21 Feb 2019 | 4 min min read
Studying abroad can be a great opportunity and if pursued from an Ivy League institute, it can act as a huge stepping stone professionally. A whopping number of Indian students are choosing to pursue higher education abroad. But the cost of education and living expenses in foreign countries can be prohibitively high. Due to this, many students shy away from even considering this opportunity.
In such a situation, an education loan plays an important role to bridge the shortfall. Almost all banks and Non-Banking Financial Companies (NBFCs) are offering Student Loans for pursuing a various degree and diploma courses in foreign countries. Therefore, it has become very easy to get an education loan. You only need to know the process of applying for such a loan.
It is given for the purpose of pursuing an academic degree abroad and is provided by almost all banks and NBFCs (Non-Banking Financial Companies). An education loan covers all expenses including course fees and other associated expenses like living (hostel and mess) charges, books and supplies, exam and other miscellaneous charges.
Any Indian student, who has got an admission into a university/college approved by any competent authority in India or abroad, is eligible for an education loan. The general eligibility criteria are as follows:
Generally, banks offer a maximum of Rs. 20 lacs education loan for studying abroad. Usually, no collateral is required for education loan taken up to Rs.4 lacs, but when the loan amount exceeds Rs. 4 lacs, borrowers are required to pledge collateral and a third party guarantee to secure the loan.
However, there are some NBFCs (Non-Banking Financial Companies), like Incred, Avanse (a subsidiary of DHFL), Auxilo and Credila (a part of HDFC Ltd), etc. which provide collateral-free education loans up to 40 Lacs. Normally such loans are sanctioned for meritorious students getting admitted to Ivy League colleges.
Different banks charge different interest rates on education loan for studying abroad. Generally, it ranges from 9% to 13.5%, depending on the bank, the loan amount and the college/university which the student has been admitted to. Almost all banks offer floating interest rates. Students can claim tax benefits provided by the government of India on the interest paid. Please check with your bank for the latest interest rates.
The processing fee varies from bank to bank and NBFC to NBFC. Some banks charge a processing fee while others don’t. Generally, private banks charge a fixed amount but NBFCs charge a percentage of the total loan amount. The processing fee will be an additional cost.
You are entitled to claim a tax deduction on the interest paid on education loan, in compliance with Section 80E of the Income Tax Act. You can avail tax benefits once you start making repayment of your education loan. Once you start earning, you are supposed to submit interest certificate (certificate from bank / NBFC which shows the interest paid on the education loan during the financial year) as proof to claim tax benefits. Remember the tax benefits can be availed for a period of 8 years, thus if your loan continues after this period, no further tax benefits will be granted.
Students will be required to show some of the below-listed documents.
Additional documents like scorecard of GRE / GMAT / TOEFL, letter of admission from an institution, class X, XII and graduation (if any) marksheets and passing certificates, visa documents, etc.
As the students don’t have any credit history, income and asset details of the co-applicant, in most cases of parents, are also required. If the primary borrower is unable to repay the loan, the co-applicant will be obliged to repay the loan. Parents, sibling, spouse, parent-in-law qualify to be co-applicants. Many banks, like SBI, accept third-party guarantors (friends, relatives, etc.) if required.
The tenure of education loan usually ranges from 5 to 7 years after the commencement of repayment and can be extended beyond that, depending on the bank’s guidelines. Punjab National Bank, for instance, issues education loan that can be repaid within 10 years. If the loan amount exceeds Rs.7.5 lacs, the repayment period may be extended up to 15 years too.
Additionally, some banks provide an additional moratorium period of 6 months to 1 year after the completion of the course. This helps the student in getting time to hunt for a job post course completion.