eventeen-year-old Soundarya Krishnan is worried.
She has cleared her twelfth board exams and has made it through the regional engineering entrance examination. Reasons to smile, one would think.
But her father has just retired and the purse strings are a little tight.
What can Soundarya do?
Obviously, take an education loan.
What are the nitty-gritties that she needs to look at in order to choose the loan?
The first step
1. Ideally, take a loan from a bank located at your place of study than one located where you reside, unless it concerns overseas studies.
This is because you will have better access to funds if you take a loan from the place of your study.
2. Make sure the repayment period starts only after six to 12 months after you begin your working life.
3. Banks typically prefer to finance students who opt for traditional courses.
The chosen ones for educational loans
- Management students
- Technology students from the country's premier institutions
- Medical and engineering college students.
The no-nos
Students with a 'plain vanilla' bachelor's/master's in Arts are a strict no-no, says an official from a public sector unit bank.
For courses where employment prospects are less, loans are sanctioned on the basis of the parents' income.
How much can you borrow?
India study loans: Students who plan to study in India can borrow up to Rs 4 lakh without providing any security or margin.
A loan amount of Rs 4 lakhs to Rs 7.5 lakhs can be availed against a third-party guarantee. This loan comes with a five percent margin (what this means is that you will get five percent less the amount sanctioned as loan; you will have to put together the rest of the money).
The third-party guarantee can come from an uncle, neighbour or friend standing guarantee for the full amount.
Overseas study loans: Amounts worth Rs 7 lakhs and above are usually sanctioned against fixed deposits, NSC certificates, property worth the loan amount and a margin amount of 15 percent (what this means, again, is that you will get 15 percent less the amount sanctioned as loan; you will have to put together the rest of the money).
Also, if a loan below Rs 4 lakhs comes at x rate of interest, the loan over Rs 4 lakhs is usually charged one percent higher interest.
The Reserve Bank of India prescribes the specifics (amount, rate, repayment period) of education loans and the government provides a two per cent subsidy on these loans to the banks.
A check list
Do your homework before you approach any bank for education loans. Though the protocol differs from bank to bank, you will have to assemble more or less the same documents to apply for a loan:
~Mark sheets of the last qualifying examination for school and graduate study
~Proof of admission to the course
~Schedule of expenses for the course
~Copies of the letter confirming scholarship, if any
~Copies of foreign exchange permit, if applicable
~Two passport size photographs
~Statement of borrower's bank account for the last six months
~Income tax assessment order not more than two years old
~Brief statement of the assets and liabilities of the borrower
If you are not an existing customer of the bank, you would need to establish your identity and give proof of residence.
Which banks offer loans?
Many private and foreign banks are not deep in this business.
ICICI Bank, the retail market leader, is not aggressive, just like rival HDFC Bank, which does not have a specific product yet.
Among foreign banks, HSBC is into education loans in a big way.
It even has scholarships for kids aspiring to study in the United Kingdom.
But a lot of Indian PSU banks have taken the education loan segment seriously.
Comparatively speaking
| Bank | Amount Rs. Lakh |
Interest Rate per cent |
Repayment period yeras |
| State Bank Of India | Up to 4 | 10.50 | 7 |
| Punjab National Bank | Up to 4 | 10.75 | 7 |
| Union Bank Of India | Up to 4 | 10.75 | 7 |
| HSBC | 4 to 25 | 10.50 - 13.00 | 7 |
| IDBI Bank | Up to 15 | 11.00 - 13.00 | 7 |
Some useful links
http://www.hindustanlink.com/careertex/educational-loans-india.htm
http://www.vidyapatha.com/edu_loans/eduloan.php
http://www.cyberjournalist.org.in/banks.html
http://www.allahabadbank.com/educationloan.htm?key=J http://www.bankofbaroda.com/presonal/bobscholar.asp http://www.statebankofindia/personalbanking/eduloans.asp
http://www.denabank/dummy.htm
http://www.corpbank.com/personal_loans.html
http://www.hdfcbank.com/Ri/RI-loan-personal-intro.htm
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