It’s not unusual for students with limited financial support to approach banks when they look for a source to help them with college fees. Banks provide education loans to those who have secured a place in a well-known recognized college and got a seat to pursue career-oriented courses like medicine, engineering, management etc., either at the graduate or post-graduate level.
To avail an education loan, students need to produce an offer letter or a conditional offer to the concerned bank. It would be quite difficult to get the required loan from the bank without the offer letter. The bank bears the basic course fee and other related expenses such as college accommodation, exam and other miscellaneous charges. However, there are certain other rules which students should keep in mind wile applying for an education loan and the same have been mentioned below.
It is common for banks to ask for your past academic marks sheet as it undertakes rigorous check of the students’ academic background in order to sanction the loan. They can also ask for your past achievements and recognitions as they are taken into consideration as well when processing a loan application.
Value of the Course Applied
Since returning the loan would very much depend on which course the student chooses so banks do take into account the course value approving a student loan in India. Banks only prefer giving loans to the students who are going in a reputed college which should be recognized or accredited by the government of India. AICTE colleges are also given preference by the banks as the colleges of repute hold higher value when it comes to education loan processing and disbursal. It gives a rough idea to the bank whether the student would be able to repay the loan on time or not.
Kinds of interest rates
There are usually two types of interest rates offered by the banks and these comprise fixed interest and floating interest rate. The nationalized banks tend to offer variable interest rates whereas usually the private banks and foreign owned banks offer fixed interest rates for students’ loans. The rate of interest could vary between 12 to 16 percent. It is often seen that the banks use the Marginal Cost of Funds based Lending Rate (MCLR), plus an additional spread to set an interest rate. Currently, the additional spread is spread between 1.35-3% ranges. However, it is advisable for the students that they should opt for floating interest rate loans given the present state of macro-economic environment. SBI tops the chart when it comes to share in the education loan segment.
It is very essential for banks to check the employability rate of the college through the available ratings in public domain, reflecting employability of students through campus placements of the institutes among other things. For loan approval, banks take certain measures based on the college rating and the performance of the student to help them understand whether the student would land up in a good job and repay the loans.
Collateral Requirement for sanctioning Education Loan
Banks consider the fact whether the student could offer a collateral or not as the kind of collateral and its value is crucial for loans ranging above the collateral free loan value. However, if the students require a loan of more than INR 7.5 lakh, a collateral security would be deemed essential. Even with loans which are sanctioned without collaterals, would require a third-party guarantee. Only for loans which do not exceed INR 4 lakhs would not require either collateral or third-party guarantee.
As discussed earlier, banks do ask for the offer letter or conditional offer letter in case the seat is secured but admission in the college is not yet announced to process an education loan application. The students who are able to show confirmed admission status in colleges/universities recognized by UGC/Govt./AICTE etc. and in professional courses like Management, Engineering, Fine Arts and Design, Pure Sciences, Medicine, BA, MA, B.Com, M.Com, Computer science, Architecture, Hotels and Hospitality, Agriculture, Post-Doctoral courses are given priority whereas some vocational training and technical training courses such as Aviation and Air-hostess training are also taken into consideration.
“Credit Worthiness” of the Student
As students usually don’t have any credit history and their credit worthiness is presumed positive for granting education loans therefore both nationalized and state banks insist that parents who are joint borrowers must have a clear credit history. In case where parents are found out to have negative credit history, the bank would ask them to get some joint borrowers, on which they can rely.
Repaying the Loans
It is expected from the students that after securing a job, the loan is repaid to the concerned bank. After finishing the course, the student can start repaying the course but incidentally some banks do provide a relaxation period of 6 months after securing a job or a year after the completion of studies to start the process of repayment. In general, the repayment period is between 5 and 7 years but can be extended beyond that as per the requirement. By the time the student keeps repaying, the bank charges simple interest rate on the loan. Simple interest rates are added during the course period which lessens the equated monthly instalment (EMI) burden on the student for future repayments.