Need the dough to study abroad?
Nausheen did her BMS from HR College of Commerce and Economics, Mumbai, and gained two years of work experience. She then opted for studies abroad. She is currently pursuing a masters degree in international business at Hult International Business School in San Francisco, US. Nausheen partly financed her education with a loan taken at 9% pa. She will graduate this year.
Many of us aspire to study abroad but are usually held back by the high tuition fees and 
related expenditure that such ventures entail.
Surprisingly, as it was in Nausheen's case, getting funding to aid your education overseas is not that difficult.
Education experts advise that even before you opt for an educational loan, you should first tap the university/college funding option. Most education loans not only cover the cost of tuition fees but also the expenses that you may incur for the course. All you need is a set of documents and a guarantor to help you realise your aspirations.
Requests for education loans to study abroad have gone up three times compared to last year. While 50% requests are for engineering courses, an equal number is for MBA, points out Prashant Bhosale, COO, Credilla.
"Most banks prefer lending up to Rs 20 lakh for education loans but for us there is no limit. The highest amount that we may have sanctioned so far is Rs 1.2 crore for an undergraduate course in medicine in the US," Bhosale adds.
Almost 90% apply for postgraduate studies, less than 10% for undergraduate and a miniscule number for research since the last category generally avails of stipend and financial aid.
If all documents are in place, the loan can easily be sanctioned in less than seven working days, he says.
The fees will be disbursed to the college/institute directly by the bank and repayment starts from six months to a year. It should be noted that for several education loan applicants, the bank offers a holiday period on repayment (while the student is doing the course) either on the principal or on the interest or both. But the interest rate at which you borrow is certainly going to become very important as soon as your studies are over.
The interest rate on an education loan depends on whether you are studying in India or abroad, the course you are applying for, your loan amount and the tenure. Special concessions on interest rates are available if the student is a female.
Many banks have a margin criterion for their education loan, which means that they will provide between 75 per cent and 90 per cent of the total cost of the course; you will have to cough up the balance, points out Harsh Roongta, CEO, apnapaisa.com.
The student loan amount may also depend on your parents/ guardian's net monthly salary. It could be six to 10 times your parents' monthly salary.
Although the bank may be in India, you can get your education loan amount in dollars for studies overseas; the amount is paid directly to the institution abroad. Banks charge you a fee for the remittance. You start repaying the principal portion of the education loan six months to a year after finishing the course, or when you get a job, whichever is earlier.
Some banks will also allow you a moratorium on payment of interest. This means that you can defer payments of even the interest during this period. Hence, there is no need to pay anything to the bank at all - till 6 months after the course is complete, or you get a job (whichever is earlier). If you go for this option, then the interest is compounded quarterly and added to the principal sum for repayment. This option carries a higher rate of interest, but is a boon to those who cannot repay the loan during the course period.
Banks offer lower interest rates if you start repayment during the moratorium period.
Credilla offers three loan products - one in which a student pays simple interest during the course, starts payment after the course inclusive of principal amount and a partial interest payment product.
Unlike other loans, education loans do not attract prepayment penalty. If you find yourself able to prepay in the early years of your career, you can pay off the entire outstanding loan amount without any penalty.
According to Adhil Shetty, CEO, Bankbazaar.com, the government promotes student education by providing them various benefits. Under Section 80(e) of the Indian Income Tax Act, a person can claim the interest paid towards the education loan as tax deduction. Few conditions apply for the same though. The tax deduction can only be availed by the individual on whose name the loan has been taken. This benefit can be claimed up to eight years after the repayment has started. And the last condition is that it can only be claimed if the loan is taken for a full-time graduation or post graduation course.
Everything you need to know to apply for an education loan
Who can apply for the loan?
- Borrower must be an Indian national
- Borrower must be in the age group of 16-26 years
- Borrowers parents/guardian should have a regular source of income so that they are able to repay the loan if the need arises. Has secured admission in any of the graduate/post-graduate courses
What kinds of courses are covered abroad?
- Undergraduate job-oriented professional/ technical courses offered by reputed universities.
- Post-graduate courses like MCA, MBA, MS, etc
- Courses conducted by CIMA, London, CPA, USA, etc
- If you are an employed person and want to better your prospects, you can avail of a loan to get additional educational qualifications and/ or receive training in modern technology in India/ abroad.
Quantum of loan offered by most banks
- Up to Ra 20 lakh for studying abroad
- Maximum loan tenure is 7 years
- Moratorium period is course period + 1 year or 6 months after getting a job, whichever is earlier
What is the procedure to apply for the loan?
The education loan process may vary from bank to bank but there are some fundamental steps.
Step 1: Fill in the loan application form - Like in case of every loan, the applicant has to fill in an application form
Step 2: Personal discussion - Once the student fills in the form, there is a round of personal discussion wherein he/she may be asked various questions relating to academic performance, the course one has selected, probably the institute etc. While some banks consider academic record as important, some may give it slightly less attention.
Step 3: Provide validated supporting documents - In case of education loans, documents relating to admissions are mandatory even before the bank considers the loan application. The bank will verify the enrollment of the student from the concerned institute. One may also require collateral security such as papers relating to property to be mortgaged if the loan amount is above R4 lakh.
Step 4: Stage of loan approval or denial
When one takes a loan, there is a co-guarantor, especially in case of personal and home loans. For an education loan, a guarantor is mandatory. The guarantor could be an applicant's parents or guardians. The bank will run a thorough check of the guarantor and his/her credit history before sanctioning the loan. After completion of the process, the loan may be sanctioned or denied.
Step 5: Borrower's signature on a Promissory Note
While the parents/guardians are guarantors or co-borrowers, the student is a necessary borrower of the loan. Once the loan is sanctioned, all the borrowers have to sign a promissory note to the bank.
Step 6: Disbursal of the loan
Once the formalities are completed (additional documents and signed post-dated cheques may be required), the bank will disburse the loan. The bank may disburse the college / institute fee directly to the concerned institute.
How to choose a bank?
- Low interest rate
- No prepayment penalty
- Minimum or no collateral required
- Flexible repayment options
Source: Vandana Ramnani (HT Horizons)
Date: 28th April 2011
