As a parent, you know that providing your child with the best education possible is a priority. However, with education costs rising faster than overall inflation (around 11-12% compared to 5-5.5% for other goods, according to Bank Bazaar), funding your child’s academic journey can be a challenge.
Education loans have emerged as a useful option for students from all backgrounds, making it easier to finance studies in India and abroad. Be it tuition fees, books, or even a laptop, these loans help cover costs and make education more affordable.
How do student loans help Indian students?
Student loans are a lifeline for many students, providing financial assistance to cover tuition, housing fees, books, and other study materials. Banks and government institutions offer these loans to help students achieve their academic goals.
“A student loan covers not only tuition fees but also costs such as accommodation, exam fees and even laptops,” explains Yashoraj Tyagi, CEO of CASHe.
For which courses do Indian students get loans?
Loans are a common option for students pursuing higher education at top institutions in India and abroad. The most popular specialisations are engineering, management (MBA) and medicine. “Institutions like the IITs, IIMs and AIIMS in India are often targeted by students seeking loans. Design, law and social sciences are also increasingly popular choices for loan seekers,” adds Tyagi.
Private medical colleges charge fees of up to Rs 100,000 for the full course, so families often have no choice but to seek financial support. Engineering fees can range from Rs 300,000 to Rs 400,000 at top private institutions, covering tuition, accommodation and other necessary expenses.
How do education loans work in India?
“In India, education loans help students finance their higher education both at home and abroad. The loans cover tuition, accommodation, books, travel and equipment such as laptops. Students typically apply for loans based on their academic performance, course and institution,” said Vivek Chopra, Chief Operating Officer, Tata Capital.
Chopra goes on to explain that loans are approved based on eligibility, and a co-applicant is typically required, often a parent. High-value loans may also require collateral, with the loan amount being disbursed as needed. Repayments typically begin 24 to 36 months after graduation.
What are the different types of educational loans?
Students can choose from a variety of loan types, depending on their needs:
Secured and unsecured loansSecured loans require collateral, such as property or a fixed deposit, and generally have lower interest rates. Unsecured loans, which do not require collateral, tend to have higher rates.
Course-specific loansBanks and government programs offer loans tailored to specific courses, such as medicine, engineering or management, with special benefits for those courses.
Loan amounts: Loan amounts vary by lender, program type, and institution, with higher loan limits for study abroad.
“Government schemes like Vidya Lakshmi Portal also offer loan options with different eligibility criteria and rates,” says Adhil Shetty, CEO, Bankbazaar.com.
How are student loan interest rates determined?
Student loan interest rates in India can range from 8.5% to 16% or more, depending on the lender. Public sector banks typically offer lower rates, while private banks may charge higher rates. “Public sector banks’ rates range from 8.5% to 10%, while private lenders can go as high as 13% or more,” explains Tyagi.
Credit history, the reputation of the institution, and whether or not the loan is secured are factors that can affect the rate offered.
“Rankings of institutions also play a role in determining fees. Students at IITs or IIMs may be offered lower fees because these schools are rated as AA institutions. Some banks even offer fee concessions for female students and economically weaker sections (EWS),” says Shetty.
Non-banking financial companies (NBFCs) can have even wider rate ranges, from around 11% to as high as 35%.
What factors affect loan eligibility?
Several factors determine whether a student is eligible for an educational loan.
*The student must be an Indian citizen.
*Admission to a recognized institution in India or abroad is essential.
* Both the student’s academic record and the co-applicant’s income are important.
*The type of course and the reputation of the institution also play a role.
*Some banks may require collateral for larger loans.
*Banks may set age limits for applicants.
“Most banks also take into account the creditworthiness of the co-applicant while assessing eligibility,” Shetty explains.
What is the moratorium period for student loans?
A moratorium period allows students to focus on their studies without worrying about immediate payments. It typically includes the duration of the course plus an additional period of between six months and a year after graduation. “Repayments typically begin after the moratorium, but interest accrues during this time,” says Shetty.
Some banks may require students to pay simple interest during the moratorium, offering some flexibility before full EMI repayments begin.
What hidden costs should you pay attention to?
When applying for a student loan, it’s essential to consider hidden costs such as processing fees, administrative charges, and late payment penalties.
“Some banks may also require loan protection insurance, and students should inquire about penalties for loan restructuring or early repayment,” Shetty warns.
It is essential to read the fine print before signing a loan contract to understand all the costs involved.
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