Fulfilling dreams of a higher education is probably one of the biggest achievements for any aspiring student. With the escalating cost of education both in India and overseas, most students have no choice but to avail of a loan if they are to pursue the programme of their choice at the university or college they prefer. Even while a rising number of students are now availing of finance to comfortably fund their education, doubts and ambiguities still run rife with regards to the education loan procedure, the products available, repayment and even to understand what aspect gets funded under an education loan – whether just the tuition or also living expenses and any other related costs.
Let’s take a look at the hurdles that students still continue to face when applying for an education loan with some lenders. One of the first things that are of concern is the limitation on loan amounts with public sector undertaking (PSU) banks. For instance, a master’s degree from reputed university abroad costs upwards of Rs. 50.0 lakhs, and funding it can be a concern when the maximum cap on the loan amount is Rs. 20.0 lakhs.
Another parameter that students need to factor in is the margin money, which is essentially the difference between the required amount and what the bank agrees to sanction. Typically, most banks ask for margin money amounting to 15 percent of the total cost.
Documentation woes also plague students, as the process calls for a laundry list of documents to be submitted. Not only is this tedious but in some cases, it involves running from pillar to post to obtain the required documents. It can also necessitate into multiple visits to the concerned bank in order to submit these documents (often piecemeal) and have the loan application processed only subsequently.
Further, while banks may have an extensive network, not all branches may sell education loans. Hence, it proves to be difficult to avail of a loan if a student is located in a city wherein a branch that processes education loans is not available. On a related note, it is likely that a student is originally from City A, but has relocated to City B to pursue higher studies. If the loan requires collateral which is located in City C, chances are that a PSU bank is likely to decline the loan application, as they require the student as well as the collateral to be in the same city.
How do you overcome these hurdles?
With the advent of non-banking finance companies (NBFCs) in the education loan sector since the past few years, the playing field has opened up and students have a lot more options than they did even a decade ago, when it was primarily PSUs that disbursed education loans. Consequently, the process has become simpler and more streamlined. Not only do students have more options by which they can compare education loans but the competition has meant ramped up customer service levels as well as innovative products. Before you narrow down on a lender to finance your dreams of a higher education, shop around. Evaluate the various lenders in the market and see what it is that they each have to offer by way of products and services. For instance, in addition to the loan, some lenders offer a bundle of value-added services that include calling cards for overseas students, insurance and deals on foreign exchange services.
Check whether the cost of education includes even your travel expenses and accommodation. These days, lenders structure a loan such that these aspects are covered and even expenses such as having to purchase a laptop to use for studies, for example. These are some of the value added services that make availing of an education loan attractive.
When it comes to documentation, the requirements are simplified by some lenders and a one-time exercise is all that it takes in order to submit a loan application. This sometimes gets further simplified if the education institution that you are planning to enrol at has a tie-up with a financer.
When you compare education loans, do keep in mind that the interest rate is one of the factors that you need to evaluate. In addition, facets of the loan such as repayment options, ease of transaction processing and flexibility in terms of online access and repayment of the loan directly from overseas also make a vast difference. Hence even if the rate of interest is marginally higher, you may consider availing of a loan from an NBFC just for the sheer convenience and flexibility they offer.
Education loan and CIBIL rating
As with other loan products, your credit score counts even when applying for an education loan. For a student with no credit against their name, the credit score of the co-borrower is what is taken into account. Hence, to ensure a lender is aware of your creditworthiness you need to maintain a healthy credit score. An education loan is a product that no parent would want to compromise on, given that it is directly related to their child’s future. Hence to be able to get the loan when you really do require one, ensure that your credit score is treated on par with your physical fitness.