All about edu loans

Updated on: Monday, April 05, 2010

Exam season is at a feverish pitch and while students are burning the midnight oil, most parents are struggling to find ways to fund their children’s higher education — nationally or globally. Now help is available in the form of less known education loans offered by many public sector banks.

So how can you avail of this loan?
First you have to be an Indian national in the age group of 16-26, with a good academic record. Your parent/guardian should have a regular source of income so that they are able to repay the loan if the need arises. The institute you have applied to must be a recognised one. Minors are not eligible for educational loans, however you can avail of a loan if your guardians satisfy the eligibility criteria. You need to have a guarantor for an education loan. If you fail or are incapable of repaying the loan, your guarantor will have to clear the debt. Usually, most banks require the guarantor to have a net worth and/ or annual income equivalent or more than the education loan amount. Only education loans above Rs. 4 lakh require tangible collateral for the full value of the loan or third-party guarantee, depending on the amount. However, the co-borrower — the parent or guardian — is required to furnish his/her bank account statement, tax returns for the last two years, statement of assets and liabilities and proof of income. This makes it a slightly risky proposition for banks as this is an unsecured loan and if the borrower defaults on the loan then it will put the lender in a bad position.
For loans above Rs. 4 lakh and up to Rs 7.5 lakh, collateral in the form of a suitable third-party guarantee is required. The bank may, at its discretion, waive the third-party guarantee if it is satisfied with the net worth/means of the parent who is executing the document as a joint borrower. Whereas loans above Rs 7.5 lakh require the collateral security of a suitable value or a suitable third-party guarantee, along with the assignment of the student’s future income for payment of installments.

When the education loan is greater than Rs 1 lakh, banks usually prefer students who have life insurance policies equivalent to, or more than, the education loan amount. If something unfortunate happens to the borrower, the bank does not lose money and can recover the outstanding amount from the insurance policy. Some banks have tied up with specific institutions to provide education loans to students for select courses. In such cases, the banks may be willing to forgo collateral requirements.

What expenses are covered by this loan?
* Fees payable to the college, including tuition fee, exam, library and lab fees.
*Purchase of books, equipment, instruments and uniforms.
*Caution deposit, building fund, refundable deposit supported by the institution’s bills or receipts.
*Travel expenses for studies abroad.
*Any other expenses needed to complete the course, like study tours, project work and instruments etc.
*Interestingly, the State Bank of India loans also cover the cost of two-wheelers up to Rs. 50,000.

An Education Guarantee Fund will be a step in the right direction for the education sector. The Finance Minister prom-ised to set up an Education Refinance Corporation. That promise has been hanging fire for the last 3 years. The promise needs some action now, as education needs to become accessible to many more students in India.

All about edu loans

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