Higher Education is costly these days. After you finish your school education up to 12th standard, you prefer to pursue higher studies in a specialized field. Such fields are also called professional courses.
And these courses at a very hefty cost. It may take a whole lot of savings of parents of their life time to get their children pursue such courses. But Indian parents don’t mind doing that. I know it for a fact because I have seen this in my own case. I come from a lower middle class strata.
But I think, that’s not fair. The parents and children should explore better options than giving up their all the money saved for the retirement years. Education loan is one such scheme of the banks that can help you find the solution.
What is an education loan?
Education loan is a scheme offered by banks in India to get finance for pursuing higher education. Almost all banks – both public and private offer a variety of education loan schemes for the students to pursue the technical courses of their choice.
What does an education loan cover?
You might be very interested to know what an education loan would cover. There are many expenses attached to getting the courses done. And it starts with leaving home.
You leave your home sweet home and go to the place where you may have to stay in a rented place. It is also possible that you will be able to secure a hostel seat in the college campus itself.
Then comes the cost of living expenses like food, clothing and conveyance etc. I mean that there are many types of costs that may be incurred when you pursue a course. But will all that be covered?
Let’s find out:
What kind of courses are covered under the education loan schemes?
You may ask for a education loan from banks for studies in India and abroad. And the courses that are covered must be in the fields that have job orientation.
Job orientation basically means that there is a good scope to find a suitable job post the studies. Now you may wonder what it really means. So, let me give you an example:
Suppose a student wants to pursue course in Theoretical physics or commerce or wishes to study arts history. Such courses are not going to create any job scope under any industry. These are plain vanilla courses and these courses also may not cost a lot of money.
Therefore, such courses won’t be in the ambit of professional courses. The courses in the fields of engineering, medicine, management are professional in nature. These courses create manpower in the respective fields. Hence, they would be covered.
Let me give an example of very specific courses:
| S.No | Courses | Specific Programs |
| 1 | Medical | MBBS, MD, MS, Nursing etc |
| 2 | Engineering | B.Tech, B.E, M.Tech, M.C.A, Diploma Courses etc |
| 3 | Management | MBA etc |
This is not an exhaustive list. But I am sure this would give you an idea of kind of courses covered in the education loan schemes.
Education loan covers:
Course Fees:
First and foremost, an education loan covers your fees. The course fees. The course fees is mostly covered in all the loan schemes. You don’t have to worry about that. All you would need to do is provide the fee structure/schedule to your bank.
Now there are different kinds of fees but the major part would be the tuition fees. Apart from that, there may be lab charges, library fees, examination fees etc. All such fees are also covered.
Cost of conveyance
If you get an seat in the hostel, then you may not need a conveyance. But what if you need to travel every day and need a personal vehicle. So, there are loan schemes that may cover the cost of a vehicle. They cover the cost of two wheeler capped at a certain limit.
But you may still need to provide for the fuel charges. Because that is not covered.
Hostel expenses, boarding and lodging expenses etc
The education loan schemes would cover the hostel fees. Some colleges may not be able to provide the hostel accommodation. In that case you may be needed to stay in the rented apartments or share a room with someone outside the campus.
As a general guideline, if the boarding and lodging is part of the course, the education loan schemes would cover them. But if you were to stay outside and pay rent, then you may have to look for self managing those expenses. This part may vary from bank to bank.
Cost of laptop/desktop/smart phones
The cost of laptop is a part of any education loan scheme. So, you would be able to include it as part of the education loan scheme.
But there could be a cap on amount of finance extended for the purchase of a computer/laptop. Even smart phones have now found their place in the financing.
Cost of travelling/tours and projects
mostly covered under all the major education loan schemes of banks in India.
How much can you borrow under a loan scheme?
The quantum of loan that you can borrow may depend on the type of course that you follow. The maximum amount of loan in general that you can borrow is up to 90% of the expenses.
As we saw that there are multiple types of expenses incurred in higher education, it is a good idea to check with your bank what all they would cover.
There may be an overall cap for studies in India or abroad. There may also be the cap on the amount of finance that you can get on the basis of college you get admission into. The elite colleges will obviously have better financing conditions.
Do we have to provide any guaranty for getting the education loan?
Now, that’s a good question. How much loan can be borrowed under an education loan scheme?
Banks provide both: collateral free loans and the loans with collateral. Collateral means some kind of security.
As a matter of practice, the applicant is always the candidate who will pursue the course. And either of the parents or a guardian is taken as a co-applicant. This is the first thing.
The second thing is that education loan schemes widely differ on guaranty terms. Like if you secure an admission to one of the IITs/ IIMs or an elite medical college like AIIMS, you are not asked to furnish any collateral security.
In general, as per the IBA Education loan scheme guidelines, you can get collateral free education loan up to 7.5 lacs. So, you must check with your bank what kind of security they would need if they do and how much they can waive it for?
This point may be very important to ask the banker before you finalize on your loan.
What’s the duration of the education loans:
Education loan have generally long repayment tenure. As a practice, banks won’t ask you to make the repayments during the time of studies. The loan amount and the interest accrued becomes payable only when you complete your course and have been placed in a job.
It may extend from 7 years to 15 years including the course tenure. This is another critical factor you may want to check with you bank.
What’s the interest rate on education loan?
As a long term loan, the interest on the education loan is floating. You must ask you banker what is the current rate of interest so that you can find the best rate for your loan scheme.
You also need to check with them how the interest is calculated on the loan amount. Is it on reducing balance or the amount fixed at the time of signing the agreement. This will help a lot in saving on interest.
Are there any subsidies available on the education loan schemes?
Depending on your social classification, you may be eligible for education loan subsidies. These subsidies are generally given on the bases of your social class or category. So, ask this question to your bank and the documents that they would require to process it.
May be this blog post will help you to make a good plan before you apply for your education loan. If you have any questions, you may ask in the comments below:
