As the new academic season begins, banks are aggressively expanding their educational loan book by reducing rates, offering various packages and processing loan papers much faster. Led by the State Bank of India, Axis Bank and Bank of Maharashtra too have dropped interest rates on educational loans by about 25 basis points.
The rates for most banks, depending on the tenure and loan size, range between 10.8% and 17.5%. Some banks offer concession in interest for girl students and a meritorious student can even bargain with the bank for a lower rate. However, with increasing defaults, banks are making stringent checks before approving students loans. They are also doing proper due diligence for loans taken to fund studies in capitation fee-based courses and institutions.
One can apply online to up to three banks at a time through the Vidya Lakshmi portal. To be eligible for a loan, a student has to be of Indian origin, between the age of 16-35 years and pursuing a degree or a verified admission in a university. To avail the loan, the bank or the financial institutions will require proofs of identity, age and address of the borrower. The student will also have to furnish the admission letter of the institution and the fee structure of the particular course for each semester, or the annual charges.
If the student is going abroad for higher education, he or she will have to give details of the passport, GMAT or GRE scores and total expenses for the course.
A co-applicant is mandatory for all full time programmes. The co-applicant could be a parent, guardian or spouse. A loan of more than R7.5 lakh requires a security deposit.
While banks are reluctant to offer loans for non-technical and offbeat courses, non-banking financial companies (NBFCs) offer financial assistance to pursuing studies in more courses and also offer loans for up to 10 years. Banks provide a substantial period as a moratorium before the borrower starts making repayments and the waiver period varies from bank to bank. The interest paid on the loan amount is deducted under Section 80E of the Income Tax Act.
A few years ago, banks pegged their educational loans to the benchmark prime lending rate (BPLR) and later moved to the base rate system. However, from April this year, banks have started calculating rates of even educational loan on their marginal cost of funds-based lending rate (MCLR). Interest rates are calculated on a daily, monthly or yearly reducing-principle basis. The time taken for processing the loan application is much less in the case of NBFCs and private sector banks as compared to public sector banks.
To support students from economically weaker sections, the government provides full interest subsidy during the period of moratorium on the loans. To avail this benefit, the annual parental income should not exceed R4.5 lakh per year.
The scheme is applicable for students pursuing technical and professional courses in India. If the applicant gives up studies half way, then he will have to either close the loan by paying the full amount or keep repaying monthly installments on time to avoid becoming a defaulter and ruin their own credit history.
