Your guide to getting education loan

Are you one of those students who have just taken admission in a college and looking for one? education loan, Here you should know about your eligibility for the loan, interest rates and where you can apply to apply for such loan.

Public Sector Banks (PSBs) are a major player in the Indian education loan market. Data from the RBI presented in reply to a question in Lok Sabha in March 2022 shows that PSBs account for more than 91 per cent of the lending by scheduled commercial banks. education region.

interest rates, collateral

Many PSBs offer a range of education loan schemes, including those specifically targeted at students seeking admission in leading MBA, engineering, medical and law colleges. Depending on where an institution is on its priority list (like AA, A, B or C, for example), a bank will be willing to offer loans up to a certain amount without any solid collateral.

For example, State Bank of India provides loans up to 40 lakh at a floating rate of 7.5%, without any collateral, which makes it into the ‘AA’ list of institutions including IITs, IIMs, XLRI and BITS Pilani under their Scholar Loan Scheme. Those who are not included in any of the list can apply under student loan scheme of banks even if it is more than 10.05% (floating interest rate). Under the latter, above loan 7.5 lakh needs to be furnished as collateral.

Similarly, Bank of Baroda offers loans at a floating rate of 7.95% to the students of premier institutions. The maximum permissible loan amount is 40 lakh without collateral and up to 80 lakh otherwise, depending on the highest ranked colleges. Its Baroda Knowledge plan covers a wide range of courses and charges 10.20% (floating rate) for loans above 4 million. High loans also require a solid collateral.
“As per regulatory guidelines, all new retail loans are linked to an external benchmark,” explains HT Solanki, general manager and principal-mortgages and other retail assets, Bank of Baroda. All new education loans by banks are linked to the repo rate. With the expected repo rate hike, lending rates will only move northwards.

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Compared to public sector banks, the rates are still higher in private sector banks. “Private sector banks may be liable to issue collateral-free education loans, which will make them more expensive,” says Adil Shetty, CEO, Bankbazaar.com.

eligibility

Vaibhav Singh, co-founder of Leap Finance and Shetty, highlights some of the key factors that banks consider while reviewing applications for education loans. In addition to the reputation and accreditation of the institution, this process includes reviewing the curriculum – whether it is accredited or not; Collateral – whether the applicant has the ability to provide suitable and adequate collateral; and details about the co-borrower (parent/guardian) – their employment history and credit score. Education loan requires a co-borrower who can be the parent/guardian of the applicant. If the student fails to repay the loan, the liability lies with the co-borrower.

According to Solanki, no distinction is made between salaried and self-employed parents, and loan sanction depends on the merits of each case.

options for banks

If you are unable to get a bank loan, an education loan-focused non-banking finance company (NBFC) is an option. However, the loan is likely to come at a higher cost. “Students going to top colleges around the world can easily get credit from any financial institution. Therefore, we strategically focus on next-level institutions,” says Amit Yadav, Chief Strategy Officer and Chief Business Officer-Digital Business, Avanse Financial Services. Avanse does not have a maximum loan amount limit, and many Offers loan repayment option Avanse offers loans at Base Rate (currently 13.15%) plus spread.

Similarly, HDFC Credila Financial Services also offers facilities such as no upper limit on the loan amount, no margin money (certain percentage of the cost of education that a borrower must fund on his own) and partial collateral.

That said, banks can score on non-bank lenders on one key aspect. Under Section 80E of the IT Act, interest paid on education loan – for self, child, spouse or any person of whom you are the legal guardian – can be claimed as a deduction for eight financial years . According to Shubham Jain, Manager, Nangia Andersen LLP, deduction of interest can be claimed only on education loans taken from banks and notified institutions.

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