Youth Incorporated Magazine

With the valuation of the rupee constantly changing, financing one’s education abroad has become tougher. Youth Inc gives you answers to the important questions you may have before taking up a student loan

WHAT EXPENSES CAN I COVER IF I GET A LOAN?

The following is the list of eligible expenses that can be covered using a student loan:
* Tuition fee for approved courses, including examination and library fee
* Cost of living expenses including lodging in a hostel
* Expenses involving travel to a country for overseas education
* Study material including books, computers and other relevant equipment
* Additional course-related expenses for project work or study tours

WHAT IS THE REQUIRED ELIGIBILITY?

Any student who is an Indian resident between 16 and 35 years of age and has secured admission to a course in a university deemed to be in the list of recognised institutes by the financial institution providing the loan can apply for an education loan. The student will be required to produce an admission letter in order to be granted the loan and must provide the financial organisation at least two weeks to process the request for the loan.

WHAT DOCUMENTS ARE REQUIRED WHEN APPLYING FOR A STUDENT LOAN?

When applying for a student loan, you will need to submit a completed loan application form along with proof of identity, proof of residence, bank account statements and copies of income tax return. You will also need to provide the financial institution with marksheets of SSC, HSC and degree courses you have completed as well as proof of admission for the course you need the loan for and its fee schedule.

DO I NEED A GUARANTOR WHEN APPLYING FOR MY LOAN?

Yes, a third party guarantor who is an Indian national and an employed adult will be required when applying for a loan. This guarantor must sign off on the loan application form and provide their bank statements for verification. This person must be an immediate relative in the form of a parent, legal guardian, spouse or sibling. In certain cases, guarantors can also be distant relatives such as uncles, aunts or cousins.

SHOULD I APPLY FOR A LOAN FROM A BANK OR A NON BANK  INSTITUTION?

The choice between a bank and a non-bank depends on the need of the loan. With an upper limit of Rs. 20 lakh, a bank will not be ideal if your financial requirement is for a much higher amount. In such cases, a non-bank institution
can help you finance your education in an expensive country. The interest rate should also be taken into account along with the tenure of repayment of the loan and other individual factors like the collateral security required. Banks will be best if you can manage to secure a scholarship and arrange for personal methods to finance yourself while non-bank institutions are ideal if you need a huge loan amount but can guarantee payment in following years.

WHAT IS THE MINIMUM AND MAXIMUM AMOUNT FOR STUDENT LOANS?

The minimum amount of a student loan can be as low as Rs. 1,00,000. The maximum amount ranges depending on the policy of the financial institution providing the loan and the rules prescribed by the Reserve Bank of India and other regulatory bodies. Generally, non-bank institutions provide a higher loan amount as compared to banks. The maximum student loan amount in a bank is Rs. 20 lakhs while a non-bank has Rs. 50 lakhs as the upper limit and can even extend up to Rs. 1 crore.

WHAT IS A MARGIN AMOUNT FOR STUDENT LOANS?

Margin amounts are a monetary requirement from your end to be applicable for a student loan from a bank. For example, a bank will provide you with Rs. 80,000 if you require a loan of Rs. 1,00,000 while you will have to arrange for Rs. 20,000 from your own sources which is the margin amount. Non-bank institutions do not ask for margin amounts since they function on a policy of providing 100% funding for the student’s cost of education.

WHAT COLLATERAL DO I HAVE TO PROVIDE IN ORDER TO GET A LOAN?

A collateral on an education loan is a security that is to be provided by the student at the time of receiving the loan in case of a default in payment. The collateral may be in the form of residential property, fixed deposit, mutual fund, shares, life insurance and non-agricultural land. An institute may accept other forms of collateral as deemed fit according to the Reserve Bank of India and other regulatory bodies. A collateral is not required on loans below Rs. 4 lakh.

WHAT WILL BE THE INTEREST RATE ON MY LOAN?

The interest rate on a student loan varies according to the institute. Banks have an average interest rate between 10.50% and 13.50% of the loan amount rising up to 15%. Non-bank institutes have an interest rate with a base of 11.50% rising up to as high as 14.50% on the loan amount. The rate of interest changes according to various factors but can be considerably lower if the applicant will be joining a reputed institute, provides a sufficient collateral and has a good credit history.

WHEN DO I HAVE TO START REPAYING MY LOAN?

Every organisation allows the student a certain moratorium or holiday period before they have to start repaying their loan. This period is between 6 months to a year after completion of the course or 3 to 6 months after attaining employment, whichever is earlier.

HOW LONG DO I HAVE TO REPAY MY LOAN?

The tenure of repayment of a student loan depends on the type of financial institution you have borrowed from. Non-bank institutions allow a student a maximum of 10 years in which the loan must be repaid in full. Banks, on the other hand, have varying packages; some allow only 7 years for full repayment while few others allow up to 15 years for full repayment.

CAN STUDENT TAX BENEFITS HELP ME IN REPAYING MY LOAN?

According to section 80E of the Income Tax Act, an individual can apply for deduction in tax for repayment of interest on a loan. This deduction is only applicable on interest payable over the student loan and not on the principle amount which is payable as part of the loan repayment. This deduction is available for a maximum of eight years while the student is paying off the principle amount of the loan. The deduction can only be applied for when the loan was used to fund one’s own education or that of a spouse, child or legal guardian.