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How To Apply For Student Loans In India

Updated on November 17, 2020 10:09 am
Student Loans

For many, one ticket to success in life is getting into a top university and graduating with a college degree. Higher education is a worthy investment as it promises a well-paying and successful career.

A very common obstacle faced by students in achieving this goal is affordability. Scholarship schemes, grants, work-study programs do provide financial assistance, but in recent years, the cost of education has skyrocketed. It is even more expensive if one wants to study abroad due to additional expenses.

Fortunately, there are loans for students to fund their education and help realize their potential and achieve their goals. The Reserve Bank of India (RBI) has directed all Scheduled Commercial Banks in India to adopt the Education loan scheme which aims to provide financial support to deserving students for pursuing higher education in India and abroad with affordable terms and conditions.

Understanding Student Loans

student loans

A student loan is a sum of money borrowed from the government or a private lender to finance graduation or post-graduation courses or other higher studies.

Government loans tend to have lower interest rates and can be paid back until after a certain period of time or after the student starts earning a certain amount. This waiting period is termed the moratorium period. Such loans are intended to cover tuition fees, accommodation fees, books, and supplies, examination fees, travel expenses, and other miscellaneous charges.

Most Indian banks offer students loans for studying in India and abroad. Some banks also provide credit cards to their education loan customers.

Best student loans by leading Indian banks are:

Eligibility Criteria for Student Loans in India

Banks typically will check on the following criteria to approve the student loan:

  • The applicant should be an Indian citizen
  • The applicant should be of age 18-35 years
  • The applicant should have a good academic record
  • The applicant should have secured admission to a recognized University/institution
  • The courses eligible for education loan are generally provided by the banks

Features & Benefits of Student Loans

  • Education loans available both for studies in India and abroad
  • The maximum loan amount available up to 1 crore
  • Repayment tenure up to 15 years
  • Interest rates start from 7.30% per annum
  • Moratorium period up to 1 year after course completion or 6 months after getting a job
  • Special concessional interest rates to female students
  • Collateral free loans/ no third party guarantee up to Rs 7.5 lakh ($9400) from major banks
  • Acceptable collateral includes residential or commercial property, insurance, fixed deposits
  • Pocket-friendly Equated Monthly Installment (EMI) repayment options
  • Tax Benefits on the interest paid under Section 80-E of the Income Tax Act
  • Loan disbursal available from some lenders even before securing admission or before applying for a Visa

Documents Required for a Student Loan

Following documents are generally required by the lenders:

  • Duly filled loan application form
  • Recent Photograph of the applicant and the co-applicant
  • Age Proof
  • Photo ID (PAN/Aadhar/Driving License/Voter ID)
  • Address Proof
  • Signature Proof
  • Admission Proof (Admission letter with fee-break up)
  • Marksheet (10th/12th/graduation/GRE/TOEFL/IELTS, whichever is applicable)
  • Income proof (of co-applicant)
  • Last 6 months bank statements
  • Income Tax return of the last 2 years with the income computation
  • Last 2 years audited balance sheet
  • Proof of turnover (service tax return/sales receipt)
  • Collateral documents

Applying for an Education Loan in India

Most banks provide details about student loans on their website. But it is always better to call up the banks and discuss the details with their representatives. It is recommended to apply for a loan at the earliest as the entire process of application, approval, and loan disbursement can be time-consuming.

Before choosing a lender, compare the student loans offered by different banks. Courses covered by the loans are not the same for every bank along with a variable loan amount. Loans are available for both full-time or part-time courses. Researching and comparing will help in choosing the most suitable one.

Online: The application form can be filled online with all the necessary documents attached. And then submit it online. Some banks may also provide virtual assistants to help with the application procedure.

Offline: This can be done by visiting the nearest branch office with all the required documents and the duly filled application form and applying it in person. 

Once the loan gets approved, the bank issues a loan document that contains various elements of the loan. After the loan document is signed, the bank will disburse the amount in installments or as asked by the institution/university.

Tax Implications of Student Loans

The interest amount paid on an education loan is deductible from the total taxable income with no upper limit under Section 80E of the Indian Income Tax Act. The tax benefit is to be claimed for a maximum of 8 years, starting from the year the payment of interest began. Beyond 8 years, the tax deduction is not allowed.

Do keep in mind that the tax benefit does not apply to the principal amount. Higher studies encompass all the fields of study pursued after clearing the senior secondary or its equivalent examination and it includes both regular and vocational courses.

Hence, education loans taken for higher studies for an individual, children or spouse of the individual, or the legal guardian of the student are eligible for tax benefits on the interest paid.

Additionally, as per the new tax rules on sending money from India funded by an education loan, only 0.5% of TCS (Tax at Source) is applicable on an amount exceeding Rs 7 lakh ($9400).

Important Things to Consider Before Applying for a Student Loan

student loans

Loans are borrowed money with the intention that it will be repaid with interest. Thus, it inherently comes with a certain amount of risk. The inability to make the payments on time and to default on a loan can create an unfavorable credit score and make it harder to take out other loans in the future.

Keep the following things in mind when thinking of applying for student loans:

  • Go for a mandatory career counseling session to better understand the career landscape of different fields
  • Choose a university with a good ranking
  • Research earnings and education requirements for various fields of study
  • Choose a degree that will lead to a job that earns well enough to be able to repay the loan
  • Do the math. Think about the debt in the context of future earnings and expenses. Borrow less than what is offered, if possible. That way, the monthly payment in the future is lower

Benefits of Student loans

Student loans are taken with the best of intentions. It is considered a good debt because it is an investment in education that will pay off in the future. Students can focus on their studies without worrying about finances with the help of a good student loan.

On top of funding for education, taking student loans can build a good credit score, provided the payments are made on-time. A good credit score makes it easier to get other loans such as home loans, car loans, etc, in the future.

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