What student loans entail and how do you get one

School and college fees are relatively low, but it is not the case with higher studies, especially when it is pursued abroad. Hence, banks and financial institutions provide educational loans to fund studies. These are special purpose loans that help the students cover the cost of pursuing a higher degree or some specialised courses. They are also referred to as student loans.

Who is eligible for educational loans?

Anyone seeking an educational loan from any bank in India has to fulfil the following three basic criteria:

l He/she must be a citizen of India.

l He/she should have got admission into a professional or technical course after an entrance test or other selection process.

l He/she should have secured admission at a university in India or institution overseas.

Other qualifying criteria
Anyone who does not fulfil these criteria, but is between the age of 16 and 30 can still qualify for an educational loan from various banks in India. But there are many factors that determine the amount of loan offered. Someone pursuing a professional course like management, engineering or medicine will qualify for higher loan amounts than someone who wants to do a BA or an MA. This is mainly because of the higher chance of getting an employment and also the higher cost of education for the professional courses. Also, if you are planning to pursue a course abroad, then you will get a higher loan amount than someone applying in Indian universities. Banks are willing to give around Rs15 lakh for those applying abroad while those applying in India get up to Rs7.5 lakh. The other factor that determines the amount of the loan is the security that is given for the loan. Every student loan of a huge denomination is a loan that is secured. So the student who is availing of the loan must provide some security, in most cases provided by a guarantor who might be a parent or a guardian of the student.

The government, after consultation with the Reserve Bank of India and the Indian Bankers Association, came up with a comprehensive educational loan scheme. According to this scheme, a student can take a loan ranging up to Rs7.5 lakh for studying in India and up to Rs15 lakh for studying overseas. This is not a stable amount for banks in India. The State Bank of India (SBI) is now offering loans up to Rs20 lakh, while recently, Indian Bank has increased its limit to Rs15 lakh for courses in India and up to Rs25 lakh for courses abroad. The information listed above is subject to change with time and hence students are requested to check again from the banks for updated information. The repayment of the loan is either one year after the course period or six months after getting a job, whichever is earlier.

What are the documents required?
The following documents are required before applying for an educational loan:

l Mark sheets of the last qualifying examination for school and graduate studies in India.

l Proof of admission to the course for which the loan is being applied.

l Scheduling of expenses for the course.

l Copies of letter confirming the scholarship.

l If applicable, copies of foreign exchange permit needs to be attached as well.

l Two passport size photographs.

l Bank statement for the last six months of the borrower.

l Income tax assessment order. This should not be more than two years old.

l Brief statements of assets and liabilities of the borrower.

l If you do not have an account in the bank where you are applying for the loan, you will be required to establish your identity and give proof of residence.

What is the interest rate charged?
Interest rate for student loans varies from one bank to another. Each bank competes with the other to reach as many students as possible. There are several banks and financial companies that provide students with such loans at attractive rates. Some of them include Bank of India, ICICI Bank, SBI and Bank of Baroda. Standard interest rates for getting student loans in India are 12 to 14% per annum. Some banks like SBI provide you with a choice between fixed and floating interest rates.
Income tax benefits

The government promotes student education by providing them various benefits. Under Section 80(e) of the  Income Tax Act, a person can claim the interest paid toward the education loan as tax deduction. A 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.

— The writer is CEO, BankBazaar.com, an online marketplace for
personal, home and car loans