The COVID-19 pandemic has brought a change in the way students are pursuing education. Laptops, smart phones and even tablets are the new classrooms. But online education has evolved, with start-ups such as BYJU’s, upGrad and Great Learning now been offering short and long-term courses, and school/entrance exam coaching online. Many start-ups also offer certifications from universities or institutes. Education start-ups such as Great Learning have partnered with ICICI Bank and Bank of Baroda to enable participants finance their study programs.
But not all online courses, especially if they are conducted by such start-ups, are eligible for education loans from banks. This is because banks grant education loans to courses done in universities or colleges approved by the University Grant Commission (UGC), All India Council for Technical Education (AICTE) and state/central governments.
For instance, Bank of Baroda is presently focusing on the education loan for regular courses, executive development program courses and skill development courses. “We are always looking at expanding our scope within the Indian Banks' Association (IBA) guidelines.” says Harshadkumar Solanki, General Manager- Mortgages and Other Retail Assets of Bank of Baroda.
Loans for online certification courses
Over the last six months, many students have enrolled for certification programmes of online education portals such as Coursera, Udemy, EdX, upGrad and the like. Fresh graduates who haven’t got jobs or career professionals looking to improve their prospects to build their resumes further have been taking to these courses. But getting an education loan for these courses is not easy. There are some financing options available, however, through non-banking financial companies (NBFCs) and fintech start-ups.
“Courses conducted by online start-ups are supportive resources – more on the lines of coaching classes. These will not be eligible for education loans from banks. So, the financing is offered through tie-ups with lenders or ‘no-cost’ credit card EMIs. These loans tend to be expensive as they are akin to personal loans to parents,” says Gaurav Gupta, Founder, Myloancare.in.
Some of these online education start-ups have tied up with a few financial institutions to facilitate loans for their students. For instance, Bajaj Finserv has partnered with BYJU’s and is offering loans to prepare for NEET and JEE courses, starting at Rs 75,000. The loan is also offered for online courses of other e-learning apps such as Toppr, Extramarks and Vedantu. You get loans ranging from Rs 50,000 to Rs 1.5 lakh and tenures of 9-24 months.
But there’s a catch here. “Despite several such partnerships, these loans are more in the nature of personal loans with higher interest rates than those on education loans,” says Adhil Shetty, CEO of BankBazaar.com. Education loans come with several benefits such as lower interest rates, moratorium on repayment for one year post course completion or six months after you land a job and, of course, tax benefits under section 80E on interest paid. Personal loans do not come with any of these benefits.
Some of these online apps also give the option of financing the courses using credit cards with no-cost EMI schemes. For instance, if you enrol for a blockchain programme on Upgrad, then you can pay the fees using the credit cards of most major banks that have partnered with the education start-up. These include American Express, Bank of Baroda, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, RBL Bank, Standard Chartered, Axis Bank and YES Bank. You can convert the fees in to a no-cost EMI option. Similarly, you can take no-cost EMIs on BYJU’s courses with ICICI Bank credit cards.
Don’t borrow from peer-to-peer platforms
You can also take loans from peer-to-peer platforms, not just for education, but for any purpose. But it’s always advisable to stay away from P2P platforms as the lending rates are not uniform. Typically, borrowers on these platforms are those with weak credit profiles and don’t get a loan anywhere else. Lenders, sitting on the other side of the fence, are also individuals with a lot of money to lend and earn a fat interest on it. In other words, the rate of interest is normally decided by the lender. That’s one drawback of borrowing on a P2P platform.
Second, these loans do not get you any tax benefits. Education loans availed from nationalised banks offer you an income tax deduction under Section 80E on the interest component of the monthly instalment.
Lastly, P2P loans can also come with stringent pre-closure charges that may work against you if you wish to foreclose your loan.
It is best to fund yours or children’s education needs – particularly additional tutoring needs, be they through coaching classes, edutech firms or regular tuitions – through your savings. Even if your online education start-up has tied up with NBFCs, the loans are likely to be expensive as they will be unsecured loans. If you have no choice but to borrow to fund such additional coaching expenses, first check whether you are eligible for lower interest rates and better terms.