Their Story. How will you finance your higher education?

When it comes to building a bright future, the quality of education matters. But with the rising cost of education, it becomes difficult to self-finance higher studies. The education loans offered by banks and non-banking finance companies (NBFCs) come to the rescue at these times, at least to cover the tuition fees. BusinessLine reached out to students to find out how they went about financing their education. This is what they shared.

Eligibility

For some like Sohil Singh Tushiar and Shiva Ganesh, getting an education loan was a cake walk. “My father was a bank employee and it was easy for me to get a ₹15-lakh loan from the same bank and I did not look for other options,” says Sohil, pursuing his post-graduation in France. Shiva Ganesh, studying in the US, says “SBI offered a ₹20-lakh loan at an interest rate of 13 per cent without any hassle since we already had a home loan running with them.”

But in other cases, understanding the different eligibility requirements and finding the right financial institution among the many is more important before beginning the process of getting a loan.

Being an Indian citizen, having a confirmed admission letter from the college or university and meeting the prescribed age limit are some of the common eligibility requirements.

There could be instances when institutions might reject offering you an education loan if you fail to meet the eligibility criteria. One among them is the repayment capacity based on your parents’ financial strength. Take, for instance, the case of Deepa R (name changed on request) who had taken an education loan from Indian Bank for ₹1.8 lakh in 2011 to pursue her bachelor degree in engineering. She says, “I was not given an education loan despite having good grades because my father did not have a regular source of income. So, my uncle had to give surety for my loan”.

For Chandrashekar G, who is currently pursuing his masters in the Netherlands, “Banks that I approached were not comfortable financing my education loan as my father had retired and did not have a regular source of income. So, I had to pledge my property with Andhra Bank to avail education loan.”

Loan amount

While rejection of loan is one risk, not being able to get the desired amount as loan is another risk. The loan amount offered varies based on the courses opted for. The place of study(India or abroad), also plays a major role in determining your loan amount. For instance, State Bank of India offers loan in the range of ₹20 lakh to ₹1.5 crore for studies abroad whereas ₹35 lakh is the cap for studies in India.

Sometimes it becomes difficult to get a loan from banks if the course opted is off the beaten track. NBFCs come to the rescue at these instances if banks rejects the loan application.

Avinash, a Chennai-based cinematographer, had a difficult time getting a ₹16-lakh loan to do his Masters in Film Making in the UK. “I had approached 2-3 banks, they were not ready to lend. But Avanse, an NBFC, offered me an education loan upon my pledging my property,” says Avinash. However, Avinash had to bear a higher interest rate.

Choice of lender

Students have to do immense ground work to get the best possible deal from the numerous lenders. Interest rate should not be the sole deciding factor. Margin requirement, processing fee (usually 1-2 per cent), moratorium period and collateral requirement should be taken into consideration. It is also important to check the coverage of loan before you take one — that is, whether the loan amount would cover accommodation and other costs, along with your tuition fees. Else, you might end up shelling out money from your pockets as in the case of Suraj KU from Chennai. “The ₹4.5-lakh loan offered by Malabar Gramin Bank could cover only my tuition fee but not the exam fee, hostel fee, etc, which I had to bear on my own,” says Suraj.

Chandrashekar had to pay some fee on his own in the first year of his course. “The bank offered only 80 per cent of my tuition fee in the first year. But in the second year, the bank took care of the entire tuition fee.”

Benefits of education loan

There are a few benefits attached with your education loan and it is necessary to know them. Shiva Ganesh is not aware that interest paid against the loan is eligible for tax deduction under Section 80E. “The bank did not mention this tax benefit when I took the loan and I have not been claiming this deduction yet,” says Shiva Ganesh.

Admission to premier institutes like the IITs and IIMs can fetch you a higher loan amount, even without collateral at lower interest rates, with charges like the processing fee being waived off. Some banks even offer a 0.5 to 1 percentage point discount in interest rates for girl students.

Students from families whose income does not exceed ₹4.5 lakh can avail full interest subsidy during the moratorium period. Moratorium is the period during the loan term when the borrower is not required to make any repayment. Once this period is over, the loan repayment begins.

“I started repaying only one year after completing my course. The bank deducted the subsidy amount of around ₹30,000 when I pre-closed my loan,” says Latha, who had taken a ₹1.7-lakh loan from SBI for her bachelor’s degree.

Chandrashekar, though not eligible for any subsidies or tax benefits, enjoys the moratorium period.

He says, “For two years I did not pay any interest and my bank has given me one year as moratorium. I need to find a job and start repaying the loan.”

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