How to get cheaper education loan?

Higher education is becoming increasingly expensive. In such a situation, the savings made by parents are often not enough. If your child is promising then there is no need to worry so much about studies. You can realize the dreams of the child by taking an education loan. If your child is going to take admission in a  college and if you need an education loan, then, you should keep in mind the following things. How can you get an education loan? What is the eligibility for securing education loan? How can you find cheap offers, etc.

If we look at the RBI’s data, public sector banks are the big players in the education loan market of the country. According to RBI’s data for March 2022, PSBs account for 91 per cent of total education loans disbursed by commercial banks in the country.

How expensive is education loan?
Just as the CIBIL score is very important in determination of the interest rates of personal and home loans, similarly, how promising is the student, ranking of the institute are amongst the factors on the basis of which the interest rates of education loan are determined.

Banks give loans on cheap and easy terms to those students who have secured top-ranks  in the entrance examination. For students studying in top institutes of engineering, medical, MBA and law, banks are ready to give loans without any mortgage.

For example, SBI provides loans of up to 40 lakh rupees at a floating rate of 7.5 per cent without collateral. But scholar loan is  given only to those students who secure grade  AA. This is followed by top ranked institutes like IITs, IIMs and BITS. Personal finance expert Rahul Sharma says that students who have not been able to make it to the top institutes can apply to SBI’s student loan scheme. However, SBI’s floating interest rate for this loan is 10.05 percent. Under this category, loans of above  7.5 lakh rupees will be sanstioned by mortgaging  properties.  Dr. Sharma says that the interest rates of private sector banks are higher than public sector banks. Private banks can give education loans without pledging anything but charge more interest. At present, the annual interest rates of education loans of banks are between 7.50 and 15 percent.

How much loan amount will be sanctioned?
The amount of educational loan is decided by the bank on factors like  course, institute and eligibility of the applicant. Loans of up to 50 lakh rupees are available for courses in domestic institutes. Loans of up to 1 crore rupees is available for courses of international institutes . There is no need to deposit any kind of security deposit on education loans of up to 4 lakh rupees for studying in domestic institutes.  That is, education loans of up to four lakh rupees are available without guarantee. If you take an education loan between 4 lakh to  6.5 lakh rupees, then a third person will have to be made a guarantor. If you are taking a loan of more than 6.5 lakh rupees, then you may have to mortgage a property.

Payment process

Usually, the payment of education loan starts one year after completion of studies and six months after getting the degree. The payment is made through equated monthly installments. Many banks start recovering loans six months after the student gets a job. Some banks also offer the option to pay EMIs immediately after taking a loan. Most institutions give up to seven years for making payment. Banks do not charge any kind of fee on the prepayment of education loan. Any person can pay more than the EMI or the entire amount in lump sum from his earnings. If you are transferring a loan to another bank, then you may have to pay a prepayment charge.