Financing your higher Education
- Courses that can be covered by educational loans
- The costs covered by the loan
- The eligibility factors
- Maximum amount that can be loaned
- Margin amount
- How long does it take for a bank to sanction the loan?
- Documents required to get the loan sanctioned
- Security provided to the bank
- Why do I need a guarantor?
- How is the disbursement made?
- What if I apply for a part-time or correspondence course?
- Is there any special privilege for SC/ST?
- What do you mean by holiday period?
- What if I’m a high school student or an undergraduate? Can a minor apply for the education loan?
- What is interest portion and how is the interest rate applied?
- What do banks mean by `recognized' and `reputed' institutions?
- “Professional courses” and “other courses”
- Expense for abroad education
- Is having an account with the bank a must to avail of an educational loan?
- Incase of any grievance, what should I do?
Getting into a good institute is an outcome of your hard work and sincerity. To build a secure life, you need to get a good, stable job, and to get a comfortable job, you have to get your degrees. Sometimes the cost of higher studies is not within the family budget. What to do in these situations? This is where Bank loans come into picture.
Simply put, banks loan out the required money to you for the respective course time and when you get a job, you pay the money back, with interest of course. Let us look at some general queriesabout educational loans.
Courses that can be covered by educational loans:
Educational loan can be taken to cover a number of courses and studies. It can include school or graduation level courses like B.Sc., B.Com. B.A., etc. Or it can be for post-graduation or specialized courses, like B.Sc., M.Sc., M.A., and M.Com.Etc. Then there are professional courses like M.B.A., M.C.A., B.E., M.E., B.Tech. M.B.B.S., etc. and some other courses like Computer course, fashion designing, etc.
It pretty much covers all level and types of courses and you can get an educational loans sanctioned for any of them. The important thing to keep in mind that the course has to be for a duration of more then a year, i.e. 12 months, in order to be financed by the loan.
The costs covered by the loan:
Tuition fees, examination fees, hostel fees, and mess fees are usually covered by the educational loan though some bank may extend it to cover your books, equipments and other instruments that are required for the course.
The eligibility factors:
In order to get an educational loan there are some eligibility factors that you need to clear. This eligibility factor varies from bank to bank but the most important criteria is that the student must have qualified or have a confirmed admission in a college or institute. You can approach the bank for a loan as soon as you’ve secured a confirmed admission in an institute. Also the institute has to be a granted recognition by the governing bodies
The nationalized banks also takes into account the age factor as it covers the expense of student belonging to a certain age band of 16-26 or something in that range.Apart from this, some banks also look for a good academic record with first class throughout and with no gaps in education line. They also look for a steady source of income for the parents.
Maximum amount that can be loaned:
The bank doesn’t loan out any amount of money. The maximum amount that can be loaned varies from bank to bank and is dependent on the course and the institute that you choose. Compare the fees structure of two M.B.A institutes- I.I.M and Somaiya. While I.I.M’s fee is approximately around 2 Lac, Somaiya charges around 80,000. So you see, the amount loaned to you may vary accordingly.
The important thing is that each bank has its own set of loan plans and criteria. Some banks categorize the loan amount and cover about 75 to 90 percent of the total cost of the course while the rest is to be paid by the applicant. Similarly the loan amount may be dependent on or in accordance with the applicant’s parent’s or guardian’s net monthly salary. So it’s a good idea to look at the loan plans of various banks before deciding on one.
The education loan either covers 100 per cent of the cost studies or a certain percentage of it. The margin amount is what the applicant has to pay if the bank doesn’t covers 100 per cent. Say for example the bank covers 85 per cent of your course fees, than the margin is 15 per cent.
How long does it take for a bank to sanction the loan?
After the submission of application for the loan, the student receives an acknowledgement from the bank that contains the date and time of receipt of the application along with the signature of an authorized bank official. Within the time span of 15-30 days the bank processes the application and sanction or refuse the loan. The refusal has to be approved by the higher authority of the bank and the student is entitled to get a letter stating the reasons for refusal.
Documents required to get the loan sanctioned:
At the time of disbursement, the banks require the submission of a few documents. It is nothing very elaborate, they just need proof about your confirmed admission into the college/institute, have an agreement with the applicant or the parents/guardian, get a residential proof, a document that verifies your age as a few banks have an age criteria and a resume listing the past academic record of the applicant. Apart from that, they also require the salary statement or IT returns, etc of the parents/ guardians to confirm that they have a steady source of income.
Security provided to the bank:
It stands to reason that the bank asks for security before sanctioning any loan. If the loan amount is up to 25,000, the bank may not ask for any security but the amount limit varies from bank to bank. For amount above the limited slab,the usual security that is accepted by the banks are bonds, gold, vehicle, National Savings Certificates (NSCs), house, property etc. Some banks also require the applicant to have life insurance policy whose amount is greater or equivalent to the loan amount.
Why do I need a guarantor?
Guarantors are essential for sanctioning of loans so that in case the applicant fails to reimburse the money, the guarantor can clear the debt. The guarantor so chosen is a person with an annual income equivalent to, or more than, the loan amount
How is the disbursement made?
The payment of fees for the entire course is verified by the bank and is transacted directly on the annual basis to the institute or college that the student has been admitted into. Similarly, hostel and mess charges are also directly given to the concerned authorities. If the bank covers the cost of books, equipments and other course materials, the money is given to the student on the quarterly basis.
If the bank is covering for your abroad course, the air fare which is also provided, is transferred directly to the airlines.
What if I apply for a part-time or correspondence course?
The sanction of loans for part-time or correspondence course depends on the discretion of the bank. The banks are reluctant to finance these courses as the chances of getting a good job after the course completion is pretty low. And also because most applicants who opt for these courses already work somewhere.
Is there any special privilege for SC/ST?
Students who belong to Scheduled Caste/Scheduled Tribe are granted special privileges by the nationalized bank but not by private/ foreign banks. The eligibility criteria are lowered to pass class and the margin money for them is lower than the normal amount, sometimes nil. Here again it depends on the discretion of the bank.
What do you mean by holiday period?
You know that you have to start paying the loan back in Equated Monthly Installments (EMIs) after the final exams of your course is over. The maximum time that is given to the student before he/she needs to start paying EMIs is known as a holiday period. Normally this period ranges from 6-12 months but if the student starts out with his job immediately after he gets his degree, he doesn’t get any holiday period.
What if I’m a high school student or an undergraduate? Can a minor apply for the education loan?
A minor cannot avail of an education loan. The loan taken to cover school, high school or graduation courses are repaid by the parents/guardians and not the student. In this case since the borrower already has a steady source of income (loan is sanctioned after this information is confirmed), they don’t get to enjoy the holiday period and the loan repayment starts immediately.
What is interest portion and how is the interest rate applied?
The interest on the loan starts immediately after the day of disbursal. The amount paid by the students during his/her course-time is known as the interest portion. The repayment of main principal amount starts only after the end of the holiday period
The interest rates vary from bank to bank and are usually determined on certain slabs. For instance, the rate of interest may be 12 percent for loans up to Rs. 25,000, 14 per cent for Rs 25,001 to Rs 2 lakhs, and 16 per cent for loans greater than Rs 2 lakhs.
There are two types of interest rates: variable and fixed. As the names suggests, a fixed interest rate means that the rate of interest remains constant for the entire tenure of the loan. Whereas a variable interest rate, which depends on the Prime Lending Rate (PLR) set by the Reserve Bank of India, keeps changing half-yearly or yearly. Opting for the variable interest is better as with the dropping of PLR, the interest rates applicable on the loan amount also drops correspondingly.
What do banks mean by `recognized' and `reputed' institutions?
`Recognized' institutes are the ones that are affiliated to the State/Central universities and come under the Central government's University Grants Commission (UGC) programs or the All India Council on Technical Education (AICTE). `Reputed' institutes, on the other hand, are those that are pretty well-known and have standard courses of repute, though the definition of `reputed' institutions varies with banks. You need to check the bank list of ‘reputed’ colleges to be sure whether it will finance courses run by that particular college/institute
“Professional courses” and “other courses”
you might have come across these options and got confused as to what exactly do these terms mean?Professional courses are courses that deal in very specialized fields, like M.B.A., M.C.A., M.B.B.S., Engineering, C.A, Architecture, etc. And the course spans over three to four years. `Other courses' are those that are not part of any category, like school/graduation, post-graduate and professional courses. These could include courses for fashion designing, computer, fine arts, commercial piloting or courses affiliated to the Department of Electronics, etc.
Expense for abroad education:
Depending on the bank, education loan may or may not be sanctioned for studying abroad. The loan is also granted for only those institutes that are approved by the bank. The reason why banks are reluctant to loan out money for education in foreign countries is because they are concerned about the employability and repayment capacity post completion of the course.
In case the loan is sanctioned for studies overseas, the amount is paid directly to the institute. Some banks also provide for air fair at the time of joining the course. It covers only the one-way fair and is paid directly to the airline concerned.
Is having an account with the bank a must to avail of an educational loan?
No, it is not mandatory for you to have an account to get a loan. However it is easier to get a loan sanctioned if you do have an account with the particular bank as they can easily examine your past financial records and transaction and process your application quickly.
Incase of any grievance, what should I do?
In case of any grievance, the student can submit a complaint to the concerned Regional manager or the chairman of the bank or take up the issue with RBI.
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