I’m sure that anyone reading this knows the importance of getting a good education, which is now becoming increasingly difficult. Over the past decade, the cost of education in India has risen exponentially, showing no signs of slowing down. Between 2008 and 2014, the average annual private expenditure for general education rose by 175%. Estimates suggest that, at this rate, education costs are rising faster than inflation rates. Around 79% of Indian parents spend their regular earnings for their children’s education. Most parents are concerned about being able to fund their child’s education at all. And there seems to be no end to this problem. An education loan has thus become a much-needed option for a majority of students. This is true irrespective of where you want to study. In fact, studying abroad can be significantly more expensive.
Recently, I applied to Master’s programs in the United Staes. I got accepted and knew that tuition costs would be high. Upon looking into my options for an education loan in India, I was instantly sent into a downward spiral. They were simply not viable for a number of reasons, specifically high-interest rates and eligibility criteria. Luckily, I was able to get a scholarship. But for at least a month and a half, I was more stressed than I have ever been in my life.
I know that a lot of students and parents are, or have been, in the same boat as I was. So, today I am writing about the basics of education loans in India and what you need to know about them. First, let’s talk about getting a loan from a bank. Then I will move on to why StuCred is the easiest and quickest way to get a real-time student loan.
What is an Education Loan?
For the sake of clarity, and education loan is a sum of money borrowed from a bank to fund college or educational costs. This loan covers all necessary student expenses, including accommodation, books, all fees, and other miscellaneous costs. You can take an education loan for full-time, part-time or vocational courses, and graduation or post-graduation degrees in any field. Some banks do give preference to students admitted to certain colleges, seeking specific degrees. Make sure you do your research on this. HDFC is one example.
Whilst in college, the loan is deferred and students are given between a six to twelve month grace period after graduating to repay the loan. The maximum amount you can borrow varies depending on where you want to study, and the bank that you are taking out the loan from.
Who is Eligible?
As a student, you will be the one officially taking out the loan. You will need a guarantor or co-signer in order to get accepted. This is usually a requirement for loans above 4 lakhs, not an option. A guarantor can be your parent or any other family member. Punjab National Bank and The State Bank of India are actually the only ones that accept any family member as a guarantor. During the deference period mentioned above, your guarantor is responsible for paying the interest on your loans. If the loan is above a certain amount, some form of collateral must be submitted.
Guarantor Eligibility:
This is where education loans get a bit restrictive. Your co-signer must be working or must own a business that is at least three years in the running, and finally, there is an upper age limit. The Reserve Bank of India does not have this limit, but most other banks do.
This is where I ran into a wall. I did not have an eligible guarantor in India. Abroad, banks allow anyone to co-sign a loan with you. Of course, there are different rules and guidelines to these types of loans, but I think it definitely offers some flexibility.
So a guarantor must fit into the age group, and check one of the other requirements. Essentially, if you are unable to pay back the loan after college, the guarantor needs to have a stable income to take over. That definitely adds pressure on the student to get a decent job after graduating.
Documents:
First, you have to be an Indian citizen and must already have gotten admission to a recognized university in India or abroad. There are some banks that do offer loans without having secured admission to a university or college. You are also required to have at least completed your schooling till the 12th standard.
You will also need a bunch of other documents like fee structures, mark sheets, income tax documents, and so forth. For more information on this, follow this link.
Interest Rates and Repayment:
These can be quite high. Usually, interest rates range anywhere between 10% and 13 %. The base interest rate is 9.85%. You want to keep this mind while thinking about what you’re going to do after college. When you start repaying your loan after college, you don’t want the EMI (Equated Monthly Instalment) payment to be more than 30% of your income at the time. The EMI amount depends on the duration of your loan. The longer the duration, the less EMI paid. But, over time, this still means that the total interest payout is much higher.
Tips:
Do thorough research on interest rates. They vary between banks. I used Vidya Laxmi when I was doing research. It gives you all the information you need in one place. You always want to keep in mind your repayment options, processing fees, and so forth.
One major advantage of taking an educational loan is the opportunity to build your credit score, provided you pay your loan back in time. This will help you in the future with any other type of loan you seek.
Check this site out for a step by step guide to taking an education loan.
Advantages:
Interestingly, I found a cool advantage to take an education loan. The person whose name the loan is taken on can claim a full deduction for the interesting part of the loan. This falls under Section 80E of the Income Tax Act of 1961!
In order to do so, you must meet these conditions,
- This deduction is only available for loans on higher education
- Only individuals are eligible for tax deductions, Hindu undivided families (HUF) and companies cannot avail deductions under this section
- Loans taken from friends or relatives are not eligible
- Both parent or child, are eligible to claim this benefit, provided they are the one paying for the education loan
- The deduction can be only be availed for 8 years
- The deduction is applicable only if the loan is taken under the name of a person who is liable to pay taxes
For more information on this deduction, follow this link.
Another benefit of an education loan is the ability to take a moratorium period, which is essentially a break or holiday from repayment. This is the “grace” period I talked about earlier. Finally, as mentioned earlier, full coverage and credit scores are other potential benefits of this type of loan. So definitely keep these in mind.
Disadvantages:
Well, one major disadvantage is the extremely high-interest rates. Another one is the eligibility criteria and repayment pressure. So, I would say that the disadvantages are quite serious and so should be considered thoroughly.
For a quick overview of the advantages and disadvantages, follow this link.
What are the Most Trusted Banks offering Education Loans?
Below I’ve listed two banks and some preliminary information on taking an education loan from them. I would recommend going through their website thoroughly before making a choice.
1. The Housing Development Finance Corporation (HDFC)
HDFC is currently the pioneering bank offering education loans, and perhaps the most trustworthy option. For a degree that requires you to take all full-time courses, you will need a guarantor. The average interest rate is 12%, which is pretty high. But most banks don’t go below 9.5%.
To apply for a loan with HDFC you must fulfil the following criteria,
- Be a citizen of India
- You must be between the ages of 16 and 35
- For a loan 4lakhs <=7.5 lakhs, you will need a third party guarantor and parents as joint borrowers
- For a loan above 7.5 lakhs, you will need to submit collateral security in addition to your parents as joint borrowers
If you are going to study in India, you can get a loan of up to 10 lakhs. An advantage to HDFC is that loans can be availed with preferential interest rates if you’re accepted to a premier college in India, like IIM or IIT.
2. Punjab National Bank
PNB is another trustworthy bank to take out an educational loan. A definite plus to choosing PNB is that it is more flexible about who can be a guarantor. The maximum amount you can borrow from PNB is Rs. 1.50 lakhs. The following are people who qualify as guarantors,
- parents
- Grandparents
- Spouse
- Parents-in-Law can be Co-Obligate
That’s all for banks. State Bank of India, Axis, ICICI, almost all banks have education loan options. Vidya Laxmi is a good site to do more research.
What is StuCred?
StuCred is a secure digital platform that offers short term student loans to empower and educate college students all over India. It is easy to download the app with clear steps on how to register, currently offering loans ranging from Rs. 500 to Rs. 30,000. So, in essence, StuCred is a type of lender.
Why Choose StuCred?
There are multiple reasons to choose StuCred for a loan,
Interest-Free: Yes, that’s right. StuCred is completely interest-free, no tricks. This means less stress in the long run. As a student, you have enough to worry about anyway.
Real-Time: You get the loan as soon as you apply. All you have to do is download the app and register. StuCred is already associated with a ton of colleges. Follow the step by step guide to link your college and bank details with StuCred, and that’s it. You have your loan.
Flexible: The payback time can be extended without any penalties. Again, this is not a trick. The whole point of StuCred is to empower students through education, and thus to help students get the education that they deserve.
No Guarantor: You don’t need a co-signer to get a loan from StuCred. This is great not only because you automatically get rid of all the eligibility criteria, but also because it teaches you fiscal responsibility and independence. This is a relatively new concept in India, so StuCred is definitely an important stride forward.
Small Loans: You can get a loan for as little as Rs.500 if that’s what you needed.
No Collateral: You don’t need to submit anything as collateral. All you have to do is show that you have a valid bank account to determine you will be able to repay your loan.
Credit Score: The ability to take out smaller loans, repay them independently and quickly, allows you to build a good credit score. No matter how small the loan, defaulting affects your score negatively. StuCred gives you the unique opportunity to build your credit score with ease.
Trust Worthy: You can relax because StuCred is not coming after your house, car, parents or grandparents. StuCred is not coming after anyone or anything. Rather, it is offering a helping hand to ease your mind.
Bear in mind that StuCred is relatively new and plans to increase the maximum loan amount and introduce EMI in the near future. StuCred is a reliable way to get started on building your credit score and taking charge of your own education.
So, can’t afford to take out a loan from a bank? Download StuCred now. We’re here to help you achieve your goals.
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