Two years back the dream of getting a management degree from one of the worlds most renowned colleges appeared unrealistic to Aditya Kumar. Kumar,28,was working in Delhi and wanted to pursue a masters degree in sports administration from Switzerland. With the admission letter already in his hands,Adityas only concern was funding. The course was for one year and required Rs 11 lakh. I did not have that much savings,so I approached various banks for loans. The private banks did not entertain me and said they were not in this area anymore. Nationalised banks,on the other hand,were taking a lot of time, says Aditya. They kept asking if the course or the institute is recognised by AICTE (All India Council for Technical Education), he adds.
With the first deadline approaching,Aditya had to turn to friends and family to furnish the initial amount of Rs 2.5 lakh. His inability to furnish a third-party loan guarantor was causing the delay. Eventually,after a lot of hassle,things were taken care of and today,having completed his course,Aditya is in a well paid job in Switzerland. It was quite difficult to secure the loan,but eventually I got it from SBI, says Aditya.
There are cases galore of students who want to pursue higher education but are hamstrung by lack of funds. While nationalised banks come to students rescue often,they take a lot of time. Private banks do not show much interest. Availability of education loans is a big issue. While the social framework loosening,an institutional framework for providing loans is still not in place, says Harsh Roongta,chief executive officer,Apnaloan.com.
Two types of education loans are available: for studies in India and for studies overseas. Loans are available for all types of education: preliminary schooling,undergraduate programme,post-graduation and above. Although the Reserve Bank has not prescribed any limit,most banks adhere to a ceiling of Rs 10 lakh for studies in India and Rs 20 lakh for studies abroad.
Depending on the amount,these loans fall into three slabs: loans of up to Rs 4 lakh,loans between Rs 4 lakh and Rs 7.5 lakh,and loans above Rs 7.5 lakh. The first is by far the easiest to get compared with the other two. Loans below Rs 4 lakh do not require any collateral. Loans between Rs 4 lakh and Rs 7.5 lakh require collateral security in the form of third-party guarantee. And loans above Rs 7.5 lakh need to be backed by tangible collateral security like government securities,property,gold,shares,or a third-party with assets matching the loan amount.
Interest rates. Banks offer both fixed and floating rate of interest in case of education loans. According to RBI,banks cannot charge a rate that exceeds their prime lending rate by more than 1 per cent. In case of loans below Rs 4 lakh,banks usually offer education loans at their prime lending rates. For loans above Rs 4 lakh,the interest rate is 1 per cent more than the prime lending rate. A lot of banks offer discount of up to 50 basis points to female students. As on March 12,education loans are offered in the range of 10 to 15.25 per cent.
Charges and margin. Banks usually do not charge any processing fee for such loans. As for margins,for loans up to Rs 4 lakh no margin money is demanded. For loans above that amount,students have to shell out 5 to 15 per cent. However,scholarships and grants can be adjusted in the margin money.
Expenses covered by the loan. These loans usually pay for the fees payable to the college/school/hostel (this includes examination,library and laboratory fees),purchase of books,equipment,instruments,uniforms,travel expenses,passage money for studies abroad,purchase of computer/laptop if the course demands,and even the cost of a two-wheeler (up to Rs 50,000).
Documents required. While the list may vary from bank to bank,usually it consist of: completed application form,mark sheet of last qualifying exam,proof of admission and scholarship,studentship,schedule of expenses, photographs,borrowers bank account statement for the last six months,brief statement of the co-borrowers assets and liabilities,and lastly,his proof of income.
Repayment. Most banks allow a breather of six months to one year after the completion of the course or till you get a job,whichever is earlier,before repayments begin. If you pay the interest amount during the moratorium period,then you are likely to get a discount of 100 basis points on interest rate. If you are unable to,then the interest is added to the principal amount and is paid later. If students get internships that pay or freelance assignments during the course,then he should begin paying the interest, says Pervin Malhotra,director,Career Guidance India.
While banks might advertise their willingness to offer education loans,unless you or your family members have a hefty bank balance or good relations with the bank,there is no certainty that you will get the loan. As on December 31,the Indian banking system had disbursed only Rs 200 crore in 2008 as education loans. Loans for Rs 4 lakh and below are still easy to get. However,banks make you run around in circles in case of loans above Rs 4 lakh. If you do not have good equations with the bank manager,approval becomes tough. Bank managers are known to ask for a lot of paper before they approve your application, says Malhotra.
Quality of institute. If you have got into a reputed institute your loan is likely to be approved easily. However,if you have secured admission in a low-rung institute,then be prepared to do a lot of running around. Banks are wary of providing loans for undergraduate generalist courses because the chances of getting placements are weak. Moreover,there are no loans for distance learning or online education. Courses that are not recognised by the AICTE or UGC (University Grant Commission) often do not get funding from banks.
Lack of availability of guarantors. Loans above Rs 4 lakh require a third-party guarantor and students usually find it hard to get one.
Inadequate funding. In case of foreign education,the course fee is usually high. For a management course,it could go up to Rs 18-20 lakh a year. In such cases,the banks in India are not able to fund the education. In such cases,students can look at foreign banks of that country. Sometimes there are special deals for foreign students. Students should look at a mix of loans,scholarships and funding from various corporates to meet their needs, says Malhotra.
Finally,besides applying for the education loan,hunt for need-based and merit-based scholarships and funding from corporates. If the course is of two years or more,check if the university allows lump sum payment. If your college gives a good discount on lump sum payments,avail of this offer to protect yourself from exchange rate fluctuations, says Veer Sardesai,a Pune-based financial planner.
Above all,do not give up.