INDIA BUSINESS WORLD - FEBRUARY 2007
The Month that was ...
EDUCATION LOANS HIGHER AMOUNT AVAILABLE NOW
In order to meet the increasing costs of education, banks have devised schemes to provide education loans. Students needing an education loan should approach these banks. Education loan schemes are very flexible and allow you to take longterm loans for all kinds of courses offered by recognised institutions, including part-time and correspondence courses. Loans are available to meet expenditures related to tuition fees, maintenance costs, books and equipment, cost of travel (for studies abroad), security deposits and lodging.
Loans are available to Indian nationals who have either secured admission to professional or technical courses through an entrance test or have secured admission to a foreign university.
The borrower needs to submit these documents along with his loan application:
- Marks sheet of last qualifying examination
- Proof of admission to the course
- Schedule of expenses for the course
- Identity proof
- Address proof
- Copies of letter confirming scholarship
- Copies of foreign exchange permit, if applicable
- Photographs
- Statement of bank account of borrower for the last six months
- Income tax assessment order that is not more than two years old
- Brief statement of assets and liabilities of borrower
The information would relate to the parents and the student, when the loan is taken jointly. The loan amount depends on the need. It is subject to the repaying capacity of the parents or student, with margin. Usually, for studies in India, the maximum amount financed is Rs.7.50 lakhs. For studies abroad, the maximum amount financed is Rs 15 lakhs.
Recently, the Reserve Bank of India (RBI) has proposed to enhance these limits. Banks can lend more under educational loans, under the draft guidelines on priority sector issued by the RBI. Banks can now grant up to Rs 10 lakhs to individuals for studies in India and up to Rs 20 lakhs for studies abroad.
Some banks have stipulations regarding margins, i.e., the portion of the amount to be brought in by the borrower from his own resources, and varies from 5- 10 percent. For studies abroad, the margin amount is about 15-20 percent. However, in case of loans upto Rs 4 lakhs, many banks do not insist on the margin requirements.
The interest rates charged on these loans vary from 10.5-12.5 percent. Generally, banks provide a moratorium period after which the recovery starts. Some banks charge a nominal processing and administrative fee. However, many banks have waived off these charges. The repayment period is long. It ranges from 5-7 years commencing from one year after course period or six months after getting a job, whichever is earlier. The outstanding interest for the moratorium period will be added to the loan amount at the time of commencement of the repayment. The EMI will be determined on this amount at the time the repayment is to commence.
The borrower is expected to pay a minimum amount equivalent to the EMI on a monthly basis. In case the borrower has excess funds at a later stage, he may prepay the loan. Repayment is through EMIs which comprises both principal and interest components. EMI would be calculated depending on the tenure one chooses. EMI would be higher if one chooses to repay within a shorter period as against a longer term loan. A shorter repayment period, however, reduces the interest cost over the term of the loan.
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