Higher education is the goal for several students in India. However, meeting the high cost can be challenging for some. An education loan can be helpful for such students. This loan is designed to fund a student’s tuition fee, costs of books, accommodation and travel. It helps manage the expenses that family savings cannot cover. From its eligibility criteria to its benefits, this article allows you to understand everything you need to know about an education loan.
Understanding the Purpose of an Education Loan
An education loan provides financial support for students. It may cover tuition fees, accommodation expenses, books, travel and other education-related costs. Depending upon the lender, an education loan can be applied for undergraduate, postgraduate, diploma or professional courses.
Eligibility Criteria for an Education Loan
While the eligibility criteria may differ among several lenders, the common criteria are as follows.
- The borrower must be an Indian citizen.
- The students must have proof of application to a college or university that is recognised by the loan provider.
- The student must have completed an entrance exam to be admitted into the college or university.
- The co-applicant, who can be a parent or a guardian, should have a stable income.
- The student must meet the lender’s minimum academic score requirements, if any.
Steps Involved in Education Loan Application
Here are the steps to apply for an education loan.
Step 1: Compare Offers of Various Lenders
Different lenders offer varying loan amounts, interest rates, tenure, moratorium period and other terms. Choose a lender that aligns with your financial requirements.
Step 2: Check the Lender’s Eligibility Criteria
Students must make sure that they meet the lender’s criteria, which may also include course type.
Step 3: Collect the Necessary Documents
Lenders ask for several documents to verify your identity, address and academic records. Some of the documents are your Aadhaar card, PAN card, utility bills, university’s admission letter, course fee structure, and passport and visa for overseas studies.
Step 4: Submit the Application and Await Approval
After you have entered all the required details in the application form and uploaded all the required documents, you can submit the application form. The lender may take a few days to verify them. Once verified, the lender provides you with a loan agreement. The funds will be disbursed after this agreement is signed.
Interest Rate of an Education Loan
Interest rate is the fee charged by the lender for borrowing capital. The total cost of the loan is the sum of the applicable interest and the principal loan amount. The education loan interest rate can vary based on:
- If the interest rate is fixed or floating
- Whether the loan is secured or unsecured
- Credit history of the co-applicant
- Type of institute to which the student is admitted.
- If any government scheme is applicable.
Repayment and Moratorium Period of the Education Loan
Lenders may offer a moratorium period, during which the student does not have to pay the Equated Monthly Instalments (EMIs). This period can range from 6 to 12 months after the student completes the course. The interest can, however, be added to the loan during this time. Paying this interest may help you reduce the total repayment amount. After the moratorium period, the borrower has to begin regular EMI payments. The repayment tenure can range from 5 to 15 years.
What are the Benefits of an Education Loan?
Applying for an education loan can be beneficial in several ways.
- The education loan covers all the essential expenses, so you don’t need to use your savings.
- Government schemes are available to support students from economically weaker sections by offering interest subsidies or financial assistance on education loans.
- Timely repayment of the loan amount helps you build a credit score. This score can be beneficial for future loans.
- Long repayment tenures and moratorium periods may help reduce the financial burden.
Conclusion
An education loan can make higher education loan accessible. With affordable terms and flexible repayment options, an education loan offers financial support when required. However, students must understand the application process, check eligibility and understand the effect of interest rates on the overall repayment before applying for the loan. Proper knowledge and preparation can help them to borrow efficiently and manage their academic goals without unnecessary future financial pressure.
Also Read: Gold Loans: A Smart and Flexible Financing Solution
