The cost of education, especially for graduate and post-graduate courses, has

been increasing steadily in the last couple of years. With rising inflation, parents,
students and professionals alike, are finding that funding higher education in
India or overseas is not as easy as it used to be.
However, a ray of hope is seen with the availability of educational loans from
various banks, which can fund an individual's higher education.
As these loans are not one of the 'mainstream' loans such as home loans or
personal loans, people are hesitant or mostly unaware of such options. Here are
answers to some generic queries that rise in regards to educational loans.
Query

Response

What can an educational loan be used

Educational loans are available for higher education

for? In other words, for what courses can

(full-time graduate or post-graduate course) in

an educational loan be obtained?

technology, engineering, architecture, medicine,

management and applied or pure sciences,
including mathematics and statistics.
It is best to check with the bank you are interested in
getting the loan from, if the course you are going in
for is covered under their educational loans.

Who gives out such loans?

Most of the financial institutions and banks give out

educational loans. However, it is the public sector
banks that are at the forefront of such loans.

Who is eligible for the loan?

Only the individual opting for higher studies can go

in for the loan.

What is covered under the loan?

Tuition fees payable to college/school

Examination / library / hostel charges
Travel expenses
Purchase of books /equipment /uniform
Cost of two-wheelers (optional)

What is the maximum amount lent by the

The amounts given by different banks vary.

bank?

Typically, for studies within India, the maximum

amount is between Rs. 7.5 lakh and Rs 10 lakh. For
education abroad, the maximum loan amount is Rs.
15 lakh to Rs. 20 lakh.

However, many banks cap the maximum amount at

Rs. 20 lakh.
What is the interest applicable on

Again, the interest rates vary from bank to bank and

Educational loans?

depend on the amount of the loan taken. Typically,

interest rates on educational loans range between
11.25% and 13.5%.

Are there any other fees applicable while

Banks charge you processing fees for approving the

taking this loan?

loan and basically doing all the paperwork. These

fees range between 2.25% and 2.50%.
Another charge or more appropriately expense that
you would most probably need to bear is the margin
amount. Normally, banks do not approve the loan
that would cover the entire cost of your education.
For example, for a loan of Rs. 10 lakh, the bank
would approve only 80% or Rs. 8 lakh. The
additional Rs. 2 lakh that you would have to raise
from your own sources is called the margin amount.

What are the documents required while

The required list of documents may vary from bank

applying for the loan?

to bank. The most common documents would be:

Proof of admission (educational loan cannot be
applied without proof that admission has been
secured in the selected institution)
Schedule of fees from the institution
Mark sheet of the last qualifying examination
Photographs
If the applicant is earning then:
Bank account statement
Income tax assessment order of last 2 years
Proof of income
Brief statement of assets/liabilities

Do I need to provide a guarantor or any

For smaller amounts of loans (amounts upto Rs. 4

other kind of security?

lakh) banks do not ask for any guarantor or security.

However, most banks ask for either a guarantor or
for some kind of security such government
securities,gold, shares, other investments etc.

When does an individual start repaying the

Most banks ask you to start paying off the loan

loan, and how much time does he have to

either six months or one year (varies from bank to

do it?

bank) after you complete the course or six months

after you have secured a job, whichever happens
first.
Again, depending on the bank, you get around 10 to
15 years to pay off the loan. It is important to
remember that the higher the amount, the longer
you get to repay. Of course it also depends on your
income and how much you are willing to shell out
towards this debt on a monthly basis.

Are there any tax benefits for educational

Under Section 80 E of the Income Tax Act, you are

loans?

eligible for rebate on the interest (not on the

principal) you have paid on the loan. Moreover, the
best part is that there is no limit to this amount.
This deduction once applied only for self-education,
but now this facility is extended for the education of
relatives; relatives include only one's spouse and
children.
This deduction is allowed for 7 years and the loan
must be taken for higher education purposes only.
Moreover, the loan has to be from a financial
institution or a government approved charitable
institution.

Armed with this information and your ambition, no degree or course is out of
your grasp. However, as with all financial transactions, the more you know, the
better it is for you.
So research thoroughly, depending on your requirements, before you take the
plunge.