2. EDUCATION LOANS
What are education loans?
Education loan scheme study by IBA under the chairmanship of
Shri R.J.Kamath
Factors of education loan:
1. Objectives
2. Eligibility Criteria
3. Courses Eligible in India and in Abroad
4. Documents Required
5. Expenses considered for loan
6. Quantum of Finance
7. Margin
8. Security
9. Rate Of Interest
3. 10.Morotarium Period
11.Repayment
12.Follow Up
13.Processing Charges
14.Capability Certificate
15.Deduction under section 80(E)
16.Other Conditions
Analysis of banks providing education loans
Education loans becoming NPA’s
Advantages and Disadvantages of Education Loans
Factors to be considered while choosing education loan
Conclusion
4. What are education loans?
Education is central to the Human Resources Development and empowerment
in any country.
The scope of education has widened both in India and abroad covering new
courses in diversified areas.
Development of human capital is a national priority and it should be the
endeavour of all that no deserving student is denied opportunity to pursue
higher education for want of financial support.
An education loan is a type of loan designed to help students pay for
post-secondary education and the associated fees, such as tution, books and
supplies, and living expenses. It may differ from other types of loans in the fact
that the interest rate may be substantially lower and the repayment schedule
may be deferred while the student is still in school.
It came into existence in 1995 started by SBI Bank and after that many banks
started offering student loan.
5. Education loan scheme study by IBA under the chairmanship
of Shri R.J.Kamath
The Finance Minister in a meeting with the Chief Executives of the public sector
banks on 13 June 2000 had highlighted the role of commercial banks in facilitating
pursuit of higher education by poor, but meritorious students.
In pursuance thereof the Indian Banks’Association constituted a Study Group
under the chairmanship of Shri R.J.Kamath, Chairman and Managing Director of
Canara Bank to examine the issue in detail.
Based on the recommendations of the Study Group, a comprehensive model
educational loan scheme was prepared by the Indian Banks’Association for
adoption by all banks.
The Scheme aims at providing financial support from the banking system to
deserving/meritorious students for pursuing higher education in India and abroad.
The scheme was announced in the Union Budget for 2001-2002 and discussed in the
meeting the Finance Minister had with the Chief Executives of banks on 7 April
2001. Government of India, Ministry of Finance, Department of Economic Affairs
[Banking Division] has considered and decided to accept the Model Scheme
prepared by IBA for implementation.
6. Factors of education loan:
1.Objectives:The Educational Loan Scheme outlined below aims at
providing financial support from the banking system to deserving/
meritorious students for pursuing higher education in India and abroad.
The main emphasis is that every meritorious student though poor is
provided with an opportunity to pursue education with the financial
support from the banking system with affordable terms and conditions.
No deserving student is denied an opportunity to pursue higher
education for want of financial support.
In short, the scheme aims at providing financial assistance on
reasonable terms:
* to the poor and needy to undertake basic education.
* to the meritorious students to pursue higher/ professional/ technical
education.
7. 2.Eligibility Criteria:
(a)Should be an Indian NationalSecured admission to professional/
technical courses through Entrance Test/ Selection process.
(b)Secured admission to foreign university/ Institutions.
(c)Should have scored minimum 60% (50% for SC/STs) in the qualifying
examination for admission to graduation courses.
3.Courses Eligible in India and in Abroad:
a. Studies abroad :-
* Graduation : For job oriented professional/ technical courses offered
by reputed universities.
* Post graduation : MCA, MBA, MS, etc.
* Courses conducted by CIMA- London, CPA in USA etc.
8. b. Studies in India:
* School education including plus 2 stage.
* Graduation courses : BA, B.Com., B.Sc., etc.
* Post Graduation courses : Masters & Phd.
* Professional courses : Engineering, Medical, Agriculture, Veterinary,
Law, Dental, Management, Computer etc.
* Computer certificate courses of reputed institutes accredited to Dept.
of Electronics or institutes affiliated to university.
* Courses like ICWA, CA, CFA etc.
* Courses conducted by IIM, IIT, IISc, XLRI. NIFT etc.
* Courses offered in India by reputed foreign universities.
* Evening courses of approved institutes.
* Other courses leading to diploma/ degree etc. conducted by colleges/
universities approved by UGC/ Govt./ AICTE/ AIBMS/ ICMR etc.
9. 4.Documents Required: The following documents are to be
submitted to complete the application process.
Letter of admission
Duly filled and signed loan application form
2 recent passport size photographs
Statement of cost of study
PAN Card, AADHAR card of student and parent/guardian
Proof of identity and proof of residence
Statement of assets and liabilities of parent/guardian
Proof of income of parent/guardian
10. 5.Expenses considered for loan:
* Fee payable to college/ school/ hostel.
* Examination/ Library/ Laboratory fee.
* Purchase of books/ equipments/ instruments/ uniforms.
* Caution deposit/ building fund/ refundable deposit supported by
Institution bills/ receipts.
* Travel expenses/ passage money for studies abroad.
* Purchase of computers - essential for completion of the course.
* Any other expense required to complete the course - like study tours,
project work, thesis, etc.
11. 6.Quantum of Finance:Maximum amount that bank finances
Need-based finance.
For studies in India: maximum Rs 10.00 lakhs
For studies abroad: maximum Rs 20.00 lakhs
7.Margin:It is the percentage of loan amount which the applicant has to
bring in on his own.
Upto Rs4.00 Lakhs - Nil
Above Rs4.00 Lakhs - for studies in India - 5%
Studies abroad - 15% flat
12. 8.Security:
For loans upto Rs. 4.00 lakh
Co obligation of parents .
No security
For loans above Rs. 4.00 lakh and
up to Rs.7.50 lakh
Co obligation of parents together with
collateral security in the form of
suitable third party guarantee.
For loans above Rs.7.50 lakh
Co obligation of parents together with
tangible collateral security .Collateral
security in the form of NSC / LIC Policy/
Immovable properties/ Bank Deposits in
the name of student/Parent/Guardian or
any other third party with suitable margin.
Wherever the land/ building is already
mortgaged the unencumbered portion can
be taken as security on second charge basis
provided it covers the required loan
13. 9.Rate Of Interest:
Loan Amount Rate of Interest
For loans upto Rs.4 lacs 3.50% above Base Rate.
Above Rs.4 lacs and upto Rs.7.50
lacs
3.75% above Base Rate.
Above Rs.7.50 lacs 1.75% above Base Rate.
•0.50% concession in interest rate for girl students availing
Education Loans with effect from 2nd March 2009 .
•Currently rate of interest are ranging between 9.35%(State Bank of
India) to 16.70%(Axis Bank).
14. 10. Morotarium Period:
Generally, all the lending institutions give a moratorium or a holiday
period of Course period + 1 year or 6 months after getting job, whichever
is earlier.Repayment of the principal of the availed education loan can
start from after this period or after the applicant have secured job.
11.Repayment:
Loan Amount Years
Upto Rs 4 .00Lakhs 10 years
Above Rs. 4 Lacs and
upto Rs. 7.5 Lacs
Upto 10 years
Above Rs. 7.5 Lacs Upto 12 years
•If the student is not able to complete the course within the scheduled
time, extension of time for completion of course may be permitted for
a maximum period of 2 years.
15. 12.Follow Up:Banks to contact college/ university authorities to send
the progress report at regular intervals in respect of students who have
availed loans.
13.Processing Charges:Most of the banks do not charge any
processing fee on education loan.Though some lenders may levy a
processing fee of 1% or upfront fee depending on the loan availed .
14.Capability Certificate:Banks can also issue the capability
certificate for students going abroad for higher studies. For this financial
and other supporting documents may be obtained from applicant, if
required.
(Some of the foreign universities require the students to submit a certificate
from their bankers about the sponsors’solvency/ financial capability, with a
view to ensure that the sponsors of the students going abroad for higher
studies are capable of meeting the expenses till completion of studies.)
16. 15.Deduction under section 80(E):Under section 80(e) of
the Indian income tax act, a person can exempt the amount paid against the
interest of the education loan – either for self or for his/her spouse or
children – for eight years from the year(s) he starts to repay the loan or for
the duration the loan is in effect, whichever is more.
16.Other Conditions:However, banks may obtain a declaration/ an
affidavit confirming that no loans are availed from other banks.
Loan applications have to be disposed of within a period of 15 days to 1
month, but not exceeding the time norms stipulated for disposing of loan
applications under priority sector lending.
20. Advantages and Disadvantages of Education Loans
Advantages of Student Loans:The biggest advantage of student
loan is that it helps the needy students who do not enough funds but are
intelligent and it is due to student loan that they are able to pursue
higher education and get a good job and thus it helps in making their
career. These are designed in such a way that student does not have to
repay immediately rather once their education is complete then they
have to pay the installments from their salaries.
Another advantage of student loan is that they carry lower rate of
interest as compared to other loans like housing, vehicle, personal loan
and so on and therefore both student as well as their parents do not have
that much burden because lower rate of interest means lower monthly
installments and hence less stress on the part of the borrower.
There is no need for any security up to certain amount in student loan
and hence borrower is saved from stress of arranging for security as is
the case with other loans where the borrower has to arrange for security
in order to take loan from bank or financial institution.
21. Disadvantages of Student Loans:The biggest disadvantage of
student loan is that it is a loan and it carries interest and therefore when
one takes this loan he or she should bear in mind that it will lead to him or
her being in debt for long period of time because due to interest loan
amount will keep on accumulating until one start repaying it.
If due to some reason after completing a degree student is unable to get a
good job than it can lead to big problem because if income levels of a
person who has taken student loan do not match up with their monthly
loan repayments than it can lead to defaults and these defaults will ruin the
credit history of an individual and hence getting a good job is very
important if one wants to repay the student loan on time and without
default.
Another disadvantage of student loan is that an individual is getting into
debt at very early age and due to it all focus of an individual shifts towards
repaying the loan rather than focusing on career.
22. Factors to be considered while choosing
education loan
Choosing your bank: Choose a bank that will provide you with the
best moratorium period, interest rate and terms to pay back the
loan. Also make sure you have the option of repaying the loan early.
Choose the bank that offers you the best loan terms rather than the
most finance. Also check if you are allowed to pay EMIs in advance
or make part payments towards the loan. Know about all the service
charges that are applicable on your loan.
Pay before you have to:Moratorium periods are holiday
periods which is usually the duration of the course, plus 1 year after
the course, or 6 months after being employed, whichever is earlier.
During this period you do not have to make payments on your loan,
but interest will accumulate throughout this period. You are
allowed to pay off the interest during the moratorium period. This
will help lessen the burden of the loan. It will also make the loan
cost less when you finally have to start paying your EMIs.
23. Factors to be considered while choosing
education loan
Defaults and Extensions:If you are unable to land a job due to
macroeconomic reasons that are genuine, banks maybe understanding.
Though they may be hard to persuade, if it is a true and exceptional situation
banks may extend your repayment or moratorium period. For any other event
beyond your control which renders you unable to complete your course on
time, the banks may also extend your repayment tenure. You should
understand that this is only in truly exceptional cases where banks might
consider different options. But never default on paying your educational loan.
If your parents a co-borrowers, it will hamper future credit opportunities for
them and yourself. If you have offered collateral, that will also be at stake if you
are unable to repay the loan. So before you take a loan, research and proper
planning is required to ensure that you can pay it back.
Finally, if you are planning to study further, have a clear plan in mind but with
room to adapt. No plan is fool-proof as the world can throw us many curve
balls. Before taking a loan to fund your education, you should know the
implications of it. Be prepared for the best and the worst. This will help you
manage your educational loan and pay it off without much burden.
24. Conclusion
•The Banks offer good services to the Society by providing
Educational Loan for the students who are unable to continue
their higer education due to lack of cash.
•Sometimes the borrower may not be able to repay the amount
in the specified period or they may not get sufficient salary as
they must have expected, this may lead to break in the
repayment and thus their credit score can decrease.
•So after analyzing everything the conclusion is to always take
an extra care before taking education loan from any bank.Also
search for better offers in different banks and analyze before
analyzing the loan.
