though parents prepare well in advance to build up a kitty for their children’s higher education needs, the unpredictable surge in inflation plays spoiler, making the savings seem insufficient. With specialized education fast becoming the order of the day and fees surpassing the reach of common man, a loan seems the best way forward.
Borrowing for education is a prime opportunity for students to start building their credit history. It offers the advantage of setting up a solid credit score that will come handy soon in life. Higher education is the ultimate springboard for an established career and the “settling” phases of life. You would need credit further on for marriage or a house or a car or other personal needs. If your CIBIL report shows an excellent score, you will have not have to worry about how to increase CIBIL points when you apply for future loans.
Women have a slight advantage in terms of interest rates. Public sector banks may offer a discount of 25 basis points (1 basis point = 0.01%) to a female candidate.
What Is An Education Loan?
Nowadays costs of all goods are rising. Education is also very expensive. In order to fund higher education parents might take an educational loan for their children. These are available in a number of banks at very reasonable interest rates. Student loans were introduced in the Budget of 2004 and grew about 35% annually between 2004 up to 2012.
The CIBIL score of the parents'
The CIBIL score of a working parent who may step in as a guarantor when you are applying for an education loan will become vital if the loan amount is over and above र 5lakhs. The prospective lender will want to see the credit history that the parent has had and assess his capability to repay the loan on your behalf if you are not able to meet the terms and conditions of repayment. The CIBIL score of a parent or parents' may however be relevant if the loan amount is high. For a loan amount that is less than र 4 lakhs a guarantor may not be necessary. This is however a decision that the bank will make and each lender has its own set of rules.
So What Is Covered In An Education Loan?
- Here this is taken to cover the tuition fees, hostel fees, mess fees and examination fees in a college.
- Books, Laptops and other equipment, Educational tour needed for the college Education, and Student Insurance.
- In case of foreign education living expenses may be covered and in some cases even airfare.
- Any expenses related to project costs, library fees and caution deposits and uniforms and Laboratory fees.
Who is eligible to Education loans 2018 ?
- Student should be a citizen of India.
- Student should be between 16-35 years of age.
- Student should have completed his previous qualifying examinations.
- Should have secured at least 60% in the previous qualifying examination (55% for SC/ST candidates).
- Should have secured admission to a higher education college in a recognized institution either in India or abroad through an entrance test or a merit based selection test or an Aptitude Test.
- If a person is gainfully employed and resigns or quits his job his case may be considered provided he shows proof in this regard to the sanctioning authority before the loan is disbursed.
- A Co-applicant is required for full time courses which may be parents, spouse, siblings or a secondary co-applicant such as an in-law, an aunt or a maternal uncle.
- Graduation such as BCOM, BSc, BA, BCA
- Post graduation, Masters and PhD
- Professional courses such as Engineering, Medicine, Agriculture, Law, Veterinary sciences, Dental studies and courses approved by AICTE.
- Computer science courses accredited to reputed universities
- Courses like CA, CFA and ICWA.
- Courses conducted by IIM,IIT,XLRI,NIFT and IISc
- Courses offered in India by reputed foreign universities.
- Courses leading to Diploma/Degree approved by UGC, AICTE, AIBMS and ICMR.
- Teachers training and Nursing courses approved by Central and State Government.
- Regular degree/diploma like Aeronautical, Pilot and Shipping courses.
- Post graduation such as MS, MBA and MCA.
- Courses conducted by CIMA-London, CPA in USA.
Quantum of loan Provided
- In India generally a loan of up to 10 Lakhs is provided for studies done in the country.
- For Foreign studies the amount sanctioned may be up to 20 Lakhs. In certain cases it might go up to 30 Lakhs.
Security and Collateral To Be Provided For That Educational Loan
- For a loan up to 4 Lakhs there is no collateral. However some banks extend loans up to 7.5 Lakhs without collateral.
- Collateral security in the form of a third party guarantee for an amount ranging from 4.0-7.5 Lakhs. However in certain exceptional cases the third party guarantee might be waived if the bank is satisfied with the net worth of the parent who would be executing the documents as the joint borrower.
- For securing a loan of an amount above 7.5 Lakhs the collateral may be a residential property, Bank Fixed Deposit LIC Policy, or an NSC.
- Moreover a margin of 5% has to be maintained for loans above 4 Lakhs and a margin of 15% for loans taken for studies abroad.
Required Documents For Education Loan
- SSLC, HSC and Graduation Certificates.
- Institutes admission letter with fee break up.
- Age proof, signature proof, Identity and residence proof.
- Proof of admission scholarship
- 2 passport size photos and a PAN card of Parent/Guardian.
- Income details of the parent. Latest 2 months salary slips and 6 months bank statements of the salaried account.
- If parents are self employed 6 months bank statements and the last 2 years audited balance sheets.
Interest charged for educational loans
- Banks have a base rate for educational loans. The loans would be around 13% for amounts up to 4 Lakhs. It can go as high as 17%.
- For loans from 4.0 - 7.5 Lakhs an interest of up to 13.5% is charged. It can go as high as 18%.
- For loans above 7.5 Lakhs a range of about 12%.It can go as high as 16%.
- Certain Non Banking Financial Institutions may have a benchmark lending rate plus a spread based on the risk category.
- Repayment will commence 1 year after completion of course or 6 months after securing a job whichever is earlier.
- Studies in India or Abroad (5-7 years) for a loan amount of 10-30 Lakhs.
- For certain non banking institutions the loan interest repayment will start immediately after the disbursement of the first installment of the loan.
- These Non Banking Financial Institutions might offer a repayment period up to 10 years.
Certain Special Features of Non Banking Financial Institutions Giving Education Loans
- Flexibility in repayment options
- Loan sanction before admission
- Multi city co-borrowers accepted
- Loans up to 100% of educational expenses
- No Margin money required
- Flexibility on the collateral security
- Web enabled billing and services.
Points To Remember While Taking An Education Loan
A Small Leak Will Sink A Great Ship
Never default on that education loan. This will spoil both the borrower and the co-borrower, in this case maybe his parent’s credit ratings. In case the loan amount is greater than 7.5 Lakhs there is a chance of loss of collateral.
Make Hay When The Sun Shines
We have read earlier in this article about the margins which need to be maintained if the education loan sanctioned is above 4 Lakhs. This rule might be relaxed for meritorious student’s .Women might have special concessions as well as people from economically backward regions.
Cross The Stream When It Is At Its Shallowest
Banks usually have a grace period before repayment starts. You might be required to repay the amount a year after completion of the course or 6 months after getting a job. Here you can build a corpus to repay the loan, or prepay the EMI in order to reduce the EMI amounts once the repayment period begins. Here the bank disburses the loan amounts after the student completes each semester. If we can pay simple interest on the principal during these periods if possible the EMI is greatly reduced. Many banks also give an interest concession if the amounts are paid during these periods.
Every Man Is An Architect Of His Own Fortunes
Here the loan basically consists of a base rate. We have a spread over and above that of the base rate based on the risk criteria. This translates into a floating rate. Here if we can easily manage our EMI payments then we should create a buffer in order to measure up to future EMI Payments.
What Happens If I Do Not Get A Job After Completion Of The Course?
In an extreme case if the market is down due to macroeconomic conditions out of the control of the student such as that which occurred in September 2008 , the USA Subprime mortgage crisis the repayment period might be extended to 10 years from the 7 year period for amounts up to 7.5 Lakhs. This might also be for a period of 15 years for a loan amount above 7.5 Lakhs.
Strict Laws And Norms To Be Followed By Banks While Lending Of Educational Loans
- The Government will guarantee 75% of the loan amount in case a student defaults. This is up to a loan amount of 7.5 Lakhs mainly where there is no third party guarantee.
- A rating system for colleges is being set up by banks which mainly depends on placement and reputation. Banks might also have the salary records of the students placed in order to make better decisions while lending of the loans.
- The loans of students from reputed institutions like IIM or an IIT might be processed more easily than say an unheard or an unrecognized college.
Prepayment Of Educational Loans
This is a decision which the individual has to make. Here if the EMI burdens are high it is always better to prepay the loan. Here most banks do not charge pre-payment penalty unless the amount is borrowed from another bank to prepay the education loan amount. However some banks charge 5 % of the outstanding principal amount. Here I would like to remind my readers of the famous saying "When You Know Better You Do Better". Hence it is very important to take that educational loan for a bright and secure future. I would like to remind all of you that the team of Financial Planners at Moneymindz.com are always there for you to plan your Educational Loan needs in a most effective and efficient manner.
FAQs on Cibil Score for Education Loan
Can I get an education loan if my father's CIBIL score is 633?
Banks may deny education loans to students if the credit history of their parents is bad. Banks are going to check the credit scores of parents. Since students will not have any credit scores, the parents who are going to be the co-borrowers of the loan should have very good credit scores to be eligible for an education loan. If the score of the parent is not good, then the loan will be rejected.