Business

Your guide to getting an education loan

Are you one of those students who have just been admitted to a college and are looking for a education loan? Here’s what you should know about loan eligibility, interest rates, and where you can apply for such a loan.

Public sector banks (PSBs) are the dominant player in the education loan market in India. Data from the RBI, provided in response to a question by Lok Sabha in March 2022, shows that PSB holds more than 91% share of scheduled commercial banks’ lending to education field.

Interest rates, collateral

Many PSBs offer a wide range of educational loan programs including those specifically targeted at students admitted to prominent MBA, engineering, medical, and law colleges. Depending on where an institute places on its priority list (such as AA, A, B or C), a bank will be willing to extend a loan up to a certain amount without need a physical mortgage.

Example: State Bank of India offers loans up to 40 lakh with 7.5% floating rate, no mortgage required for ‘AA’ shortlisted by institutes including IITs, IIMs, XLRI and BITS Pilani under its Scholars Loan scheme. Those not on any of the lists can apply under the bank’s Student Loan program, albeit at a premium of 10.05% (floating interest rate). According to the second, loans on 7.5 lakh requires collateral to be furnished.

Likewise, Baroda Bank offers student loans of top institutions at a floating interest rate of 7.95%. The maximum loan amount allowed is 40 lakh without collateral and up to 80 lakh otherwise, depending on top ranked colleges. Its Baroda Gyan program covers a wide range of courses and charges a 10.20% (floating interest) fee on loans above 4 thousand. Higher loans also require a tangible collateral.
“According to regulatory guidance, all new retail loans are linked to an external standard,” explains HT Solanki, general manager and other retail mortgages & properties, Bank of Baroda prefer. All new education loans by banks are related to repo rate. With the expected repo rate hike, lending rates will point north.

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Compared to PSB, interest rates at private sector banks still tend to be higher. Adhil Shetty, CEO, Bankbazaar.com, said: “Private sector banks may accept to issue unsecured education loans, which would make them more expensive.

Eligible

Vaibhav Singh, co-founder, Leap Finance and Shetty highlights some of the key factors that banks consider when considering education loan applications. In addition to the institute’s reputation and accreditation, the process includes a review of the course – whether it is accredited or not; collateral — whether or not the applicant is able to provide adequate and appropriate collateral; and details about the co-borrower (parent/guardian) — their employment history and credit score. Education loans require that a co-borrower be the applicant’s parent/guardian. In the event that the student defaults on the loan, the responsibility will then be attributed to the co-borrower.

According to Solanki, there is no distinction between salaried parents and freelancers, and loan approval depends on the merits of each case.

Alternatives to banking

If you can’t get a bank loan, a non-banking financial institution that focuses on education loans (NBFCs) is an alternative. However, loans can have higher costs. “Students attending top colleges worldwide have easy access to credit from any financial institution. We are therefore strategically focused on the next level of organization,” said Amit Yadav, chief strategy officer and head of digital business at Avanse Financial Services. maximum loan and offers multiple loan repayment options Avanse offers loans at base rate (13.15% current) plus spread.

Similarly, HDFC Credila Financial Services also offers flexibility such as, no upper limit on loan amount, no deposit (a certain percentage of education costs that the borrower has to self-pay). financing) and part of the collateral.

That said, banks can score against non-bank lenders on one key dimension. Under Section 80E of the IT Act, interest paid on an education loan – for yourself, a child, a spouse, or someone for whom you are the legal guardian – can be considered a deduction in eight fiscal years. According to Shubham Jain, Director, Nangia Anderson LLP, interest deductions on education loans can only be claimed from banks and notified entities.

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