 "Lack funds for education? Here's all you need to know about education loans")
As a parent, you know that providing your child with the best possible education is a priority. But with education costs rising faster than general inflation—around 11-12% compared to the 5-5.5% for other goods, according to Bank Bazaar—funding your child's academic journey can be a challenge.
Education loans have become a helpful option for students from all backgrounds, making it easier to fund studies in India and abroad. Whether it's tuition fees, books, or even a laptop, these loans help cover the costs and make education more affordable.
How do student loans help Indian students?
Student loans are a lifeline for many students, providing financial aid for covering tuition, hostel fees, books, and other study materials. Banks and government institutions offer these loans to help students pursue their academic goals.
"A student loan covers not just tuition but also costs like accommodation, exam fees, and even laptops," explains Yashoraj Tyagi, CEO, CASHe.
Which courses are Indian students getting loans for?
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Loans are commonly taken out by students pursuing higher education at top institutions both in India and abroad. Popular specialisations include engineering, management (MBA), and medicine. "Institutions like IITs, IIMs, and AIIMS in India are often the target for students seeking loans. Design, law, and social sciences are also increasingly popular choices for loan seekers," Tyagi adds.
With private medical colleges charging fees of up to Rs 1 crore for the full course, families are often left with no choice but to seek financial support. Engineering fees can range from Rs 30 to 40 lakh in top private institutions, covering tuition, accommodation, and other necessary expenses.
How do education loans work in India?
"In India, education loans help students finance their higher education both domestically and abroad. The loans cover tuition, accommodation, books, travel, and equipment like laptops. Students usually apply for loans based on their academic performance, course, and institution," says Vivek Chopra, COO at Tata Capital.
Chopra goes on to explain that loans are sanctioned based on eligibility, and a co-applicant, often a parent, is usually required. High-value loans may also require collateral, with the loan amount disbursed as required. Repayments usually start 24-36 months after graduation.
What are the different types of education loans?
Students can choose from a variety of loan types, depending on their needs:
Secured vs unsecured loans: Secured loans require collateral, such as property or a fixed deposit, and generally come with lower interest rates. Unsecured loans, which do not need collateral, tend to have higher rates.
Course-specific loans: Banks and government schemes offer loans tailored to specific courses like medicine, engineering, or management, with special benefits for those courses.
Loan amounts: The loan amount varies depending on the lender, program type, and institution, with higher loan limits for overseas study.
"Government schemes like the Vidya Lakshmi Portal also provide loan options with different eligibility criteria and rates," says Adhil Shetty, CEO of Bankbazaar.com.
How are education loan interest rates determined?
Interest rates on student loans in India can range from 8.5% to 16% or more, depending on the lender. Public sector banks normally offer lower rates, while private banks may charge higher rates. "Rates for public sector banks range from 8.5% to 10%, while private lenders could go up to 13% or more," Tyagi explains.
Credit history, the reputation of the institution, and whether or not the loan is secured are all factors that can impact the rate offered.
"Institution rankings also play a role in determining rates. Students at IITs or IIMs might receive lower rates because these schools are rated as AA institutions. Some banks even offer rate concessions for female students and economically weaker sections (EWS)," says Shetty.
Non-banking financial companies (NBFCs) can have even broader rate ranges, from around 11% to as high as 35%.
What factors affect loan eligibility?
Several factors determine whether a student is eligible for an education loan.
* The student must be an Indian citizen.
* Admission to a recognised institution in India or abroad is essential.
* The academic record of the student and the co-applicant’s income are both important.
* The course type and institution reputation also play a role.
* Some banks may require collateral for larger loans.
* Banks may set age limits for applicants.
"Most banks also consider the creditworthiness of the co-applicant when evaluating eligibility," Shetty explains.
What is the moratorium period for student loans?
A moratorium period allows students to focus on their studies without worrying about immediate repayments. It generally includes the course duration plus an additional six months to a year after graduation. "Repayment usually begins after the moratorium, but interest accrues during this time," Shetty says.
Some banks might require students to pay simple interest during the moratorium, offering some flexibility before full EMI repayments start.
What hidden costs should you look out for?
When taking out a student loan, it’s essential to be aware of hidden costs such as processing fees, administrative charges, and penalties for late payments.
"Some banks might also require loan protection insurance, and students should inquire about penalties for loan restructuring or early repayment," warns Shetty.
It's crucial to read the fine print before signing a loan agreement to understand all costs involved.