Most banks offer educational loans as per norms set up by the Indian Banking Association. In addition, there are a lot of educational loan offerings by banks and financial organizations who offer independent schemes. Selecting a good banking partner and an educational loan product is important to prevent future financial risks.
Educational loans are available to students pursuing graduate and post graduate courses of approved universities inside and outside India. The lender would consider costs such as tuition fees, hostel fees, caution deposit, computers, educational kits and travel, project and returnable deposits to work out a loan that may be offered to the applicant.
Most banks offer Rs 30 lakhs for education in India and Rs 40 lakhs for education in foreign universities. State Bank of India had recently announced a plan in which it offers Rs 20 lakhs to Rs 1.5 crores.
Collateral has to be provided only for loans above Rs 7.5 lakhs and the parent would also be made a co-applicant. Sometimes banks also ask for a third person's surety. For students who have secured admissions in premium institutions, State Bank of India is offering up to Rs 20 lakhs without additional collateral. There are also private banks that offer speedy loan dispersal, but demand more collateral.
Repayment of educational loans would start one year after completion of the course or six months after one gets employed, whichever is earlier. Banks can also use their discretion to increase this to two years. While usually, the tenure of the loan is five to seven years, loans up to 7.5 years can be paid back in ten years and loans above it can be paid back in 15 years.
If the EMI is defaulted for more than 90 days, the loan is declared as non-performing and banks would start efforts to reclaim it. This leads to bad credit scores for both parent and student and they might find it hard to source a loan in future. Banks can also approach the employer to reclaim the loan if needed because of clauses incorporated in the application.
Most banks charge one per cent more than the base rate for educational loans, which works out to about 12 to 14 per cent per annum. The interest is calculated only on the money dispersed each year. Repayment EMIs are calculated on the outstanding principal and interest.
Let us take the case of an engineering student who has availed Rs 7.5 lakhs at 12 per cent interest.
For each lakh, Rs 12000 has to be paid during the moratorium period as interest. If the interest is not paid during the moratorium period and if Rs 1.9 lakhs are availed each year, the total outstanding loan when education is completed would be about Rs 9.8 lakhs. This would increase to Rs 10.7 lakhs one year after education is completed. This amount, to be paid back in ten years, would require the applicant to pay an EMI of Rs 15,200 per month. Considering the cost of living and other factors and assuming that only 40 per cent of the salary can be paid back for loans, the applicant must have to land a job that pays at least Rs 40000 per month.
The Vidyalakshmi portal at www.vidyalakshmi.co.in offers a single-window facility to access educational loans offered by 39 banks.