Key pointers to keep in mind to avail education loan

Mostly driven by the increasing cost of education in India and abroad, these days more and more parents are availing education loans to support their children's academic aspirations. The phrase “education loan” has become very common for most parents as it has emerged as one of the most viable financial tools to cover a variety of education related expenses. Education loans enable students to access higher education opportunities that they might not be able to afford otherwise. They cover tuition fees, books, supplies, and even living expenses, making education more accessible to a wider range of individuals.

With the guidance of their parent, legal guardian, or a third party guarantor, students apply for education loans or student loans. The loan's goal is to pay for all costs associated with studying, including those for travel, health insurance, entrance, tuition, exam, and library fees, boarding, and accommodation, as well as the price of computers, books, and other equipment. Sending children abroad can cost at least 30 lakh, while high-quality higher education in India can cost anywhere between 10 lakh and 30 lakh. Education loans can significantly lessen the financial burden of the parents enabling them to keep their financial portfolio stabilized.

While the education loan can be the best option for the students to pursue their dream career in academic, there are certain factors that they should be clearly aware of before availing an education loan.

Here are five key pointers to keep in mind to avail education loan:

Loan eligibility

Before applying for an education loan, one should ensure s/he is eligible. Indian citizens with confirmed admission to a recognized higher education course can easily apply for an education loan, in which banks require an admission letter as proof. Lenders may require a co-applicant and proof of income to ensure repayment ability. Eligibility requirements may vary from bank to bank, so borrowers should confirm with the chosen lender before finalizing the loan.

Understanding terms and conditions

Before applying for a loan, borrowers should read and thoroughly understand the terms and conditions of the loan, including interest rates, repayment schedules, and any associated fees. They should be aware of whether the loan is subsidized or unsubsidized. Subsidized loans do not accrue interest while you are in school, during the grace period, or during deferment periods.

Collateral and guarantor required

Lenders may need a co-applicant or guarantor when students apply for student loans. If the loan amount reaches a specific threshold, lenders may in some situations also demand collateral or a third party guarantee to reduce their risk. Collateral like real estate, assets, or deposits can be used to secure student loans. The loan conditions and collateral specifications established by the lender should be carefully reviewed by the borrower.

Comparing lenders and loan options

Borrowers should research and compare education loan options from various banks and financial institutions and consider factors such as interest rates, processing fees, loan tenure, and repayment terms. They should check if the lender has tie-ups with educational institutions, as this can simplify the application process.

Interest rates

Interest rates are a crucial factor when applying for a student loan, as they impact the monthly EMI. It's essential to compare interest rates from different lenders before taking out a loan. Education loan interest rates can vary depending on the lender, course, and institute. Lower rates may be available to top institutes, women, reserved categories, and borrowers starting loan repayments during the moratorium period.