Admission season special: A students’ guide on how to get a student loan

Is education an ‘essential item’? It may not be included in the list of such items, but the fact is it is an essential item. As all other items in the list, this too has been bitten by inflation and quality education is almost out of bounds for many because of the cost factors.

Consider this: The same engineering and medical degrees, which used to cost you Rs 2-3 lakh per semester earlier, now cost Rs 4-5 lakh. MBA costs more than Rs 25 lakh in premium colleges.

And, even if the student has managed to secure the coveted seat in a course of her choice, the cost of higher education has risen over the years and how. If you are a parent or a student looking for an education loan, this admission season, here are five things you better keep in mind.

Who can get a loan: Only Indian citizens can avail an education loan. It can be availed by the student with parents/guardians as co-applicants, or by the parent for a child for studies in India or abroad.

Loan options for courses and institutions: Most banks will give you an education loan, only if you meet certain criteria’s. This means, you can get loan if you are planning to study in a recognized institute, especially for courses which are in demand like MBA, medical studies and engineering and other vocational courses. If you are planning for an admission in a less reputable college or an offbeat course, it makes sense to get a loan from a cooperative bank or financial services institutes like Avanse. Institutes like these are more open to such courses compared to approaching a public sector bank.

Loan sizes vary: The size of the loan you can take will depend where you plan to study. For most courses in India, you can get a bank loan of up to Rs 10 lakh. For a course in a university abroad, the loan amount could go up to Rs 20 lakh. Other financial institutes which offer education loans like Credila and Avanse offer a higher amount of education loan. While some lenders may offer you 100 percent finance. There are those who ask you to set aside 5-15 percent of the loan amount as margin money. Almost all banks ask for a collateral or co-application in case of a higher loan amount, which is between Rs 4 lakh to Rs 7.5 lakh, depending on the lender. Any immovable property like your house, fixed deposits, insurance policies, National Savings Certificates and alike are accepted as collateral.

Fees and cost: If you are a female candidate, one way to reduce the cost of your loan is to take it from a public sector bank. They usually give a 50- 100 basis point discount on interest rate. The rate of interest varies amongst lenders and is usually in the range of 11 to 16 percent per annum. The processing fee is around 2 percent, but if you have secured admission in a premium course at a premium college where your future earning potential is high, you can also bargain with the lender to decrease or waive off the processing fees.

Loan repayment criteria: Student loan comes with a moratorium. This simply means the period during which you don’t need to repay the loan. This starts while you are studying the course and extends up to a year after the course is completed. If you get a job immediately after this period, the moratorium ends within six months of being employed. Once the moratorium period is over, you get seven years to repay the loan. But, we suggest that instead of utilizing the moratorium period, it’s better to start making payments even during the duration of the course. Reason being, with some lenders if you pay off the interest component of the loan during the course, you can get an interest waiver of up to 1 percent for the moratorium period.

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