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Types of Education Loans in India
Education is an integral part of a nation’s growth and development. The ideal combination of basic and higher education builds the country’s knowledge and skills landscape. That said, higher studies may require hefty sums of money, which could prove to be a hurdle for many interested students and their parents. This is when a study loan may proffer the best solution. As a popular credit facility, a student loan in India can be of secured or unsecured nature, facilitating monetary assistance and helping students find their true calling.
Types of Education Loans in India
There are different types of education loans in India that can be categorised as follows:
- Location-based education loans
- Course-based education loans
- Collateral type-based education loans
- Student-parent loans
We now take a detailed look at each category of study loans for students in India:
1. Location-Based Education Loan
While many students decide to continue their studies in India, some may want to pursue courses in another country. Based on geographical location, you may find two kinds of student loans:
Domestic Education Loan
Students who wish to study in Indian institutes can opt for this loan. To be approved, you will have to first secure admission to a college and then apply with your lender, fulfilling the eligibility terms and furnishing supporting documents as required.
Overseas Education Loan
Those who apply to universities outside the country are eligible for overseas education loan provided they meet the eligibility standards of their lenders. Prior to that, you should have already applied to the foreign institution of choice and received a letter of acceptance outlining the course details. Upon completion of studies, you can make the repayments as per the pre-determined conditions in your loan agreement, irrespective of your continued residency abroad or in India.
2. Course-Based Education Loan
Banks and other lending companies offer loans for introductory degree courses and professional courses. These are referred to as course-based education loans and one may choose from any of the three types elaborated herein:
Undergraduate Education Loan
This loan applies when a student has completed his/her secondary education and wants to go in for undergraduate studies. These programmes normally last from three to four years and equip students with multiple job opportunities in addition to opening further avenues for higher education.
Post-Graduate Education Loan
There are a number of students who pursue a post-graduate degree or a professional course alongside taking up a job after their graduation. While some may not even opt for employment and enrol for a higher course/degree instead. If you require finances at this juncture, avail the loan without worrying about the course duration.
Education Loan for Career Development
Lenders often include career development loans in their range of financial products. These loans take care of professional courses and training aimed at helping students improve their skills and employment chances. They are normally short-term programmes offered by colleges, technical institutes and trade schools.
3. Collateral Type-Based Education Loan
Placing an asset as security with lenders enables you to borrow money for numerous financial commitments, including your child’s higher education. When you pledge collateral with the intent to acquire a loan, the chances of approval increase. Since these are secured loans backed by high-value collateral, they hold fewer credit risks for lenders. Therefore, borrowers can expect bigger loan amounts at lower interest rates and longer tenors.
Based on the collateral you provide, lenders extend the following education loans:
Loan Against Property
Often called mortgage loans or property loans, a loan against property can be taken against any residential, commercial or industrial property to finance your child’s education. It should be registered in your name and you must have all the valid documents to prove the same. The property may be either occupied or vacant. You can mortgage a house, flat or a plot of land.
Loan Against Securities
Individuals who hold investments in equity, bond and debentures can pledge them as collateral and receive an education loan against their securities. This is one of the easiest and fastest ways to ensure a loan.
Loan Against Deposits
Any fixed, recurring or gold deposits may be used as loan security to get a study loan against deposits wherein the interest your deposits accrue makes it simpler to pledge for credit.
Third-Party Guarantee Loans
Third-party guarantees can fetch you a student loan. Any individual with a good credit score and repayment history may stand as a loan guarantor. S/he will be responsible for outstanding debts if you, as the primary loan applicant, fail to repay on time.
4. Student-Parent Loans
These loans are designed for parents who require financial assistance for their children. This category has two types of study loans for students in India:
Loans for Parents
Parents who face monetary challenges in addressing the educational aspirations of their children can utilise this loan to ably manage education costs.
College Parents Loan
A college parents loan is essentially a joint loan for students and their parents. This indicates that parents co-sign the loan application for their children, who may be studying and working at the same time.
Understanding Education Loans
Now that you know the various types of education loans to select from, let us look at some pertinent points to bear in mind before you apply for a student loan in India:
Only Indian nationals can avail of an education loan. In certain instances, loans may enable you to cover the entire cost of a course. Apart from tuition fees, books, uniforms, hostel fees and transportation, the loan can be used to support laptop purchases and student exchange travel expenses, as required.
Borrowers normally start repaying the loan six months after course completion, depending on the time frame given by the respective lenders. This is called a grace period or moratorium period. The usual loan tenor may extend up to 10 years in case of an unsecured education loan and up to 30 years in case of a secured one. You may also claim tax rebates under Section 80 E on just the loan interest component that you pay and not the principal amount.
Students must ensure they complete the previous course if they want to secure a loan for the next degree/course. They need to go through the admission process and secure a spot in the college, university or institute to qualify for an education loan besides meeting other eligibility parameters as fixed by lenders.
The different types of education loans are meant to benefit students who aspire for higher studies and professional courses but don’t possess sufficient economic resources to do so. In this respect, both secured and unsecured loans can be effective pathways to the best education loan in India. Ultimately, it will all depend on which option matches your specific needs along with an accurate estimation of the finances involved and your own repayment capacity.
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