Things to know before opting for Education Loan

Good education is expensive. Good professional education even more so. And study abroad is beyond the means of many families. An education loan, however, allows students to pursue their studies in a college of their choice

If you are applying for an education loan, here are a few things you must know.

Choosing an Institutions: If you already have an institution in mind, check if it is on the Indian Banking Association’s list of over 1000 accredited and pre-vetted institutions. Your loan has greater chances of approval and will be cleared faster if you plan to study in any of these colleges. Banks, too, have a list of colleges and courses that are pre-approved for education loan. If your college and course falls in the category, you will get your loan faster, and probably at a cheaper rate. Some institutions have tie-ups with banks. You may get a loan more easily if such an arrangement exists.

Specialized Loan Schemes: Banks have different loan schemes for different purposes, so you can apply for the one that suits your chosen course. You can get special loan offers if you have got admission in a premier institute; if you are an outstanding student; if you are a female student; if you are from a disadvantaged background; if you can provide collateral etc. Banks also provide special loans if you plan to study abroad or

Co-applicant: You will need a co-applicant to get an education loan. The co-applicant can be your parents or guardian or spouse.

Interest Rates: Most education loans have a floating rate, and interest rates range from 11–18%. Your interest rate will depend on your choice of institution, your academic record, your co-applicants credit score, the tenure of your loan, etc.

Moratorium: Education loans come with a repayment holiday. You need to start repaying the loan only one year after you complete your course or six months after you get a job. During the moratorium, the bank will charge you simple interest which will get added to your principal amount when you start repaying. However, if you pay off the interest during the moratorium, you get a 1% discount.

Expenses: The idea of going for a loan is to meet your expenses. However, remember this if your loan amount exceeds Rs. 4.5 lakh, then you have to pay a margin of 5% of your expenses from your pocket (15% if you are studying abroad). Consider these expenses and see whether you are financially capable of covering them.

Collateral: If you are taking a loan of above Rs 7.5 lakhs, you will need to put up collateral such as property or government securities or gold.

Repayment: Like any other loan, you must make sure that you should repay your education loan on time. Late payments will attract charges. And if you default on EMIs, it will affect your credit record and make future loans expensive and hard to get. If you have trouble raising the EMIs, speak to your bank and restructure the loan — for example, increase your tenure to bring down the EMIs. Defaults will also affect the credit standing of your co-applicant — your parents, for example. The bank may even auction the collateral if your loan turns into a bad debt.

Grace Period: Check whether the lender is flexible in granting or extending the moratorium period if you have not been able to get a job after the course or want to study further or haven’t been able to complete it.