The road to education has various hurdles. As the world has developed, so has the education needed to keep it moving in the right direction. Owing to these developments, the cost incurred to accomplish this education has gone up. The generation currently seeking this education is quite driven to be self-reliant. Thus, they want to fund their education themselves. And to achieve this self-reliance, these pursuers of knowledge turn to loans, education loans to be precise.
So far, we’ve discussed the factors to consider while getting an education loan, various education loan schemes and what to avoid when taking education loans.
Our parents would often tell us tales where they also faced their fair share of struggles in the form of long, weary travels to having to study in unsuitable conditions. While some of the “cycling 10 km to get to school” or “studying under a streetlight” stories might be a bit of a stretch, one message that they convey is…
“The quest for education might be filled with difficulties, but any labour for knowledge is always worthwhile.” This is why a lack of funds should never hinder such an endeavour and why today, we discuss the process of getting an education loan.
Documents Required for Education Loan
An education loan, like any other, requires the borrower (you) to furnish certain information about yourself to the lender (bank of your choice). This information is submitted through documents, either offline or online.
While the documents required vary from bank to bank, these differences are minute, and certain documents are common.
These common documents are:
KYC Document: The applicant’s Aadhar card, PAN card or driving licence can be submitted.
Address Proof: Applicants can submit their Aadhar card, valid water/electricity/ LPG bill, voter’s ID card, current house lease agreement, or valid passport.
Documents Related to Applicant’s Academic Performance:
- The applicant may need to furnish the result from their last educational institution or competitive examination along with these results.
- The applicant may also need to submit proof of their admission to the institution for taking the loan.
- These include the applicant’s results from the 10th and 12th standards.
When it comes to education loans, the applicant usually does not have a job or source of income. Thus, education loans also need a co-applicant to ensure the loan repayment. The co-applicant is typically the parent/guardian of the applicant or another person related to the applicant that has a source of income.
Banks require that certain documents about the co-applicant also be submitted to sanction the education loan.
These are the co-applicant documents necessary for acquiring an education loan:
- In case the co-applicant is salaried:
- Proof of income for the last 3 months.
- Copy of Form 16 or IT returns for the last 2-3 years. The Income Tax Department must acknowledge these documents.
- Bank account statement of the co-applicants salary account for the last 6 months.
- A brief statement of the co-borrowers assets and liabilities.
- In case the co-applicant is self-employed: Address proof of the co-applicants business.
- Form 16A (TDS Certificate).
- IT returns for the last 2 years (If the co-applicant is an IT Payee).
- If the co-applicant is a professional (doctor, CA, etc.), relevant qualification certificate.
- Co-applicant’s bank account statement for the last 6 months.
- A brief statement of the co-borrowers assets and liabilities.
Education loans are mostly unsecured. This means that the borrower doesn’t need to out an asset that they own with the borrower as collateral. A collateral is a failsafe that protects the lender’s interest by allowing them to liquidate the asset kept with them if the borrower fails to repay their loan. When the loan is repaid, the collateral is returned to the borrower.
However, when the borrowed amount exceeds a specific threshold (threshold amount decided by the bank), the banks need education loans secured by collateral.
In cases where the education loan needs to be secured, certain documents about the collateral need to be presented to the bank.
These documents are:
- Proof of ownership of property like sale deed or title deed (for the first holder of property)
- Registration receipt
- Allotment letter
- Chain deed of 30 years
- Tax copy or electricity bill addresses proof of certain assets like land, buildings, etc.
- Government-approved building plan
- OC and Completion Certificate (if the property is constructed)
Features of Education Loan
The loan amount will differ from bank to bank. The applicant’s financial position, academic performance, the institution of choice, and other factors. The threshold amount beyond which collateral might be necessary also varies. Some other factors to know about an education loan are as follows:
Moratorium: It is when the applicant is not required to begin the loan repayment. Usually, the repayment period starts right after the applicant’s education is completed. However, most banks provide a varied period of relaxation to allow the applicant to get a job or start their career to ease the repayment process.
Margin Percentage of Loan: Margin is the part of the total expense that the applicant will have to pay out of their pocket. Usually, banks cover the applicant’s total cost, including the tuition fees and the books and other study aids, accommodation and travel, and expenses like insurance are covered in some cases.
The loan amount is usually a total of these expenses. However, banks often charge a margin after a certain amount is crossed. This margin is the percentage of the total costs mentioned before, and the applicant has to incur this margin. For example, suppose person A calculates expenses worth ₹50 lakh for their education and applies for an education loan, and the bank imposes a margin of 10%. The bank shall provide a loan covering 90% of these expenses, amounting to ₹45 lakh. The applicant shall bear the 10% margin worth ₹5 lakh. Usually, banks charge a margin of at least 10% but may change it in cases that they see fit to do so.
Benefits of Education Loan
Borrowers should practise discretion while taking any loans. Loans come in all shapes and sizes, and we do not discriminate, but different loans will have varied impacts on your income and lifestyle.
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With a word of warning for loans out of the way, let’s see the benefits one can get with an education loan.
Tax Benefits: The amount of interest paid for the education loan availed by the applicant can be claimed as a deduction under section 80E of the income tax act. There is no limit on the amount of deduction that can be claimed in a financial year under this section.
Concessional Rate of interest for female applicants: While the interest rate varies depending on the loan provider, female applicants can avail of the same loan at lower interest rates. The rate of concession for female applicants is usually around 0.50%.
For example, the interest rate of SBI’s Student Loan Scheme is 8.65% for male applicants, while the interest for the same loan is 8.15% for female applicants.
Readily Available: Education loans are available with almost all banks and financial institutes. Since education is an essential aspect of a person’s life, RBI has mandated education loans as a priority product for all banks.
Leniency in repayment: Since most applicants who apply for an education loan do not have established careers, the repayment period does not begin immediately after completing the applicant’s course. The repayment tenure can start as far as 5-7 years after completing the applicant’s education.
Hassle-free: Most applicants for educational loans are usually new to banking and borrowing and likely do not understand the intricate details of acquiring a loan. To make the process of borrowing non-intimidating, education loans are some of the most hassle-free loans in terms of paperwork necessary and the loan processing period is also usually short.
As repeated multiple times in this blog, the intricacies of the loans can and will differentiate based on their providers. However, these are the available documents that you should be minimally prepared with and features that you may expect from these loans at a fundamental level.