Education these days – particularly higher education – is an expensive prospect with little or no guarantee with respect to ROI.
The high expenses are not merely for academics but include overheads too such as hostel expenses, travel expenses, and out-of-pocket expenses. Students along with their parents struggle to fund higher studies and there are many who give up simply because of lack of resources. One way of funding higher education is to take out a student loan so here’s all you need to know about how to get a student loan.
Try not to borrow
Before we jump into how you can get a student loan, you should remember that you must repay whatever you borrow. So the best course of action is not to borrow at all – neither from friends and relatives nor private or institutional lenders like banks. With that said, it is never a good idea to give up your education simply because you cannot fund it. What you can do though is fund at least part of it yourself and borrow the overflow. Some of the ways in which you can pay your way through college or university include –
- Working part time – there are plenty of WFH opportunities for you.
- Sign up for an employment contract that agrees to pay for your education in exchange for a certain minimum years of service.
- Find a scholarship.
- Choose a less popular but also less expensive institution from where to study.
- Apply for Government Grants
With that said, there are some clear benefits to taking a loan for education in India or to study abroad.
What are your options for getting a student loan?
Broadly, there are 2 options for student loans – or education loan as it is also called – Government or Private loans. Here’s a snapshot of both:
- Government Programs – The GoI runs several programs for students offering loans for study within the country as well as study abroad programs. They also offer full or partial scholarships to deserving students. You should check out these before you consider other sources – if only because the rate of interest charged by the government – public sector institutions – is usually lower than the private sector.
- Loans from Private institutions – Students usually go this route if a government loan or program is not feasible for some reason or they have maxed out in that area. As we said, private sector loans are usually more expensive than public sector and also more stringent and rigid about the rules when it comes to repayment.
While these are the two broad options for institutional loans there are other channels that you may explore such as –
- Loans from friends or family – a good option if the amount is small and you share a good relationship with the concerned person.
- Home equity loans – borrowing against your home in which case you stand a chance of getting a higher loan.
- Loan against insurance policy – you can get a loan from your insurance provider in exchange for surrendering your policy to the insurer. You will have to keep up your premium payment in such case to keep your policy fresh. These loans may also require additional collateral depending upon the amount.
- Unsecured loans – loans without collateral. Here the amount is usually small considering the risk factor.
- Using overdraft or credit cards – again it is viable for small amounts and you will eventually have to pay off your credit card bills or overdraft along with interest.
In fact, if you put your mind to it, you can find other sources for your student loan. The bottom line is however that you should remember you have to eventually repay it.
Worth mentioning here is the fact that some educational institutions offer courses under ISA (Income Sharing Agreement). This is an agreement under which the institution not only offers you the course itself but also job placement in exchange for a promise to share a percentage of your income with then for a certain period or until you pay off a specified amount.
If you are wondering which education loan is best in India or which student loan is best for you, well the answer to that question depends entirely upon you, your financial status, and the course for which you need the education loan. With that said, it is advisable to take loans from reputed institutions even if the interest is higher or you have to put up collateral. This is because these institutions have a clearly established procedure and there is lesser chance of fraud or running into trouble later.
Who is Eligible for education loan in India?
Well, the actual terms such as duration and interest rates differ from one institution to another. With that said, here are some basic eligibility criteria for student loans in India –
- You should be a resident of India (or the country where you are applying for a loan)
- You must be more than 18 years of age and eligible to enter into contract.
- You should have secured admission to a course in a reputed institution. Note here that some loan providers may have a list of approved institutions – particularly if you want to study abroad.
- In case you are a non-resident Indian you should be holding a valid Indian passport.
While these are the basic criteria, as we said terms vary from lender to lender. Also loans in India are usually granted for Graduation, Post-Graduation, Diploma, Technical courses, Management courses and other professional courses, from recognized universities or institutions in India or overseas.
Documents required to obtain loan
With the advent of Aadhar Card, this document along with PAN card are usually sufficient to grant any loan. However some institutions may demand further documentation such as bank account statements, ITR, and other proof of credit. Loans may also be granted on the basis of proven credit score. CIBIL and CRISIL are the two most popular institution for certification of Credit Score and Credit Rating but some banks and NBFCs have their own computations for this.
When considering a student loan application, some institutions may demand proof of admission to a reputed institution along with other documentation – particularly if the loan is for a study abroad program.
Some Useful Loan Terms to Know
- Collateral – an asset or property that you transfer to the lender as security against non-repayment of loan.
- Co-Signer – Someone who signs the loan agreement with you making him equally responsible for repayment.
- Early Repayment Penalty – Charges levied to compensate lenders for expected earnings through interest in case you decide to repay the loan before time. These charges are usually not levied in the initial or concluding months of the loan.
- Fees – Additional charges attached to your loan to pay for administration, processing and other expenses.
- Moratorium – A period of grace when no EMI is payable. Typically this is a six month period after completion of your course to give you time for loan-repayment. Interest is still applied during this period and must be paid.
- Sanction Letter – A letter from the lender informing you about the grant of loan. It is an important document required if you are applying for study visa.
- Loan Tenure – Also called loan duration or loan term it is the time you choose over which you will repay your loan. Longer term usually means lower interest but you may end up paying more in the long term.
- Margin Money – Some lenders demand a certain amount as upfront payment while the loan covers the remaining cost. Such lenders may ask you to pay them the upfront amount – called margin money – which will then be transferred back to you as part of the loan. You should watch out for fraudsters who may take your margin money and never return it.
- EMI – Equitable Monthly Instalment is the amount you pay every month as part repayment of your loan. This amount is determined as a computation of the loan amount, interest, and term along with any applicable fees and charges.
- Floating Interest – Also called variable interest is an interest rate that changes along with market changes. Loans are usually granted at a fixed rate of interest taking into account possible inflation or deflation. Some lenders allow you to take advantage of lower market rates by applying a variable interest rate. You should remember however that when market rates rise, so will your loan interests. Remember also that your EMI may change with changing rates.
- APR – Annual Percentage Rate is a percentage of your interest rate and all fees and charges applicable to your loan. Most lenders apply APR instead of actual interest to cover all expenses and do not charge any fees for loan processing. You should ask about APR when inquiring about your student loan.
- Secured and Unsecured loans – Secured loans are those that demand a collateral while unsecured loans require no collateral. Loan amounts are usually lower for unsecured loans as compared to secured loans. Interest rates and terms too will vary depending upon whether the loan is secured or unsecured.
This just about sums up the basic information you need to get a student loan to study abroad – or even within your own country; however, on a note of caution, you should carefully check the terms of the loan before you sign the agreement. And if you are planning to travel to another country for higher education:
There’s more of course and we’re working on it but if you have a question feel free to ask in the comments or join the discussion on Facebook. You can also reach out via Quora or email us. Meanwhile don’t forget to sign up for your weekly update.