Higher education is the pinnacle of a young student’s life. Now, throw in higher education abroad and that is a dream come true for many. However, with aspirations come challenges. In this case, going abroad and studying, while inviting is not always possible. More often than not the cost of living and the fees tends to deter students from achieving their dream of studying overseas. To combat this, over the years many new and innovative educational loans have been introduced in an attempt to help give students that safety net. A degree from a world-class institution could be your ticket to the big leagues. While keeping that in mind, it is also important to note that one needs to check a few boxes when choosing the right kind of education loan.
Let’s have a look at some of the parameters for picking your education loan so you can get the best out of it.
Picking your Lane
Before even considering which type of loan you want to go for, you need to be sure that your subject of interest is locked down. A loan for higher education is no small sum of money. Therefore, it would be wise to carefully consider the duration of your studies, your commitment to the same and whether or not it truly interests you in the long run. Ask yourself if you see this as the career path for the rest of your life.
There are a few parameters to be eligible for a higher education loan in India. For one, you need to be Indian. Second, you need to be at least 18 years of age. These loans also require proof that you are committed to your studies in terms of overall academic background as well as proof that you did in fact secure admissions at the university you are seeking the loan for.
Most public sector banks can provide you up to 90 per cent of the total expenses covered. Depending on the bank and level of education you are aiming for you can get good interest rates. For example, The Bank of Baroda listed a 6.75 per cent/ annum as the interest rate on a loan. At the higher end, banks like ICICI and Karnataka Bank can offer interests rates of 10.50 per cent to 12.19 per cent on the loans per year.
Setting up the Loan in the Long-term
If you go for a loan of around Rs 4 lakh, you can do so without setting up any collateral like a house or a car. Now, if that amount is between 4 to 7.5 lakhs, then the story changes. The bank will most likely need you to have a co-applicant who can help pay off the loan. This can be a family member, spouse, friend etc. Basically, the bank needs to know that for larger amounts, you have someone who can pay back the loan and that they have a stable job that will enable that. For amounts higher than 7.5 lakhs there is most likely collateral needed. The bank will only provide the loan after the collateral is inspected and authorization is given.
Interest Rates and Moratorium: A Full Rundown
Make sure to check every option and bank for the ideal interest rate to suit your method of income. Each bank will have different interest rates on the loans, but they generally tend to be between 6 to 15 per cent. As a student, it would be ideal if you picked a loan with a longer repayment scheme. This way you could shoot for a larger loan. Be sure to also choose a bank with an acceptable moratorium period so you can complete the course at a healthy pace while paying it off.
Government Schemes or Financial Institutions
Students have a choice between taking a loan from a bank and taking a loan from the Government of India under a scheme. For example, the Indian government launched the Credit Guarantee Fund Scheme (CGFSEL) for education loans under which students can avail loans up to Rs 7.5 lakh without co-applicants.
On the other hand, banks have certain restrictions in place in terms of collaterals after a certain amount. However, there are also tax exemptions on interest paid on an education loan under Section 80E of the Income Tax Act. So, there are plenty of options that are affordable for students. The key to finding the right one is to consider all the above criteria before going for any higher education loan.