Education Loan: How to apply for it?

Education Loan is often seen in a negative light, as a burden, but we’re here to change that.

In today’s competitive world, higher education plays a pivotal role in shaping one’s career. The rising costs of education can often pose a financial challenge for students and their families.

To bridge this gap between dream colleges and talented students, education loans have emerged as a boon!

Dreaming of pursuing higher education is an exhilarating experience, filled with possibilities and the promise of a brighter future.

However, the financial aspect can often become a stumbling block, casting shadows of doubt on those dreams.

But worry not! In the vast landscape of financial assistance, education loans stand tall as beacons of hope, to realizing your educational dreams.

Loans are often seen as a financial and emotional burden that one has to carry for years.

In this blog, we will embark on a journey to demystify the process of applying for an education loan in India, empowering you with the knowledge to unlock a world of opportunities.

What is a Loan?

A loan is a type of financial instrument. It allows individuals to borrow money from a lender with the agreement to repay the borrowed amount. The money is repaid with interest, over a specified period.

Loans are typically of two types:

• Secured
• Unsecured

Secured loans require collateral. The collateral is a “security” for the lender (bank) which they can claim, in case the borrower fails to repay the loan.

Unsecured loans, on the other hand, do not require collateral. But, these loans may have a higher interest as the lender has a higher risk.

What is an Education Loan?

Education loans are also known as student loans or educational loans.

As the name explains, they are specifically designed to help students and their families finance for higher education expenses.

These loans are offered by various financial institutions such as banks. They are also offered by non-banking financial companies (NBFCs) such as Bajaj Finance or Muthoot Finance.

Education loans in India typically cover tuition fees, accommodation expenses, study materials, travel expenses, and other related costs.

The repayment terms and interest rates vary depending on the lender, loan amount, and other factors.

Loans often seem daunting, but if they’re planned in advance, they’ll seem like a piece of cake.

It’s always advisable to have a a Personal Financial Plan that’ll help you achieve your goals and get you on track to Financial Freedom.

Benefits of Education Loan

Financial Assistance

Education loans provide much-needed financial support to students.

The loan generally helps cover tuition fees, accommodation expenses, study materials, and other educational costs.

They help students focus on their studies without worrying about the financial burden.

Flexible Repayment Options

Education loans offer flexible repayment options, allowing borrowers to repay the loan after completing their education or within a specified moratorium period.

This relieves immediate financial pressure and provides a buffer to secure a job and establish a stable income source.

Lower Interest Rates

Education loans often come with lower interest rates compared to other types of loans. This makes them more affordable for students and their families, reducing the overall financial burden.

Tax Benefits

Under Section 80E of the Income Tax Act, borrowers can avail of tax benefits on the interest paid towards their education loans.

This serves as an additional advantage, reducing the overall cost of borrowing.

Types of Education Loans

Undergraduate Education Loans

These loans are designed to fund the expenses of students pursuing their undergraduate studies, including courses like engineering, medicine, commerce, arts, and sciences.

Postgraduate Education Loans

Postgraduate education loans cater to students pursuing higher studies such as master’s degrees, doctoral programs, or specialized courses in India or abroad.

Vocational Education Loans

Vocational education loans are tailored for students enrolling in vocational or skill-based courses. These courses enhance their employability in specific industries, such as hotel management, aviation, fashion designing, or culinary arts.

Study Abroad Loans

Study abroad loans support students who wish to pursue higher education at renowned international universities.

These loans cover not only tuition fees but also living expenses, travel costs, and other related expenses.

How to Apply for an Education Loan in India

Research and Compare Lenders

Start by researching different lenders and comparing their loan offerings, interest rates, repayment terms, and additional benefits.

This will help you choose the most suitable option for your education loan.

Eligibility Criteria

Familiarize yourself with the eligibility criteria set by the lenders. Lenders usually consider factors such as academic performance, admission to a recognized institution, course duration, and the financial background of the borrower or co-applicant.

Required Documents

Gather the necessary documents required for the loan application process.

These may include identity proof, address proof, admission letter, mark sheets, income proof of the co-applicant, and other supporting documents requested by the lender.

Loan Amount Calculation

Determine the loan amount you require to cover your educational expenses.

Consider tuition fees, accommodation costs, living expenses, and any other related costs. Remember to borrow only what is necessary, as the loan must be repaid with interest.

Collateral and Margin

In India, education loans up to a certain amount do not require collateral. However, for higher loan amounts, lenders may ask for collateral or a third-party guarantor.

Additionally, some lenders may require a margin, which is a certain percentage of the total loan amount that you must fund yourself.

Loan Application

Visit the selected lender’s branch or apply online through their official website. Fill out the loan application form accurately, providing all the required details and attaching the necessary documents.

Loan Approval and Disbursement

Once your application is submitted, the lender will evaluate your eligibility and documents. If approved, you will receive a loan offer, outlining the terms and conditions.

Review the offer carefully and accept it if you are satisfied.

The loan amount will be disbursed directly to the educational institution or to your bank account, depending on the lender’s policy.

Repayment Options

Education loans typically offer a moratorium period, during which you are not required to repay the loan.

Repayment begins after the moratorium period, usually after the completion of the course or a specific period post-employment.

Lenders offer various repayment options such as equated monthly installments (EMIs), step-up or step-down EMIs, and flexible repayment plans.

Choose the option that best suits your financial situation and preferences.

Loan Repayment

Ensure timely repayment of your education loan to maintain a good credit history and avoid any penalties or additional charges.

Set up automatic payment instructions or reminders to avoid missing payments.

If you face any financial difficulties, contact your lender to discuss possible solutions, such as loan restructuring or an extension of the repayment period.

Additional Considerations

While applying for an education loan, it is important to be aware of any additional benefits or incentives offered by the lender.

Some institutions provide interest rate concessions for female students, meritorious students, or those from economically weaker sections. Explore these opportunities to potentially reduce the financial burden.

Education Loans in India

Education loans have witnessed significant growth and popularity in recent years, reflecting the increasing demand for higher education in India.

According to data from the Indian Banks’ Association (IBA), the number of education loan accounts in India stood at approximately 36 lakh (3.6 million) as of 2021.

Furthermore, the total outstanding education loan amount disbursed by banks in India amounted to over ₹ 85,000 crores (approximately $11.4 billion) as of 2021.

This substantial figure indicates the willingness of financial institutions to provide financial aid to deserving students and highlights the trust placed in education loans as an investment in the future.

In Summary

Education loans have become an indispensable tool in fulfilling educational aspirations for students in India.

The benefits they offer, including financial assistance, flexible repayment options, lower interest rates, and tax benefits, make them an attractive choice for those seeking to pursue higher education.

Choosing the right education loan and managing its repayment effectively will not only support your educational journey but also establish a solid financial foundation for your future.

Education is an investment in oneself, and with the right financial assistance, you can unlock a world of opportunities and shape a successful career.

With various types of education loans available, students can choose a loan that aligns with their specific educational goals and financial needs.

As statistics reflect the increasing popularity and uptake of education loans in India, it is evident that more students are availing themselves of this financial assistance. You, too, can unlock opportunities and shape a successful career.

By understanding the application process, exploring different loan options, and gathering the required documentation, aspiring students can navigate the education loan landscape effectively.

With the right education loan, the door to higher education opens wide, empowering students to achieve their academic dreams and build a brighter future.