Understanding Student Loans

EDUCATION LOAN – ALL YOU NEED TO KNOW

Despite changing times, gaining admission into a top rated university or college and graduating Suma Cum Laude is still considered the #1 ticket to success. But education costs are escalating and this makes it difficult for many to achieve their dream success.

Fortunately there are many solutions to this setback. For instance you can study further on a government grant or scholarship or you can sign up for a work-study program available in many countries. You can even travel abroad on a funded study abroad program or student exchange program for post-graduation.

Wondering what your degree is worth?

If you do not wish to pay your way through college and unfortunately do not bag a scholarship or grant, it’s still not the end of the road. You can always take student loan. The question is what is a student loan and how do you get one?

Put simply, a student loan is a loan taken for the purpose of funding your education. Banks and other institutions offer these loans on interest with or without collateral. Before you sign the loan agreement, its important that you know a little about student loans and how they work. This blog below may help answer some of your questions:

Understanding what a student loan is

We already said that a student loan is money borrowed specifically for the purpose of education. The loan is usually taken to fund post graduate education although some do use it for undergrad education too. The main intent is to cover the cost of tuition. This means the loan should ideally be used to pay your college fees. Many loans also allow you to include cost of study material, equipment – such as a laptop – and a few other expenses such as hostel charges.

How to get a student loan?

Interest charged will mainly depend upon the amount and duration of the loan. Rates charged by different institutions varies. Similarly, the loan terms such as requirement of collateral, EMI and so on differs from institution to institution. The loan duration is usually the duration of the course but some lenders allow an extension of up to six months to give the student time to secure a job and / or complete any pending assignments and so on. This is called grace period.

Types of student loan

In general student loans may be classified as Government (Federal) or Private. Federal loans – or Government loans as they are called in India – are loans offered by government institutions and PSUs. (Public Sector Undertakings) such as banks.

In general, government loans are preferred to private loans. Private loans are loans offered by private institutions. These may be subsidized by the government.

Recently the Indian Ministry of Finance in coordination with the Department of Higher Education and Indian Banks Association (IBA) has launched the Vidya Lakshmi portal for students desirous of student loan. You can view the details, apply to nationalized banks for loan, and track your application through this portal. Banks may register specific loan schemes on the Vidya Lakshmi portal and students can apply to multiple banks using a single application form.

You can register yourself on Vidya Lakshmi portal here.

Student loans may also be classified based on other criteria such as:

  1. Domestic and Study Abroad loans
  2. Loans for undergraduate or post graduate study
  3. Loans for professional courses
  4. Secured or unsecured loans depending upon whether or not a collateral is required or offered.

Other types of education loans include loan for start in career and parent loans.

Different ways to study abroad.

Application process for student loan

Loan application forms seek a host of information before the loan can be granted. If you are a minor or dependent upon your parents for sustenance the form must be filled by your parents. While the information required may vary from one institution to another in general the following details are required apart from the personal details such as name, DOB age, and nationality:

  1. Does the applicant own any property?
  2. Applicant’s marital status
  3. Name of the university, college, and program in which you wish to study
  4. The number of semesters
  5. The date of commencement of the course
  6. The date of completion of the course
  7. The purpose of the loan – to pay outstanding / semester / annual / entire course fees
  8. Loan amount required
  9. Duration for which loan is required
  10. Preferred EMI amount

EMI (Equated Monthly Installments) are computed based on amount of loan, duration, and interest. However many institutions also allow reverse computation using amount of EMI you can pay and duration for which you can pay this amount. In such cases the amount of loan may not be what you hoped to get.

CHOOSING THE BEST STUDENT LOAN

Government loan vs. Private loan

PRIVATE LOANSGOVERNMENT
Offered by private sector banks and NBFCs.Issued by the local or central government
You have a choice of lendersDependendent upon a single lender – the Government
Private lenders may charge higher interestInterest rates as declared by the Central Bank of the country or state (Eg. RBI in India)
Private lenders may demand a credit analysis and scoreMost loans don’t require a credit check
Private sector loans may be more flexible in terms of interest rate offering both fixed and variable interest.Offer fixed interest rates
May insist on collateral, cosigner, or bothLoans may be available without collateral and/or cosigner.
Some institutions may offer ISA (Income Sharing Agreement) in lieu of loanISA is usually offered by educational institutions and hence not available in government loans.

Being indebted to anyone for anything is never a good idea. That said, you do sometimes need finance to tide you over for a short period. Student loans do just that. They help you through college and get you that eagerly sought degree. So yes, take that education loan but before you do, make sure you know what you are signing up for.

Meanwhile, BYN has its ear to the ground and we’ll continue to bring you information you need. If you are looking for some specific information let us know in the comments or on Facebook. Don’t forget to sign up for your weekly update and offer.

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