What is Education Loan? History and more.

How does an Education Loan work?

• We all have a dream college, where we would want to pursue our education.
• Some students are financially stable and can easily afford to pay huge college fees and other expenses.
• Unfortunately, not everyone is as privileged to afford expensive education.
• To avoid the financial status of an individual becoming a barrier in his/her education, educational loans were introduced.
• These loans are structured in a way so that every capable and ambitious student can study his desired course in his dream college/university.
• In this article, we'll look at how educational loans developed in India, and all the educational loan facilities that are available to students today.

History Of Education Loan

1. In 1963, The national loan scholarship scheme was in existence to help the students in financing their higher education.
2. Afterward, in 1995, a more structured educational loan scheme was introduced by the State Bank of India.
3. By 2001, many other banks started offering loan facilities to students.
4. However, due to the rise in NPA's, the Indian Bankers Association (IBA) reframed the educational loan system in the year 2001.
5. RBI considered educational loans under priority sector lending, intending to provide institutional credit to sectors where credit is difficult to avail.
6. The Government of India also provides various subsidies on an educational loan.
7. These are the Central Scheme of Interest Subsidy for Education loan, Padho Pardesh scheme, and Dr. Ambedkar central sector scheme of interest subsidy.
8. Padho Pardesh Scheme is particularly designed for minorities who wish to study abroad.
9. At the same time, Dr. Ambedkar Central Sector Scheme helps in fulfilling the educational loan requirements of economically backward classes and OBC's.
10. Currently, there are many private as well as public sector banks that are providing loans to students; some of these banks are also offering additional benefits.

What Are All Educational Loan Facilities Available To The Individuals?

Below is a list of some of the most popular education loan schemes provided by the Indian banks.

State Bank of India's Student Loan

• SBI's student loan is offered in the form of a term loan, which means that such loans are to be repaid within a fixed period.
• Any professional courses, diplomas, graduation, and post-graduation courses are eligible under this scheme.
• Generally, the parents are entertained as co-borrowers under such schemes.
• Please note that the co-applicants' CIBIL score should be good, as it is one of the key factors for getting loan approval.
• The quantum of loan ranges between 10-30 lakhs, depending upon where and which course you want to pursue.
• So, for example, if you have enrolled yourself in a medical degree course in India, you are qualified to receive up to 30 lakhs as a loan amount.
• For other courses, the loan amount is ten lakhs.
• Further, If you want to pursue your education outside India, you are eligible to receive a 20 lakhs loan.
• The expenses covered under this scheme include fees, hostel fees, computer, books, tour expenses, and cost of a two-wheeler up to INR 50, 000.
• Another important feature of an education loan is the margin money.
• So what does margin money mean?
• Suppose you want a loan of up to INR 10 lakhs, now the bank won't provide you with the entire 10 lakh amount right away.
• The bank wants you to invest some money from your pocket, and therefore, if the margin is set at 20% for the ten lakhs loan, you will be required to pay INR 2 lakhs in advance.
• In the case of an education loan, the margin is set as follows –

1. Up to 4 lakhs – NIL
2. Above 4 lakhs (India) – 5%
3. Above 4 lakhs (Abroad) – 15%

• The processing fees for a loan of up to 20 lakhs is NIL, and if the loan amount is above 20 lakhs, the processing fee is INR 10, 000.
• The rate of Interest is fixed; it ranges between 8.45% to 10.70%.
• Loan security is NIL if you are applying for a loan of up to INR 7.50 lakhs.
• However, if the loan amount is above INR 7.50 lakhs, the security to be paid is 110% of the loan amount.

Axis Bank Education Loan

1. The loan provided by Axis bank is available for undergraduate, graduate, diploma courses, postgraduate and masters courses.
2. A student who has completed his schooling/graduation with at least 50% marks or has secured admission in a college (India or abroad) through an entrance test, becomes viable to apply for this loan.
3. Axis bank has classified the educational institutions into three parts, i.e. Prime A, Prime B, and Non-Prime.
4. The strategy is quite straightforward if you are going to a prime institute the bank is ready to take maximum exposure.
5. This conveys that the loan amount could be given up to INR 40 lakhs without any collateral security.
6. On the other hand, if you are going to a Prime B institute, an unsecured loan is offered up to 25 lakhs.
7. In the case of the Non-prime institute, collateral comes into the picture.
8. Therefore, any loan amount, which is more than INR 7.5 lakhs, can be availed only after the payment of security.
9. Collateral can be many forms; it can be a residential property, fixed deposit, shares, mutual funds, LIC policies, etc.
10. One can also club two or three collaterals if the loan amount is higher.
11. There are two components of an education loan, one is the moratorium period, and the other is the repayment period.
12. The moratorium period is a period during which a student pursues his higher studies.
13. During this period, a student has to pay simple interest, and after the completion of the course, the EMI's are to be paid.
14. The total tenure under this scheme is 15 years, including the moratorium period.
15. The rate of interest depends upon various factors, such as, university, course category, the country in which the course is being pursued, and accordingly it is decided what rate should be offered.
16. Following is the usual interest rates offered by the Axis bank –

• Up to 4 lakhs – 15.20%
• More than 4 lakhs, but less than 7.5 lakhs – 14.70%
• More than 7.5 lakhs – 13.70%

HDFC Bank Education Loan

• To avail of the loan facility under this scheme, one should be between the age group of 16-35 years.
• This loan is available for any course that you wish to pursue.
• If you want to study in India, the maximum loan offered by the bank is INR 10 lakhs, however, keep in mind that if you want to avail of a loan of 7.50 lakhs, there is no requirement for the collateral.
• And if the education loan is above 7.50 lakhs, the collateral against this loan amount would be needed.
• The interest rate offered by HDFC on education loans is between 12%-22% depending upon the type of loan that you applied for.
• Furthermore, there are some additional benefits available under this scheme;
• Free savings account
• HDFC's Life insurance at a certain discount rate
• Processing fees, if you are applying in India, is 1%.
• So if your loan amount is INR 10 lakhs, the processing fee would be INR 10,000.
• And abroad, the processing fee is 1.5% of the loan amount.

Canara Bank Education Loan

• Canara bank offers five educational loan schemes, i.e.

IBA Model Education Loan Scheme for higher studies in India and Abroad

• Includes course fee, hostel fee, examination fee, library fee, books, uniforms, Equipment, etc.
• All post-grad, graduation, professional, and diploma courses are eligible.

Interest Rates:

• Up to 7.5 lakhs – One year MCLR+2.00%
• Above 7.5 lakhs – One year MCLR+1.50%

IBA Skill Loan Scheme

• All skill development courses are included.
• The loan amount ranges between INR50, 0000 – INR 150, 0000. And the Interest rate is MCLR + 1.50%

Vidya Turant Education Loan Scheme

• If you are admitted into reputed institutes like IIM's, IIT's, NIT's, IISc, ISB, etc.,
• You can apply for the loan facility under this scheme.
• The minimum loan amount is INR 20 lakhs, and the maximum is INR 40 lakhs.
• The interest rate is ongoing MCLR.

Vidya Shakti Education Loan Scheme

• This scheme is specifically designed for students with disabilities.
• The maximum loan amount is INR 7.5 lakhs.
• For vocational /certificate/diploma courses, a loan of up to 1.50 lakhs is available.

Vidya Sahay Education Loan Scheme

• Under this scheme, the loan is provided for common entrance tests.
• A loan of up to INR 1 lakh is offered. Interest rate is MCLR + 2.00%.

Government Initiative

• Apart from the aforementioned subsidies provided by the government to help the students pursue their education at their dream institute.
• There is another important initiative taken by the government to administer and monitor scholarships, along with educational loan schemes.
• This is known as the 'Pradhan Mantri Vidya Lakshmi Karyakram'.

Pradhan Mantri Vidya Lakshmi Karyakram

• The government of India has launched a portal called Vidya Lakshmi, where students can apply to any bank for availing education loan.
• You are required to fill an application, which is then directly submitted to the chosen bank.
• This website also helps you to track the status of your loan application.
• The following information is provided to students looking to apply for an educational loan –

1. Educational Loan schemes offered by various banks
2. Status of the loan application
3. Common application form for students Feedback and queries can be given and asked respectively through emails.
4. Linked to National Scholarship Portal, which provides information on various government scholarships.

In Conclusion

• The educational loans have significantly evolved over time.
• RBI, including the education loans under priority sector lending, is one instance.
• Education is the backbone of any economy, and therefore, it should be made sure that every individual gets a proper education.

Also Read:

What is a Personal Loan? A Complete Guide.

Best Ideas To Make Pocket Money For Students.

Online Business Ideas You Can Start Quickly

FAQs

Q- What are the conditions to avail Interest subsidy under SBI Student Loan Scheme?

Ans- To avail interest subsidy, the family income should be below 4.50 lakhs, and the loan amount should not exceed INR 7.50 lakhs. Under this, whatever interest that you are required to pay during the moratorium period gets waived off.

Q- What documents are required from a student to apply for the educational loan?

• Complete application form
• Two passport size photographs
• PAN card and Aadhar card
• Admission letter
• Statement of education expenses
• Academic records ( HSC, graduation or post-graduation, if completed, mark sheet)

Q- What documents are required from the parents?

• 2-year ITR return
• PAN card and Aadhar card
• Bank Account statement
• Salary slip
• Two passport photo and complete application form

Q- How much Stamp Duty is to be paid?

Ans- Depends on your location/state.

Q- How do you get disbursement?

Ans- Disbursements are made in the form of bankers cheques, directly to college A/c or on a reimbursement basis.

Q- How is the Repayment done?

Ans- So usually, if you get a job after graduating then within six months, you are supposed to repay. However, in case you don't get a job, you'll be given 12 months to repay the loan. The maximum repayment period is 15 years.