Education loans would perhaps be the first loan most of us take. That explains the large amount of doubts about those loans in our minds. Here are some basic questions answered about education loans.
What is an education loan?
You can expect to get a loan to cover the costs of pursuing courses offered by recognised universities, colleges and other educational institutions. These loans are limited to courses recognised by central and state governments, the University Grants Commission (UGC) and the AICTE, including degrees, post-graduation courses and technical degrees.
A loan of up to Rs 75 lakh may be granted to those who want to pursue a course in India and a loan of up to Rs 1.5 crore for those who want to study abroad. The loans cover fees, hostel expenses, study materials, books and anything that is needed in the course of study. All of these factors are considered while deciding on the amount of loan.
Can I expect a government guarantee for education loans?
The central government has put in place a loan guarantee scheme to ease the burden on students and parents who find it difficult to offer collateral such as properties to secure loans. Loans of up to Rs 7.5 lakh offered by cooperative banks do not require collateral or personal guarantee.
Is the moratorium on education loans helpful?
The repayment of the education loan does not start until you complete the course. The repayment starts 12 months after you have completed the course or six months after you have landed a job, whichever is earlier. This relaxation is the moratorium in the case of education loans. Though the loan will incur interest even during the time of the moratorium, there will be no compound interest during that time. If you are able to start repaying the loan during the moratorium, you can expect 1 per cent discount on the interest rate.
Do I give preference to the course or the loan?
It is not a wise thing to join a course just because you are assured of a loan. You have to make sure that you are choosing the course that suits your aptitude. You have to choose a course that will help you find a job or find your own path as a self-employed person.
Is it good to borrow as much as I get just because there’s no collateral required?
Taking as big as a loan as possible is akin to loading yourself with debt for the rest of your youth life. An ideal loan should be one that requires you to repay 30 per cent of the monthly revenue you can expect after you have completed the studies. You may get 5 to 15 years to repay the loan in the normal course. You have to bear in mind that you might have to take another loan to pursue higher education. That will increase your debt load. The job markets might have changed since you got admission to a prized course.
What is Vidya Lakshmi portal?
The Vidya Lakshmi portal is a facility offered under the aegis of the Union Human Resources Department for students to apply online for education loans. The portal is powered by the National Security Depository Limited.
Can I borrow from non-banking financial institutions?
Taking a loan from a bank may take a long time because of the lengthy processes involved and that may be inconvenient for students looking to join the course of their preference. The non-banking finance companies have less paperwork and the loan approval may be faster compared to banks. The catch is, the loans granted by non-banking finance companies that specialise in the education sector tend to be costlier. Moreover, the loan subsidies and loan guarantees are limited to loans offered by commercial banks.