Procedure for Applying an Education Loan

Higher education is the gateway to better career opportunities and financial security. But sky-high college fees may be a hurdle when fulfilling the aspirations of a multitude of students. Hence, parents need to consider other alternatives like education loans, which can cover the price of academics and related miscellaneous costs such as tuition fees, books, accommodation, food, travel and so on. Here is a detailed look at the education loan process in India.  

Types of Education Loans 

First of all, let’s try to understand the types of education loans. Based on the purpose of credit, they may be classified as follows: 

• Domestic education loan – For students who wish to pursue studies in Indian colleges/ universities 
• Study abroad education loan – To aid students who plan to study in foreign universities/ institutions 
• Graduate education loan – For those who want to opt for post-graduate courses 
• Undergraduate education loan – Students interested in graduation-level programmes can take advantage of this loan 
• Professional education loan – For working professionals to enhance their employment skills 
• Collateral-based education loan – It involves pledging securities such as property, fixed deposits, gold, bonds, etc.   

In most cases of higher education, especially overseas, you can fund your studies by securing a loan against property. This way, you may borrow higher amounts for stress-free expenditures. Since it is a secured loan, lenders levy lower interest rates and flexible tenors to enable convenient EMI pay-outs.  

Benefits of an Education Loan 

An education loan proves beneficial to borrowers in several ways such as: 

1. Covers All Expenses 

It supports all the primary and allied costs attached to higher education. Apart from the basic tuition and term fees, an education loan helps in managing expenditures for books, reference material, examination, stationery, hostel, laboratory, conveyance and more. In case of overseas studies, it will also let you account for travel-related charges towards visa, insurance and plane tickets. 

2. Maintains the Savings Corpus 

When you avail of a study loan, your savings fund remains intact without hampering other monetary goals such as facilitating retirement corpus, home purchases, family weddings or business expansion.

3. Offers a Moratorium Period 

Education loans come with a moratorium period, better known as a grace period or EMI holiday. It implies that borrowers do not begin repaying the loan soon after availing it. You are given a grace between six months to a year from the date of course completion before starting the EMI payments. This gives you sufficient time to find a job and repay the loan. Some lenders may request interest payments during the moratorium phase.  

4. Tax Benefits on Loan Interest 

Borrowers can claim tax deductions under Section 80E of the Income Tax Act up to 8 years on the loan interest paid. However, the principal repayment does not fetch any rebates. 

5. Improves Financial Health 

Individuals who secure an education loan and pay their EMIs on time can enhance their credit score, boosting financial health and ensuring better credit deals in the future.  

Process to Apply for an Education Loan 

The procedure to take an education loan in India can be simple if you remember the pointers mentioned below: 

1. Research Your Loan and Lender 

Make sure you look up schemes of different lenders, comparing interest rates and other requirements. Match the eligibility criteria with your age, residential status, academic level, etc. If you find any shortcomings, iron them out and then apply for the loan. 

2. Discussion with the Lender 

Upon receiving your loan application, the lender may call you for a personal discussion. They may question you about your academic performance, choice of career, the course and institute of choice and so on. There might be concerns regarding the course and its standing in the job market as they attempt to assess its potential of generating income, and thereby, your loan repayment ability. 

3. Acceptance Letter from the University/ College 

Lenders will want to see the letter of acceptance issued by the university or college where you wish to study; along with details of the course, its duration and the fee structure. This serves as a primary document, based on which, they can verify the credibility of the course and the college.  

4. Loan Guarantor Check 

Students who apply for education loans may require a guarantor. Your parents or guardians can be added as loan guarantors in such cases. But first, lenders will evaluate their credit records and CIBIL score to accurately ascertain whether they can approve your loan or not. Moreover, if you require higher loan amounts, you might need to pledge an asset of equivalent value as collateral.  

5. Loan Approval and Disbursal 

Lenders may expect students, who are primary loan applicants, to sign a promissory note as an assurance of timely loan repayment. Once all the formalities are completed, post-dated cheques and the remaining documents will have to be submitted. Your lender will then transfer the sanctioned sum into the account of your university or as per previously agreed terms. Disbursement can be done partially i.e. semester-wise or fully, in one go.  

How to Get a Study Loan? 

Interested applicants may apply for a student loan online by following the steps below: 

• Visit your lender’s official website 
• Navigate to the loan application form  
• Enter your personal and property details in the given fields  
• Submit the application online  
• A representative from the lender’s office will contact you to take the study loan process further 

Other Important Points to Remember 

If you are eligible for education loans offered by the Central and State governments, the loan application can be made through the Vidya Lakshmi portal. It is a website for students seeking study loans from various lending institutions for pursuing courses in India or abroad. 

You can also apply for private student loans, in which case, your existing financial institution could be the first place to initiate the education loan procedure. They may be more amenable to extending favourable interest rates and terms. Lenders normally grant interest subsidies and benefits to meritorious students, female students, differently-abled students and other deserving categories of students.  

Summing Up 

An important aspect of the education loan process in India is knowing the repayment terms. If you are unsure of your financial stability, the debt may pose difficulties along the way. Thus, before you apply for a loan, access an online EMI calculator to estimate the payable EMIs based on your inputs of the selected tenor, applicable rate of interest and the required loan amount. Remember, you can close the loan earlier, before the end of your stipulated tenor, to reduce the interest outgo. You may do so by pre-paying your loan from time to time, as and when you have ready finances available with you. 

It must also be understood that borrowers should avoid applying with multiple lenders. A hard enquiry of your credit records is done during loan processing and a higher number of these can hurt your CIBIL score as well as your student loan approval.