A good education is the doorway to a good job and career. But advanced education is becoming more and more expensive, and parents are finding it increasingly difficult the bear the expenses involved. Under the circumstances, it has become imperative for students to take an education loan for advanced studies. Let’s check out the factors that lending institutions take into consideration while giving education loans.

Education Loan Eligibility

Banks usually give education loans to students who have got admission to career-oriented courses such as medicine, engineering, management, etc., both for graduation and post-graduation.While checking the eligibility of a student for an education loan, a bank would consider their merit, examination scores, academic background, and other achievements. Banks also consider the value of the course before approving an education loan in India. Colleges or educational institutions accredited by the government hold higher value.



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Education Loan Collateral

Banks also consider whether the student can provide collateral security or not. The type of collateral and its value is also important for getting an education loan. Usually education loans up to Rs. 7.5 lakhs do not require collateral security, but above Rs. 4 lakhs it may require a third-party guarantee. Education loans below Rs. 4 lakhs require neither collateral nor third-party guarantee. However, a co-applicant is required for all education loans. A co-applicant should be a parent of the student, or any other guardian, such as a spouse or a parent-in-law. The usually accepted collaterals are a residential property, fixed deposit, life insurance policies, or non-agricultural land.

What Aspects Does an Education Loan Cover?

Conventionally an education loan in India covers the tuition fee, and some related expenses. But nowadays some lending institutions cover almost 100 percent of a student’s education-related expenses. These could include 100 percent tuition fee, accommodation, exam and library fees, books and equipment (including a PC), travel expenses, and any other reasonable expenses needed to complete the course. As for disbursal, if all documents are in order, the education could be disbursed within 15 days. The loan is usually paid directly to the educational institution in full or in part as per the requirements of the institution.

Documents Required for Getting the Loan

The usual documents required to get an education loan are:

  • Letter of admission
  • A detailed break-up of the costs of the course
  • Completed loan application form and photographs
  • KYC (Know Your Customer) document
  • Mark sheets/ passing certificates of S.S.C, H.S.C, degree courses
  • PAN Card of the student and parent/ guardian
  • Proof of identity (driving license/ passport/ Aadhar/ or any other government approved photo identity)
  • Proof of residence (driving license/ passport/ electricity bill/ telephone bill)
  • Student/ co-borrower/ guarantor’s bank account statement of the last 6 months
  • Proof of income (i.e. salary slips/ form-16) of parent/ guardian/ other co-borrower

What Are the Rates of Interest of Education Loan in India?

Banks usually use the Marginal Cost of Funds based Lending Rate (MCLR), plus an additional amount to calculate the interest rate. Presently, the additional percentage ranges from 1.35 percent to 3 percent. The good news is that the interest component of an education loan EMI is eligible for an income tax rebate under section 80 (e) of the Indian Income Tax Act. There are tools such as the education loan EMI calculator which can help you calculate the EMI on your loan.

Repayment of the Education Loan

Banks normally give a moratorium of 6 months to one year after the successful completion of the course before a student is expected to start repaying the education loan. In other words, this is also called the holiday period, and the reason for it is that during this period the student can hunt for a job.

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Now that you know what an education loan is along with it eligibility criteria and interest rates, you are prepared to make a decision. However, if you do not require a large amount for education, then availing a personal will be good option. The documentation and approval process for personal loans is a lot faster compared to that of banks for education loan. While, the interest rates for personal loans are a bit higher, the approved amount is credited into your account. So, if the tuition, living, and other expenses are not high, you can use the amount for miscellaneous expenses such as application fee, etc. So, check your eligibility today and apply now!