Pursuing higher education abroad has long been a dream for many Indian students. The allure of world-class universities, diverse cultural experiences, and global career opportunities make studying abroad an attractive option. However, the financial burden associated with international education can be daunting. This is where education loans come into play, providing the necessary financial support to turn these dreams into reality.
The Growing Demand for Education Loans
The increasing cost of education, both domestic and international, has led to a rise in the demand for education loans. According to the Reserve Bank of India (RBI), the education loan portfolio saw a 17% surge as of March 2023 in India. This trend reflects the growing reliance on loans to fund higher education.
1. Access to Quality Education
One of the most significant advantages of education loans is that they provide access to quality education that might otherwise be financially out of reach. Students can attend prestigious universities and colleges worldwide, gaining exposure to advanced curricula, cutting-edge research, and renowned faculty.
2. Flexible Repayment Options
Education loans typically come with flexible repayment options, allowing students to focus on their studies without immediate financial pressure. Most lenders offer a moratorium period, which is a grace period during which students are not required to make repayments. This period usually extends up to six months after the completion of the course or until the student secures employment, whichever is earlier.
3. Building a Credit History
Taking an education loan is an excellent opportunity for students to build their credit history. Timely repayment of the loan helps in establishing a good credit score, which is crucial for future financial endeavours, such as applying for personal loans, home loans, or credit cards.
4. Tax Benefits
Under Section 80E of the Income Tax Act, 1961, individuals can claim a deduction on the interest paid on education loans. This deduction is available for a maximum of eight years, starting from the year in which the loan repayment begins. This tax benefit can significantly reduce the overall cost of the loan, making it more affordable.
5. Achieving Financial Independence
Funding education through a loan instils a sense of financial responsibility and independence in students. It encourages them to take ownership of their educational expenses and plan their finances wisely, fostering a disciplined approach to money management.
Key Considerations When Opting for an Education Loan
While education loans offer numerous benefits, it is essential to consider certain factors before applying for one.
1. Loan Amount and Coverage
Education loans generally cover a wide range of expenses, including tuition fees, accommodation, travel, study materials, and other related costs. It is crucial to ensure that the loan amount is sufficient to cover all these expenses without leaving any significant financial gaps.
2. Interest Rates
Interest rates on education loans can vary based on the lender, the loan amount, and the applicant’s profile. It is advisable to compare interest rates from different lenders to secure the most favourable terms. Some lenders offer special interest rates for students admitted to top-tier institutions or pursuing specific courses.
3. Collateral Requirements
Depending on the loan amount, lenders may require collateral as security for the loan. Collateral can include property, fixed deposits, or other valuable assets. It is important to understand the collateral requirements and assess whether you can provide the necessary security.
4. Co-applicant Requirements
Most education loans require a co-applicant, typically a parent or guardian, who assumes joint responsibility for the loan repayment. The co-applicant’s income, credit history, and financial stability play a crucial role in the loan approval process. Ensure that the co-applicant meets the lender’s eligibility criteria.
5. Loan Repayment Terms
Understanding the loan repayment terms is vital to avoid any surprises later. Evaluate the EMI amount, repayment tenure, and prepayment options. Some lenders offer the flexibility to prepay the loan without any additional charges, which can help reduce the overall interest burden.
Leading Lenders that Provide Education Loans in India
Several financial institutions in India offer education loans with competitive terms and benefits. Here are some of the top lenders:
1. HDFC Credila
HDFC Credila is a prominent name in the education loan sector, catering specifically to students aspiring to study abroad. They offer competitive interest rates starting at 10.25% per annum and provide loans up to ₹75 Lakhs. One of the significant advantages of HDFC Credila is its flexible repayment tenure of up to 15 years. This extended tenure allows students ample time to repay the loan comfortably after completing their education and securing employment. The loan covers a wide range of expenses, including tuition fees, accommodation, travel, and study materials.
2. InCred Finance
InCred Finance offers education loans tailored for students aiming to pursue higher education abroad. The interest rates range from 11.50% to 15% per annum, depending on the applicant’s profile and the chosen course. InCred Finance provides substantial loan amounts up to ₹1.5 Crores, making it a viable option for students planning to attend prestigious international universities. The repayment tenure can extend up to 15 years, offering flexibility and ease in managing loan repayments. The loan covers various expenses, including tuition fees, living expenses, travel, and insurance.
3. Propelld
Propelld is an emerging player in the education loan market, known for its competitive interest rates and flexible terms. They offer interest rates ranging from 12% to 23% per annum, depending on the borrower’s profile and the course of study. Propelld provides education loans up to ₹25 Lakhs, making it suitable for students pursuing higher education in India. The repayment tenure for Propelld education loans extends up to 10 years, allowing students to manage their finances effectively post-graduation. The loan covers essential expenses such as tuition fees, accommodation, travel, and study materials.
You can find all these great options on digital financial marketplaces like Bajaj Markets. This enables you to research, compare, and apply for an education loan quite easily.
How to Apply for an Education Loan
Applying for an education loan involves several steps. Here is a step-by-step guide to help you through the process:
1. Research and Compare Lenders
Start by researching and comparing different lenders to find the best education loan that suits your needs. Consider factors such as interest rates, loan amount, repayment terms, and eligibility criteria.
2. Check Eligibility Criteria
Review the eligibility criteria of the chosen lender to ensure you meet the requirements. Typically, lenders consider factors such as the applicant’s academic background, the chosen course and institution, and the co-applicant’s financial stability.
3. Gather Required Documents
Collect all the necessary documents required for the loan application. Commonly required documents include:
● Admission letter from the educational institution
● Academic records and certificates
● Proof of identity and address
● Income proof of the co-applicant
● Collateral documents (if applicable)
You may be required to submit Form 20-I and other documents as requested. Ask the lender to provide a list of all the documents required for an education loan prior to applying.
4. Submit the Application
Fill out the loan application form and submit it along with the required documents to the chosen lender. Also, ensure that all data provided is complete and accurate.
5. Loan Processing and Approval
The lender will review the application and documents, conduct a credit assessment, and verify the details provided. If the application meets the lender’s criteria, the loan will be approved.
6. Loan Disbursement
Once the loan is approved, the lender will disburse the funds directly to the educational institution or the applicant’s account, as per the agreed terms.
Education loans have emerged as a crucial financial tool for students aspiring to study abroad. They provide access to quality education, flexible repayment options, tax benefits, and an opportunity to build a credit history. By understanding the key considerations and choosing the right lender, students can embark on their educational journey with confidence, knowing that their financial needs are well taken care of. With the support of an education loan, studying abroad becomes a realistic and achievable goal, paving the way for a brighter future.
Moneycontrol Journalists are not involved in creation of this article.