We asked Neeraj Saxena, the Chief Executive Officer of Avanse Financial Services, some frequently asked questions about student loans for more clarity.
Is there any security deposit required for the loan to study abroad?
There is no security deposit required to get a loan. In case of a higher value loan, Neeraj Saxena tells us that they require collateral security. By collateral security, Neeraj explains that what he means is properties, LIC policies, and such. All these kind of securities are provided by students and these will be given back after the loan is completed and will then be returned to the borrower.
In terms of a security deposit, Neeraj says that if we are referring to margin money, then the answer would be no. At Avanse Financial Services, Neeraj lets us know that margin money is not a concept in use. He reassures us that at Avanse, the student will be funded 100% of his expenses inclusive of tuition fee, living expenses, books, and periodicals.
What do you mean by margin money?
Many a times, when students go for a loan of 20 lacks, they are funded only 15 and will be required to produce the other 5 from their pockets. Avanse, however, will give students the full 20, Neeraj Saxena confirms. It offers students 100% funding inclusive of all fees.
How do you determine the loan amount for a student? What expenses does it cover?
The loan amount should cover the tuition fees. Some universities also have the students living expenses covered by hostel charges. At Avanse, Neeraj explains that they have an internal chart of what kind of expenses are required for a particular period in a particular country. If a student is looking to get into a one year or two year programme, then the tuition fee could be near 10 lakhs.
Neeraj says that Avanse has no upper limit for any course and that they will fund any course that the student takes up with any value, as long as they see good future potential for the student in the college or university, on graduation. The minimum loan amount is 50,000 INR, as it takes a lot of operational procedures to process a loan- he reasons.
We asked him what the maximum and minimum loan limits for banks were. He mentions that student loans generally have no particular limits but banks would be cautious about the upper limit. Neeraj was unable to give us an exact figure for this- as these vary quite a bit from bank to bank.
The Current Interest Rates for Education Loans- Are They Fixed or Floating?
In the industry, the interest rates are generally- 11 to 16%. Neeraj Saxena notes however notes that 90% of institutions have 12.5 to 16% or 13- 16% interest. In his experience, he reveals that only in a very few cases dealing with very big banks and very good institutions
are cheaper rates available, on a selective basis. In conclusion, interest rates are floating.
How are education loans disbursed?
In cases where the bank has a tie-up with the university, Neeraj points out that the loan is disbursed directly to the university depending on the requirement. At Avanse, the students are given their living expenses within their individual bank accounts for convenience. This is what is generally done for both international and domestic applicants.
Are living expenses disbursed in a periodic basis?
Neeraj agrees that this is what they prefer to do- periodic disbursement of cash.
How long can a student take to repay the loan?
Normally, a student who is studying abroad will be expected to pay back the loan within seven to ten years; on average- he says around seven to eight years. When asked if this applies to other banks as well, he says the maximum tenure will be 15 years and on average about seven to eight years.
Can a student prepay his or her loan? Are there any changes associated with that?
Neeraj says that as far as Avanse is concerned, students can choose to prepay their loan and check for charges on their website. For such prepayments, students will generally be required to pay from 2%-4% of the amount they have prepaid.
What is a holiday or moratorium period?
Neeraj tells us that there are two moratorium periods offered to the student- the principal moratorium and complete moratorium. The principal moratorium charges the student simple interest of the loan amount during their study period and post study, the student must pay the EMI for the loan amount alone. The complete moratorium lets students take a loan and pay the EMI inclusive of the interest- post study. Neeraj explains to us that with a complete moratorium, if you take a loan of 20 lakhs and have an interest of 4 lakhs, then the institute will make you pay the EMI for 24 lakhs- post study. He recommends students to go for the principle moratorium and have the simple interest paid off in the initial study period.