Need an education loan? Ask these questions

The criteria to get an education loan is actually quite simple and basic.

The first one is that you must be a citizen of India. 

Also, you cannot say you are tentatively/ probably going to get entry into a course. You should have already got admission. Once you secure admission to the course you wish to pursue, you are free to approach a bank or financial institution to avail of funding.

Picking the right education requires a certain amount of research.

Here are a few questions you must ask when looking for an education loan.

1. How much will I have to pay?

Whenever you take a loan, the bank or financial institution will not fund the entire amount of your education. You will be expected to fund a part of it.

Let's say your fees total to Rs 10 lakh (Rs 1 million). The bank may offer to give a loan of 80% of the amount (Rs 8,00,000); you will have to put in the balance 20% (Rs 2,00,000). This is referred to as the margin amount.

If the loan amount is not too large, the bank may offer to fund the entire amount.

2. What is the loan amount?

There will always be a maximum amount that is given as loan.

For instance, the maximum loan amount for studies abroad may be capped at Rs 20 lakh (Rs 2 million) by the bank. If your tuition fees amount to Rs 30 lakh (Rs 3 million), you obviously have to cough up the balance on your own.

3. Do I have to pay any processing fees?

Some banks may charge a processing fee, others may not. If they do, check whether it is a fixed amount or a percentage of the loan amount.

Let's say you are doing a course abroad that costs Rs 30 lakh. The bank is only going to fund Rs 20 lakh and will charge you a 1% processing fee. That will be another Rs 20,000 over and above the Rs 10 lakh you have to scout for.

Or, let's say, your course fee amounts to Rs 20 lakh and the bank funds 80% of the amount. Rs 16 lakh (Rs 1.6 million) will be picked up by the bank. You will have to come up with Rs 4,16,000 (Rs 4,00,000 margin amount + 16,000 processing fees).

4. What is covered under the loan?

The cost of education is not just your tuition fee; it includes the other expenses that go along with it.

For instance, if you are travelling abroad, you will need money for the airfare. There may be hostel fees to be considered. The course you are doing may make it mandatory you have a computer of your own. You will also need to buy books and/ or equipment. 

It would be wise to list all that your course entails and come up with a total cost. Then talk to your bank and see what exactly the loan covers.

5. Do I have to provide any security?

This all depends on the loan amount. Generally, if the loan amount is upto Rs 4,00,000, you will not have to provide any security. If it is more than that, you will have to.

What does providing security mean? It is some form of investment that you surrender to the bank.

It could be government securities, shares (but they must be approved of by the bank), bank deposits, National Saving Certificates or even house property. These are handed over the bank. If you cannot pay back the loan, the bank has the right to sell these assets and recover the money you owe them.

6. Do I need a guarator?

In some cases, if the loan amount is not too high, but higher than Rs 4,00,000, the bank may ask for a third party guarantee (instead of security).

The rationale behind having a guarantor is that it puts a moral obligation on the individual taking the loan to repay it.

Should you default for whatever reason, the guarantor will have a legal obligation to pay up.

7. When do I start repaying the loan?

As long as you are studying, you will not have to worry about repaying the loan. This starts only once the course for which you have taken the loan is over or once you start working.

Some ask for repayment six months after the course is completed while others put it at a year. You could even get the option of being allowed to repay the loan only after you have secured a job.

This, however, does not mean you can delay repayment for years. There will be a limit. For instance, if you do not secure a job within a year of completing the course, then repayment starts irrespective of whether or not you are employed.

8. How long do I have to repay the loan?

Generally, you will get up to a maximum number of 10 years to repay the loan.

This will also depend on the loan amount. The higher the amount, the longer you get to repay. If your loan amount is less than Rs 4,00,000, you may probably get a maximum of five or seven years to repay it. If it is a larger amount, it will go up to 10 years.

9. What are the documents required?

This will vary depending on the bank in question. When you are given the education loan application form, you will also be given a list of the documents you need to give the bank.

Basically, you will have to give proof that you have been selected for the course and the schedule of fees.

The mark sheet of the last qualifying examination will also have to be produced.

Keep a couple of photographs ready.

10. Will my course be eligible for a loan?

All graduation, post-graduation and professional courses are eligible for a loan.

Courses that offer a degree or diploma are also valid.