With education prices escalating with each year, many parents have been exploring the educational loan tool to make sure their children get the best and their financial status does not bring any hindrance to their goals.
Ashok and Namrata always wanted to give their children quality education. Understanding the increasing educational expenses, the couple has been saving for their child's Amit future education. Now with Amit finishing his basic graduation he managed to secure a place in a prestigious business school for the master's degree. The couple now had two options. Either spending the whole savings on their first child’s education or use a small portion of it and let the rest accumulate for their other child. Finally they decided to follow the second option, and opted for an education loan for Amit.
With education prices escalating with each year passing by, many parents have been exploring the educational loan tool to make sure their children get the best and their financial status does not bring any hindrance to their goals. Let us look at education loans along with some of the finer points that one needs to consider before applying for the same.
An overview of Education Loans: Educational loans are available to any Indian citizen between the age group of 16 to 35 years of age and willing to pursue higher education. Educational loans are usually approved for students who have either secured an admission in any designated college or educational institute approved by the bank.
Most government institutions plus a large number of private ones that have been recognized by the relevant competent government body are usually on the list of approved institutes for educational loan. The education loan covers the entire school fee till the duration of the course and is disbursed to the institute, directly by the bank. Any boarding and lodging expenses for students that are relocating to a different city for studies are also taken care of in the education loan.
Few popular education loan schemes available now:
Interest rate Concession
Loan Processing Charges
Late Payment Charges
For loans up to Rs.4 lacs: 3.50% above Base Rate, currently 13.50% p.a.
Above Rs.4 lacs and upto Rs.7.50 lacs: 3.75% above Base Rate, currently 13.75% p.a.
Above Rs.7.50 lacs: 1.75% above Base Rate, currently 11.75% p.a.
(0.50% concession in interest for girl students)
(1% concession for full tenure of the loan, if interest is serviced promptly including course duration)
Up to Rs. 4 lacs: Base rate (10.25%) + 7.00%
Loans greater than Rs. 4 lacs and up to Rs. 7.5 lac: (10.25%) + 8.00%
Loans greater than 7.5 lacs: (10.25%) + 6.00%
Rs 500 + taxes per cheque bounce and a penal interest @24% per annum i.e. @ 2% per month on the overdue installment/s
Loan up to Rs.4 lac: BR (10.25%) +3.00%
Loan over Rs.4 lac to up to 7.50 Lacs: BR (10.25%) +4.00%
Loan over Rs. 7.50 lac: BR (10.25%) +3.50%
1% if interest is serviced during the study period, 0.5% for women beneficiaries
Oriental Bank of Commerce
Loan up to Rs. 4.00 Lacs: BR + 2.50% = 12.75%
Above Rs.4.00 Lacs & Up to Rs.7.50 Lacs: BR +3.00% =13.25%
Above Rs.7.50 Lacs:BR + 2.50% = 12.75%
For study in India: NIL irrespective of loan limit.
For study abroad: Rs.1000/- +Service tax, if any.
Factors to consider before availing Education Loan:
• Rate of Interest: Education loans are available under both fixed rate of interest and floating rate of interest. As per the financial convenience of the borrower, users can opt for either of the two. Fixed rate loans come with a slightly higher interest rate compared to floating rate loans, but offer the advantage of a fixed EMI for the loan. People opting for a floating interest rate would end up paying a different EMI amount as per the interest rate, which is based on market fluctuations.
• Waiver Period: Education loan repayment does not start the day the loan ends and the student passes out. Most banks have a six month waiver period, which is known as a moratorium period, allowing the individual to look out for a job or establish a business whatever the case may be. It is however essential to know that interest is charged during the waiver period as well and only repayment is deferred under the waiver period.
• Margin Money: Education loans up to Rs. 4 Lakhs do not require any margin money or funds required to be raised by the borrower. For loans above Rs 4 Lakhs banks require a 5% margin for studies within India and 15% for higher studies overseas.
• Prepayment of Education Loan: Most banks do not charge any prepayment penalty in case the borrower wants to prepay the entire loan amount and close the loan. Some banks may charge a nominal prepayment penalty as per the terms and conditions of the loan. It is therefore imperative to check with your bank about any prepayment penalty clause in the education loan before signing the dotted line to avoid any problems at the repayment stage.
• Education Loan for female students: To empower women students almost all public sector and private banks have schemes offering lower interest rates and rebates on education loan. Most banks offer a 0.50% concession in interest rates for education loans in case of a female student.
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