Sarbajeet K Sen
Are you heading overseas for higher studies in the coming academic year? If you have been granted admission to one of the many foreign institutions, you might also be seeking a loan to finance your studies since foreign education can be quite expensive.
Education loans are not difficult to get as many lenders are vying to offer finance to students. “Any person of Indian origin, between the ages of 16-35 years and pursuing a degree in India or abroad can apply for an education loan,” Adhil Shetty, CEO, Bankbazaar said.
But there are things you should be aware of before heading to the lender with your application. Firstly, education loans can be expensive and hence you should assess your future repayment capacity before signing the deal.
“Education loan interest rates are not low. In addition, it is compound interest, which means that your dues multiply phenomenally,” says Shetty. PSU banks usually charge 0.5-3% over the 1-year MCLR for education loans. This would work out to an interest rate of over 11 per cent at the higher end. The actual rate depends on the type of education institution and the quantum of loan. Thus, loans for students joining premier institutions are much lower than a lesser-ranked universities. Women applicants get a 0.05% rebate on the interest.
You must also assess your repayment capacity. “Defaulting on loans would increase your loan burden substantially. In case you actually end being unable to pay your education loan, you will be starting your career with a poor credit record and would be ineligible for further loans. Not just you but your family, who are your guarantor, could be held responsible and their assets will be used to clear your liabilities. So it is best to begin repaying your loan as soon as possible without utilising the moratorium period to keep the interest rates to the minimum,” says Shetty.
Lenders provide a substantial period as a moratorium before the borrower starts making repayments. You do not need to start your repayments during your entire course span as well as for some more time post that. The Moratorium or waiver period varies from bank to bank and you should check with your bank about the waiver period before planning your education loan repayment. Shetty points out that banks start charging the interest on education loans immediately and not wait until the waiver period ends. So the longer you wait to begin the repayments, the higher interest you would be paying.
However, this should not deter you from approaching a lender if you need a loan. But before you head to lender, you need to be prepared with all the necessary documents to get quick approval of your loan request.
“It is essential to have all required documents ready before applying for the loan. Students will be required to provide identity proof, age proof and address proof and co applicant’s document which includes relationship proof, address proof, income document. They should also submit the admission letter with a fee structure. In case of foreign bound students, they need to submit visa approval papers, Travel papers, GMAT /GRE Score etc,” says Amit Gainda, CEO, Avanse Financial Services Limited
Gainda says lenders follow certain general criteria to determine loan eligibility for international students. These are as follows:
–The academic background and qualifications of the student. The track record of marks, credits and achievements will be considered. A good score in the standardised Test like GRE/GMAT/SAT/IELTS & TOEFL.
–The course for which the loan is being sought. They should have a good chance of placement and job prospects so that the applicant can repay the loan.
–The institution at which the course will be studied also plays a role. The university, school or college should be accredited and of good repute.
–Whether the applicant can offer collateral on the loan
–Whether parents, guardians or an acceptable third party are co-borrowers or guarantors of the loan.