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Bridge the gap between dreamers and their dreams through Student loans

Education is the foundation of society. It creates the manpower which can quicken the pace of monetary development. Despite all the attempts, the improvement is stagnant. ‘Expensive education is one of the major reasons behind this stagnant educational development’[India Today]. The rising cost of education in India is extremely cumbersome for financially weak families, to let their children pursue studies. The average education costs in India as per NSO are as presented:



[Average expenditure (in Rs.) relating to the basic courses per student pursuing a general course. (Image: CARE Ratings)]


In the past few years, the dimension of education has considerably changed. It is not just limited to getting a job with a handsome salary and settling down, rather than that it is more passion-driven, people are more focused to follow their interests and finding ways to monetize it. However this passion requires a lot of skills and technicalities, which needs to be learned. No one should be refrained from receiving education or skill development due to unavailability of finances. According to studies, the cost of education is increasing at an average of 15% per annum [Economic Times]

On an initial enrolment of 100 students, on average, only 70 finish the schools, and one-third of the dropout reason turns out to be Financial issues [the Hindu]. This is one of the major reasons to make students aware of the availability of “Student loans”. Through this, students will get what they deserve.


So the general questions that pop up in mind are-

  • What is a Student loan?

  • Types of Student loans in India

  • The procedure of availing Student loan

  • Benefits of Student loan

  • Government Policies regarding Student loans


What is a Student loan?




Student loan refers to the loan taken to handle a student’s educational expenses and to assist students, with paying for studies after secondary school and the related charges. For example, educational cost, books and supplies, and everyday costs.

The loan can be availed after graduation, post-graduation, and other executive programs. Student loans come under the Priority Lending Category (PLC) along with home loans. The government insists that a student shouldn’t be denied Student loan if his application makes the parameters. This might contrast from different kinds of credits in the way that the loan fee might be considerably lower and the reimbursement timetable might be conceded while the student is still studying.





There are some major Non Banking Financial Institutions(NBFCs) that provide student loans. The top four include-

  • HDFC Credila

  • Avanse

  • Incred

  • Auxilo

What are the types of Student loan?



India provides the following types of Student loans-

Undergraduate Student loans

Professional/Graduate Student Loan

Career Student loan

Loans for Parents








[Top 10 banks providing Education Loans in India and their interest rates][Source:Bank Bazaar]


Undergraduate Student Loans

Undergraduate Student loans can be availed by individuals who have completed secondary education and wish to undertake a three-to-four year course to enhance job opportunities.

Professional/ Graduate Student loan

Professional Student loans can be availed by students who wish to pursue advanced degrees or higher education at colleges across the country.

Career Student loan

Career Student loans can be availed by students who wish to attend undergraduate career-oriented programs at trading and technical schools and colleges across the country.

Loans for Parents

Parents of students can avail these loans which are unsecured, to meet their children’s education expenses such as tuition fees, living expenses, books, uniforms, and other expenses. This loan can also be availed by adult relatives who wish to enroll their children in secondary schools, military elementary schools, religious, private, or non-public schools across the country.

Prerequisites for availing Student loan

To avail Student loan the applicant must fulfill certain criteria which are as follows-

  • The applicant must be a citizen of India.

  • A co-borrower is a person who takes guarantee to repay the loan amount in case of any default by the student. While availing Student loan there must be a co-borrower who should be a citizen of India and employed as per RBI guidelines.

  • The applicant is required to secure a seat in any college/university-recognized by a qualified body in India or overseas and has to provide a confirmation of admission.

  • Applicant must have completed his/her higher secondary education.

Document Requirements while availing loans[Bajaj Finserv]


  • Duly filled and signed application form along with passport sized photographs

  • PAN Card

  • Aadhar Card

  • Academic Certificates of previous qualifications

  • The fee structure for the entire course duration

  • Address Proof of the borrower

  • Income Proof of the co-borrower

  • Financial Letter(if any)

Procedure for getting Student loan



These are the general steps followed by banks before disbursing Student loans-

  • Background Check- The banks will verify that the information present in application is true and correct. This includes education details, residential details, and background check.

  • A discussion with the student where banks may ask about educational performance and scope of the course for which the loan is being availed.

  • Document Verification

  • Guarantor's Background check

  • If the repayer is the student, the bank will ask to sign a promissory note of repayment.

  • Once satisfied, the bank will ask for the additional documents and will finally disburse the loan

After fulfilling all the criteria the applicant can approach any bank to apply for the Student loan.


Factors to be considered before applying for Student loan-

  • Interest rate- This refers to the rate of interest at which banks offer loans to the customer. The lower the interest rate, the better the offer.



Data source: Paisa Bazaar [2020]

  • Loan Amount-The banks can finance up to 100% of the loan amount. Consider the loan who could offer the exact required amount.

  • Repayment Period- Repayment is done by the student and the repayment period starts after completion of the course. Some banks also provide some relaxation period of 6 months to 1 year after course completion. The time to repay a loan generally ranges between 5 to 7 years, however, it can vary with various banks. During loan period, the bank charges simple interest on the loan amount which reduces the EMI burden of the borrower.

  • Collateral Requirements- The banks also ask for collateral for loans above Rs. 7.5 lakh. Presently, the banks do not ask for any collateral or third-party guarantee for loans up to Rs. 4 lakh. For loans above Rs. 4 lakh up to Rs 7.5 lakh, a third-party guarantee is required. A collateral is asked for a loan exceeding Rs. 7.5 lakh.


Benefits of Student loan

  • People save throughout life for some major life expenses. Student loans ensure that the saved funds could fulfill their purpose and parents don't have to worry about their child's education as they got the education part covered.

  • Student loan offers tax benefits under Sec 80E of the Income Tax Act. The whole Interest amount can be deducted from taxable income. This deduction can be availed for a period of 8 years.

  • Timely repayment of loan installments can boost credit score, which could be beneficial for acquiring loans in future.

Government Policies regarding Student loans



The Central Government has launched various schemes to encourage the Education in India. These schemes include Subsidies, Tax benefits and easy loan availability for the students. The most recent Vidya Lakshmi portal which is one of its kind has been launched for students seeking loan[University Grants Commission]

The Scheme includes the following features-

  • The scheme offers loans up to Rs.7.5 lakhs for studies in India and upto 15 lakhs for studies abroad.

  • No Collateral required up to an amount of Rs. 4 lakhs.

  • The repayment period is 7 years and the scheme also offers a grace period of one year after completion of the course.

In recent past few years the concept of school fee financing has also emerged, This not so old-school fee financing system aims at providing school fee payments through instant credit facility and with convenient payback options. These education financing partners with leading institutions such as schools and colleges and provide monthly payment options to parents. Since schools and colleges demand fees in lump sum amounts the fee financing provides a great assistance to the parents. These financial platforms pay the full fees to educational institutions directly and assist parents to convert the whole fees amount into affordable installments.

Apart from traditional Student Loans, various alternative lending start-ups have also begun to scratch the opportunity of financing institution fees.These platforms provide school fee funds to parents of school-going kids, education loans to young professionals and college students at affordable rates. They have diverse schemes available to cater the needs of borrowers. A few fintech companies offering these services to push the education dream of India include Financepeer, CredRight, Early salary etc. These platforms cater innovative solutions mixing technology, strategy and funds to function.

How is fee financing different from Student Loans?

  • The tenure for Student Loan is generally Longer, and this loan is generally for post secondary schools.

  • The loan amount is usually higher as compared to fee financing.

  • The interest rate in student loan is comparatively higher than fee financing.

Conclusion

Right to education is a basic Human Right and every person deserves it. The cost of Education has increased by more than 25% within the last 10 years [CNBC]. Students dropout of college because they are not financially capable. Student loans are the best option to overcome this issue. Since the rate of interest on these loans is comparatively low, these are best suited for students and don’t add much burden on repayment and piling up of interest. When the repayment is done in time, the Credit Rating of the borrower also increases. There are various loan schemes available and anyone who fulfills a general criteria can avail this and develop their desired skill. Finance will never be a hurdle to education.


 

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