What is the Procedure for an Education Loan?
Last Updated : Aug. 18, 2020, 12:59 p.m.
Quality education is a must to lead a successful life. For many, it’s not just graduating from a top institution, but to get the right education. The cost of studying at reputed institutions and renowned colleges is very high. Even if you are successful in making through the cutoffs, you can be stuck in the admission procedure due to the lack of funds. So what to do?
You can borrow an education loan to pursue your higher studies in India or abroad. And the student can pay it later when the course is completed and the concerned individual gets a job. You are not alone in an education loan, your parents can be a co-borrower. So, both students and their parents are liable to pay the borrowed amount. If the student is unable to repay the loan, his/her parents can do so from the income they earn. So, we have listed out the steps you should follow when it comes to applying for an education loan. The below steps are largely for students to follow. But if you are a parent and want your child to study with an education loan , even you need to read the below steps and tell your ward to follow the same.
8 Steps You Should Follow in an Education Loan
A successful education loan will depend on how correctly you follow the eight steps from checking where you are getting admission to finding out the lenders that offer you the maximum loan amount. Let’s read out those steps without any further delay.
Step 1: Admission to University
Before you apply for a loan, you need to make sure your college admission is successful either via merit or entrance. The lender may also require the student’s educational documents such as Class X, XII, or graduation mark sheets (if he/she is applying for a higher course). So, you should apply for an education loan once you secure admission to college or university. Otherwise, your loan application will not stand.
Step 2: Placement
Know whether your college or university provides placement to the students or not. A good placement record will make lenders confident of lending you the required loan amount. The reason being you will have money to repay the loan amount after completing your education. Further, it can help you get attractive interest rates and reduce your debt burden. So, select your college or university carefully by knowing their placement record to get benefits on your education loan.
Step 3: Fee Structure
The cost of higher studies is increasing in India as well as abroad. Check the fee structure which you will get from your institute so that you could know the exact amount required to complete the course. Your college fees may contain-
- Tuition Fee
- Books Fee
- Hostel Fee
- Campus Meal
- Transportation Fee
- And other miscellaneous charges
Step 4: Choose the Loan Amount You Need
Apply for the amount you need for your higher studies. Several lenders provide education loans to students and help them pursue their higher studies. But despite all this, does the required loan amount come in your range or not. Because education loans can be secured or unsecured. And if you don’t have enough collateral to borrow a secured loan, you can look for the lenders that provide you an impressive education loan amount without collateral. You may ask, what collateral do you need to submit? Well, it can be a fixed deposit, life insurance policy (other than life insurance and unit-linked plans), land & building excluding agricultural land, etc. We have made it easy for you to choose your lender based on the loan amount with and without collateral. Check out the table below.
| Bank | Loan Amount Without Collateral (In INR) | Loan Amount With Collateral (In INR) |
|---|---|---|
| SBI | 7.5 lakh | 1.5 Crore |
| Axis Bank | 40 lakh | 75 lakh |
| ICICI Bank | 40 lakh | 1 Crore |
| HDFC Bank | 7.5 lakh for study in India 35 lakh for overseas study | 20 lakh for studies in India No upper limit with collateral for overseas study |
| Kotak Mahindra Bank | 7.5 lakh | 10-20 lakh |
| YES BANK | 7.5 lakh | Need-based Loan |
| Standard Chartered Bank | 7.5 lakh | 80 lakh |
| Bank of Baroda | 7.5 lakh | 80 lakh |
| Punjab National Bank | 7.5 lakh | > 7.5 lakh |
| Bank of India | 7.5 lakh | 10-20 lakh |
Step 5: What is Your Margin Money?
Banks can finance 100% of the education loan up to INR 4 lakh, above which there are certain margins. For studies in India, the margin is up to 5% of the education loan amount. On the other hand, for studies overseas, the margin money increases to up to 15%. So, do check whether you can pay the required margin money. If yes, you can apply for an education loan without any hassle. You can also manage the margin money with scholarship or assistantship.
Step 6: Compare Interest Rates
Before applying for an education loan, do check the interest rates of different banks or NBFCs and know which offers you the lowest rate. Check out this table below to know the interest rates of top lenders in India.
| Lenders | Interest Rate (In Per Annum) |
|---|---|
| State Bank of India (SBI) | 6.90% - 9.30% |
| Axis Bank | 13.70% - 15.20% |
| ICICI Bank | 11.25% - 11.75% |
| HDFC Bank | 9.25% - 13.68% |
| Kotak Mahindra Bank | 12.33% - 16.00% |
| YES BANK | 12.00% - 14.00% |
| Bank of Baroda | 6.85% - 9.95% |
| Punjab National Bank (PNB) | 6.90% - 9.55% |
| RBL Bank | 14.15% - 16.15% |
| Tata Capital | 10.99% |
| Standard Chartered Bank | 10.99% - 19.00% |
Step 7: Check Credit Score
It’s vital to check the credit score before you apply for an education loan. As you know a student is not an earning individual, so the lender won’t check his credit history. But the parent who is the co-borrower of the loan should check their credit score. Because when the score is low, your education loan interest rate would increase. An ideal score of 750+ can help you negotiate for a lower interest rate.
Step 8: Education Loan Disbursal
When your education loan is sanctioned, you will be given a sanction letter from the bank or NBFC. On receiving the sanction letter, you need to visit your lender to sign the loan agreement. Once the loan agreement is signed, your loan amount is ready to be disbursed.
To request the loan disbursement, you need to submit an education loan disbursement letter to your bank which contains the University Account details, Semester Fee to be paid, etc. After the submission of the disbursement letter, it will take 2 working days to reflect the fee payment.