This story is from April 6, 2018

What are Educational loans?

Education is a basic need and right of every individual. But for many people in getting education is an expensive business and that too from a reputed institute can create a hole in their pocket. Moreover, the cost of education is increasing rapidly. Due to this, parents, who wish to provide their children with the best possible education, invest their money in several long-term plans. But even after all this, a person may face a shortage of the money required. It is in such situation that an education loan plays an important role in bridging up the gap between the amount required.
What are Educational loans?
Education is a basic need and right of every individual. But for many people in getting education is an expensive business and that too from a reputed institute can create a hole in their pocket. Moreover, the cost of education is increasing rapidly.
Due to this, parents, who wish to provide their children with the best possible education, invest their money in several long-term plans.
But even after all this, a person may face a shortage of the money required. It is in such situation that an education loan plays an important role in bridging up the gap between the amount required.
As per the studies, the cost spent on education is increasing at about 15 per cent per annum. With this number bugging students and parents all over the world, they often end up opting for education loans.
What does an education loan cover?
In general terms, an education loan covers the basic fees of the course and other related expenses like the (college) accommodation, exam and other miscellaneous charges.
Who can apply for the loan?
A student is the main borrower. A parent, spouse or sibling can is normally the co-applicant.
Who receives the loan?
The loan amount is offered to the students who wish to go for higher education in India or abroad. The maximum amount of loan offered for studies varies from bank to bank.

Eligibility and documents to get an education loan
1) Anybody who applies for the loan has to be an Indian citizen, who has got admission into a college/university recognized by a competent authority in India or abroad.
2) The applicant should have completed his/her schooling.
3) Certain banks offer loan even before the applicant has secured admission into the university. Though there are no restrictions on the upper age limit as per the Reserve Bank of India, some banks may have it.
4) The banks require documents, including the admission letter of the institution, fee structure, Class X, XII and graduation (if applicable) mark sheets. Apart from these, income documents such as salary slips or income-tax returns (ITR) of the co-applicant also need to be produced.
Loan financing, collateral requirement
1) Depending on the amount of the loan, banks can sometimes finance up to 100 per cent amount. As of now, for loan up to Rs 4 lakh, one does not need to give margin money. To study in India, 5 per cent of the required money has to be financed by the applicant. On the contrary, in order to study abroad, the required margin money increases to 15 per cent.
2) The banks also ask for collateral when the loan amount is above Rs 7.5 lakh. Currently, the banks do not ask for any collateral or third-party guarantee to grant loan up to Rs 4 lakh. For loans above Rs 4 lakh up to Rs 7.5 lakh, a third-party guarantee is required.
3) After the application for the loan is accepted, the banks pay out the amount directly to the college/university as per the given fees structure.
Interest rate
Banks use the Marginal Cost of Funds based Lending Rate (MCLR), along with an additional spread to set an interest rate.
Repayment
The student is expected to repay the loan. In general, the repayment process starts after the completion of the course. Some banks also provide a relaxation period of 6 months after getting a job or a year after the completion of studies to make the repayment of the loan.
The repayment period is generally between 5 and 7 years, but can be extended under certain circumstances.
Throughout the period, the bank charges simple interest rate on the loan. The payment of simple interest during the course period lessens the equated monthly instalment (EMI) burden on the student for future repayments.
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