In today’s fast paced era, everyone is in a race to reach the zenith. And how better to reach there than the way of quality education! Today, quality education is of utmost importance to any student, who are ready to take that extra step to pursue it. But the major concern that arises here is the cost of education. Tuition fees for any college is on the rise and the only saviour to this concern is opting for educational loans. So, let us understand in detail about educational loans.

What is an Education Loan?

In simple terms, education loan is a loan that students or their parents opt for in order to complete their education requirements. Many times, students have to forego higher education because of monetary constraints. A way around it is to take education loan from banking/non-banking institutions to attain quality education and pay back as per the terms and conditions of the loan. Education loan covers basic course fee and other components such as college accommodation, if any, exam and other miscellaneous charges.

Types of Loans and Interest Rates

In broader category, there are two main types of Educational Loans

  • Domestic Educational Loan
  • Study Abroad Educational Loan

And education loan usually grants up Rs. 7.5 lakhs for studies in India and up to Rs. 15 lakhs for studies abroad. For loans up to Rs. 4 lakh no collateral or margin is required and the interest rate does not exceed the Prime Lending Rates (PLR). For loans above Rs. 4 lakh, the interest rate should not exceed more than 1%  of PLR. Usually, the loans are to be repaid over a period of 5 to 7 years with provision of grace period of one year after completion of studies.

The provision of student loan, comes on the payment’s terms of an interest amount that has to be paid over and above the borrowed amount, called as EMIs. This helps students to repay their loan step by step. 

Parameters of Education Loans

  • Age of the Applicant – Any non-employed person up to the age of 35 and any employed person up to the age of 45 can apply for the loan.
  • Who can avail – An Indian National securing admission to any professional or technical courses in recognised institutions. Or a full-time employed applicant who wants to pursue higher education from a reputed institute.
  • Who can provide – Banking Institutions that are approved by Indian Banking Association are allowed to provide education loan. These banking institutions are required to follow the Central Sector Interest Subsidy Scheme and other regulatory norms which are in the interest of applicants. However two types of institutions that are allowed to grant education loans are – Registered Banking Institutions and Non-Banking Financial Institutions.

Expenses covered by Education Loans

Almost all banking institutions grant loans with a condition that covers not only the institution fees but other related expenses also. Higher education loans, especially those for courses abroad, covers following academic expenses:

Academic Expense

  • Tuition Fees
  • Capitation Fees
  • Registration Fees
  • Counselling Fees
  • Examination Fees
  • Study visits and educational tour fees
  • Laboratory Fees
  • Library Fees
  • Hostel Fees/transport fees
  • Mess food expense

Non-Academic Expense

  • Building Fees
  • Student Welfare contribution
  • Refundable caution money
  • Transport and commute expense
  • Equipment and Project Expense
  • Student Insurance
  • Entrance Exam fees (SAT, LSATS, GRE, GMAT, TOEFL, MCAT, etc.)

Difference between Scholarship and Loans

Most people often mistaken scholarships with loans. They are two different terms. One can qualify for a scholarship by way of academic achievements, financial status, domicile or religion. A student can either receive full amount of scholarship in one go, or in instalments. Also, it can be by the way of either monetary benefits or non-monetary benefits. In case of a scholarship, a student does not have to repay the amount. Whereas, for loans, one has to go through the application process and must qualify for the requirement criteria. Also, after availing the loan, one has to repay the whole amount along with the interest.

Getting scholarship is not so easy. One has to compete very high to qualify for the same and one has to prove his merit or need depending on the scholarship criteria. On the other hand, loans are easily available from banking institutions.

Repayment of Educational Loans

People usually refrain from taking a loan because of the pressure of repaying . However, if planned properly, repayment is easy. Here are few tips that can help in better planning of loans repayment:

  • Add a little amount to every instalment: While repaying the loan, it is always advisable to add a bit extra amount to every instalment whenever possible. In the long run, this will help to save on interest through the period of the loan. The trick is to set off the principal amount as early as possible.
  • Part-time employment while studying: While studying at a university or college, a student can start working part time, as per the feasible schedule. Saving some amount early on will ease the process of loan repayment. This is beneficial to those students who are studying abroad or are pursuing higher education in India.
  • Automate payment mode: Students should try and set automated payment modes. This will not only help them to not miss a payment deadline, but also help them save penalties. Because of this, it will also help to plan their expenses and expenditure well in advance.