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Educational Loans- the highs and lows

An overview about the Education Loan from banks for Indian students who are planning to go abroad for their studies.

Antony Chacko

While some banks keep the loan process simple and fast, others can make you run from pillar to post! So apply for the loan early to ensure it gets sanctioned by the time your visa arrives.

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Once you have decided to pursue your degree abroad, the best way to fund your education is by obtaining a scholarship. Even a partial scholarship will help to cover a major portion of your tuition fee. Unfortunately some of us may not be eligible for a scholarship and are left with only one option- BORROW!

If you need to borrow, the safest way to do this is to approach a bank for an educational loan. But that’s easier said than done, really! Getting a loan sanctioned can be as tough as repaying it!

So here are a few tips to make your loan hunting hassle free and quicker.

Applying for a loan

  • It’s best to approach a bank where you or your parents already have a savings account- the whole procedure could turn out to be a bit more peaceful.
  • Secure an admission before applying, preferably from a reputed, accredited university abroad.
  • Decide on the amount you want to borrow- do a cost benefit analysis to ensure your future income on completing the course will allow you to comfortably pay off the EMIs.
  • The maximum loan amount offered by most banks is 20 lakhs for study abroad.
  • Remember that the bank will provide only 70% to 80% of the total sanctioned amount. You need to pay the rest of it (called margin money) from your own (or your parents’) pocket.
  • So borrow only what you will need and not what you are eligible for!
  • Most loans cover expenses like the college tuition fees, travel expenditure, living expensespurchase of study materials (laptop if required), student health insurance, and refundable deposit. But try to work part time on campus so that you can avoid borrowing money for living expenses. The lesser you borrow, the lesser the interest that will accumulate!

Getting the loan sanctioned

While some banks keep the process simple and fast, some do make you run from pillar to post! So apply for the loan as soon as you secure the admission at the university of your choice to ensure the loan is sanctioned in time for your visa interview. The worst thing that can happen is to miss a semester because your loan was rejected or delayed and you had to re-apply!

Ensure you submit all the following documents on time: Mark sheets of last qualifying examination, proof of admission, schedule of expenses, borrower's bank account statement, Income tax assessment order of last two years, Proof of income and a brief statement of assets/liabilities.

Most banks also ask for the guarantor’s or co-obligator’s original property papers covering its market value at least the twice the loan amount as collateral security.Some banks prefer paying for professional courses, the popular ones being MS and MBA, but now a diverse range of courses and study options are being considered for loan approvals.

See Also: Scholarships galore for Indian students

Repaying the loan

For several education loan applicants, the banks offer a holiday period on repayment while the student is doing the course either on the principal or on the interest or both. Some banks require you to pay the interest accrued every month even during the course of your study.

The repayment period of a loan is usually between 5 - 7 years and begins 6 months following completion of the course. A few banks allow you to start replaying one year after the course completion or six months after securing a job, whichever is earlier.

If you succeed in getting a good part-time job while studying, consider paying off the interest or even better the EMI itself if that’s possible. This will not only reduce the burden on your parents but will make it so much more easier for you to foreclose the loan. 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.

Once the holiday period is over, try not to default payments as this will tarnish your credit history.

Considering that the default is unintentional, when you foresee hiccups in repaying, it’s best you request the bank to re-schedule the payoff beforehand.

And do remember to cash in on the tax benefits your education loan will offer you once you start your career!

Image source : Worradmu

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