Arundhati Singh, Dalal Street Investment Journal
John Lubbock, explaining the importance of education, had once said, “The important thing is not so much that every child should be taught, as that every child should be given the wish to learn.” The masses today appear to have realized the importance of education which has led to a significant change in the attitude and willingness to pursue education.
But education today costs money, and higher education costs lot of money. The masses have overcome the mental barrier, but the financial barrier is the most formidable challenge which need to be overcome. There was a time when many people had to drop out of college because of challenges they had to face in order to pay the fees for the course of their choice. But times have changed and with the times, different education loan schemes have been made available to enable deserving students to go for higher studies, thereby opening up myriad opportunities for the ambitious lot.
In fact, banks and financial institutions today lure students with many a lucrative schemes offering loans. But which one will suit you the best and which one you should avail needs to be looked at. So let’s see what do the banks and financial institutions have in store for the students
Loans for studying in India and abroad
For studying in India, most of the Indian banks provide a maximum loan of Rs 7 lakh, but some banks also offer loan upto Rs 10 lakh. However, the cost of education varies from institute to the other and also from one nation to another. The courses which might cost you Rs 4 lakh in India may cost Rs 10 lakh or more in USA or UK. Therefore, banks also offer higher loan amount for studying abroad. While some banks maintain a slab of Rs 15 lakh as the upper limit for the loan, some banks also offer loan upto Rs 20 lakh for studying outside India.
Loan Repayment terms
When it comes to repaying loans, banks make it very easy for the borrower by providing comfortable rate of interests. Some banks provide fixed rate of interest, others provide
floating rate of interest, with the latter changing from time to time. Mostly banks allow repaying the loan after completion of courses, as it will be easier to make the payment once you get into a job. Malay Milind, who took a loan of Rs 4 lakh from Allahabad Bank in May 2009, was charged a fixed annual interest of 13 per cent. “I am supposed to repay my loan over a period of 5 to 7 years with provision of grace period of one year after completion of my studies,” says Malay.
Banks often give an option to repay the interest amount on the loan and deferring the payment of the actual loan amount at a reduced interest rate, as in the case of Komal Mehta who took a loan of Rs 3.5 lakh from State Bank of Saurashtra to pursue her MBA in 2005. “I was paying interest on loan during my course at a rate of 10 per cent. When I started paying off my loan, the interest rate was 9 per cent” says Mehta.
Loan eligibility criteria
Each bank may have its own set of eligibility criteria for education loans. Some of the banks may also have bias towards reputed institutes for granting of education loans to students. Hence, the bigger the reputation of the college or educational institution, the higher the possibility of getting a loan and higher the eligibility in terms of loan amount, and vice versa. Shweta Gandhi (name changed on request) says, “I did not have to scout for an education loan for pursuing my MBA in XLRI as SBI had a tie-up with the institute offering easy education loan without any guarantor, just a proof of admission to the college sufficed for my eligibility to the loan.” Gandhi got the loan at a floating rate of interest and the initial interest rate was just 7.5 per cent.
Students from other premier educational institutions such as the IIMs, IITs and some of the prestigious B-schools in India and abroad stand a better chance to get a good deal from banks and financial institutions. Hence, it is important to look at the reputation and credentials of the educational institutions before applying for a loan
Things to remember
Take a loan from a bank located at your place of study than one located where you reside, unless it concerns overseas studies. This is because you will have better access to funds if you take a loan from the place of your study.
Make sure the repayment period starts only after six to twelve months after you begin your working life.
Banks are more likely to give loans for courses where employment prospects are more (as per bank’s own evaluation). Management students are among the top choices for most of the banks. Technology students from the country’s premier institutions can also get student loans from banks and medical and engineering college students.
Choose the best option
With competition brewing up among the banks to rake in more business, there is no dearth of options to finance your studies. But your job is only half done until you have also charted out a robust plan to repay your debts arising out of your education loan.
Source: Dalal Street Investment Journal, Dated May 10-23, 2010
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