Higher education is the most important investment in a person's life. It makes you an independent professional. However, the exorbitant cost of higher education is a hurdle for those who cannot afford it. Getting a seat at an institution of your choice may be the first priority, but being able to fund that education is equally important. Education loan is an option you can consider to provide impetus to your career. The spread of self-financing institutions for higher education in fields of engineering, medical and management which have higher fees than their government aided counterparts have encouraged the trend in India. The total education loan outstanding has risen from Rs.15,000 crores in 2007 to Rs.55,000 crores as on 31st May 2013 accumulating to over 25 lakh education loan accounts. This shows that there has been significant growth in this area in the past five years.
Most large public sector and private sector banks are offering educational loans. There are also non-banking finance companies which are being regulated by the Reserve Bank of India. Avanse is one such institution which has innovated financing models for the growing youth market. The financial institution has observed that there are multiple concerns that students face while opting for an education loan. "They have to think about limitation to the loan amount, cost coverage for expenses, margin money, and rate of interest," says Dinesh Gehlot, Chief Product Manager, Avanse Education Loans. "The most discouraging factor is the long processing time for the loan because of excessive documentation. Also, there is no proper coordination and communication between the university and the lenders. So, there is a need for proper loan counseling and guidance," he adds.
According to the model education loan scheme, the two broadest eligibility criteria are that the student must be an Indian national, and that he should have secured admission in an approved professional or technical course through an entrance test or selection process. Given that most banks have a margin money requirement of up to five percent of the loan for studying in India and 15 percent for foreign countries, the applicants who are unable to drum up this amount are automatically rejected. Another obligation attached with an education loan is that an earning parent, spouse, or guardian has to typically stand in as a co-applicant for the loan.
Apart from fulfilling the eligibility criteria, there are other aspects which a student should be aware of. "If you require an education loan, do not wait until the last moment or when your admission fee is due, to apply for one, as you may not get one on the most favorable terms and conditions," says Gehlot. "You should select a lender who provides easy application procedures, quick processing time, fast notification, and special student services. You should look for a lender who helps you manage your money through flexible repayment, loan consolidation, and other repayment options," he adds. While an education loan is also offered with a Moratorium repayment option, allowing students to defer their payments during the course; however, it is advisable to take cognizance of the cost of repayment. These options often increase the total amount you will end up paying because deferment causes the interest to accrue. So, students need to make an informed decision.
Government also plays a role in making procurement of education loan easier. There are income tax benefits provided by the government. A person can exempt the amount paid against the interest of the education loan - either for self or for his/her spouse or children - for eight years from the year he starts to repay the loan or for the duration the loan is in effect, whichever is more. At the same time, loan seekers may soon find banks that are more willing to fund their higher education as the government is in the final stage of completing the modalities of the Credit Guarantee Fund for education loans. Industry experts feel that the credit guarantee fund will provide some comfort to banks while offering the loan to students, as they will then at least have majority of their exposure covered.
All of this has made it much easier for the lenders and borrowers of education loan. Comparing interest rates, various fees, collateral requirements, and down payment requirements across various banks will help you find out an education loan that fulfills your higher education dreams without burning a big hole in your pocket.