Education, Careers & Professional News
Banking on education loans
Source
dh
Date
2005-06-15
Information
Higher education is becoming extremely expensive. Despite that, more and more youngsters are either going abroad to complete their studies or are taking up professional courses in the country itself. Many times their dreams and aspirations are pursued with the help of generous bank loans.
Days were when students would stop studying and take up a job because of dearth of funding. These days, one need not stop ones education for this reason as there are umpteen number of banks ready to finance ones education: with an Education Loan. This article explores the various possibilities of funding as well as the modes of repayment etc…the changing scenario is pushing students to invest heavily in education, which is getting expensive by the day and the ideal of managing rising expenses is taking up an educational loan. Today banks have different schemes in which a customer can not only pay his fees but avail other benefits from the loan as well.
Cake walk
Today, taking educational loans is much easier as the formalities involved have reduced and it is a lot easier. And the southward movement of interest rates will only be the icing on the cake.
Also with the growth of the number of institutions for higher education and the gradual reduction in the government subsidies people are emerging out of the fetters of old ideas and approaching banks to guide them. Customers can even apply online. Another advantage to a customer taking loans is seen in his income tax deduction.
One can claim deduction under section 80E of the income tax act on the interest amount of the loan but not the principal amount.
This is available once you start repaying the loan. One more condition has to be followed that being, the repayment has to be made out of the earned taxable income.
Some banks consider loans for other expenses related to education such as:
1. Fees payable to college/ school/hostel.
2. Examination, library and laboratory fees.
3. Purchase of books, equipment, instruments, uniforms.
4. Caution deposit/ building fund/ refundable deposit.
5. Travel expenses/ passage money for students abroad.
6. Purchase of computers considered necessary for completion of course.
7. Cost of two-wheeler up to Rs. 50,000/-
Amount of loan
Based on the terms and conditions of the bank the amount of loan provided varies from bank to bank. The Hong Kong and Shanghai Bank Co-operation (HSBC) provides a loan from a minimum of Rs. 50,000 to Rs. 25,00,000.
One can opt for an unsecured loan if his or her minimum net yearly income is Rs. 75,000 or opt for a secured loan if his or her minimum net yearly income is Rs. 1,50,000.
SBI provides a maximum loan of Rs. 10 lakh for inland studies and a maximum of Rs. 20 lakh for studies abroad.
On the other hand private banks like HDFC provide personal loans for education purposes.
This personal loan features speedy approval and flexibility to borrow from Rs. 25,000 to Rs. 10 lakh depending on the customers requirement.
Rates of interest
The interest rate is usually tied to the prime-lending rate (PLR). Again this rate is applicable for certain amounts of loans only.
For eg. HSBC: 2.25 % for seven years.
SBI: For loans up to 4 lakh the rate of interest is 10.50 % p.a and for loans above 4 lakh it is 11.50 % p.a.
Repayment Tenure
All loan repayment is done via Equated Monthly Installments (EMI). Depending on the cumulative amount borrowed the repayment starts one year after completion of the course or six months after getting employment which ever is earlier. At the commencement of repayment, the accrued interest is added to the principal amount and EMI will be fixed on total outstanding amount.
Security
One can provide security against the loan in the form of land, building, Government securities, public sector bonds, LIC policy, gold, shares, bank deposit in the name of the student, parent/guardian or any other third party with suitable margin. Banks usually demand a third party security with tangible collateral.
HSBC on the other hand provides loans against security of a residential property and shares.
Documentation required
Copies of passport size photograph
Address proof, age proof, proof of having secured pass marks in the last qualifying examination.
Letter of admission in the selected course.
Schedule of expenses for specified courses.
Completed Education Loan Application form.
Borrowers Bank account statement for the last six months
Income tax assessment order, of last two years
Brief statement of assets and liabilities, of the co-borrower.
Proof of Income
Eligible courses
An education loan is available for higher education in technology, engineering, architecture, medicine, management, applied or pure science, including mathematics and statistics. Higher education refers to both full time graduation or post graduation courses.
Go ahead and grab the opportunity of studying in your dream university with out worrying about the financial implications, because you know: theres always a bank willing to back you up !
LOANS
Name of the Bank Loan Amount Repayment Tenure
SBI Inland: Up to Rs 7.5 lakh 5 to 7 years
Above Rs 7.5 lakh 5 to 10 years
Abroad: Up to Rs 15 lakh 5 to 7 years
Above Rs 15 lakh 5 to 10 years
HSBC Rs 50,000 to Rs 25,00, 000 7 years maximum
HDFC Rs 25,000 to Rs 10 lakh 1 year to 3 years