The rising cost of education makes it difficult to pay a lump sum amount in one shot, risking the possibility of running into debt. Instead, consider taking an Education Loan and paying in installments. Before applying for a loan, it is important to understand what an Education Loan is, how it works, the benefits, and how to manage loan repayment efficiently.
Documents required for an Education Loan
General documents for Education Loan in India
- Application form
- Identity proof (Aadhaar/ PAN card/ driver’s license/ voter’s ID/ passport)
- Age proof (birth certificate/Aadhaar/ PAN card/ voter’s ID/ passport)
- Address proof (Aadhaar/ PAN card/ driver’s license/ voter’s ID, electricity bill, telephone bill/ house rent agreement/ ration card/ bank statement)
- Passport-size photos of applicants and co-applicants
- Copy of admission letter to institute along with fee payment schedule
- Mark sheets and passing certificates (SSC, HSC, degree exams, national level entrance test)
- Income statements (salary slip/ IT returns for two years/ Form 16)
- Bank statements for six months
Additional documents for foreign admissions
- 1-20 form for USA admissions
- CAS letter for UK admissions
- Proof of passing competitive exams like GRE/ GMAT
How an Education Loan works
Education Loan meaning in India
If you’re wondering what student loans, also known as Education Loans, you’re in the right place. An Education Loan is a type of unsecured loan you can take in India to help fund the cost of education and related expenses.
How does an Education Loan work in India?
Now that you know what is a study loan, understand how it works. The bank loans you the funds to pay for your or your child’s education, and you can repay them in equated monthly instalments (EMI) as per the terms of your loan. When you apply for an Education Loan, you can choose the rate of interest, repayment tenure, and the EMI value as per your cash flows.
Education Loan planning
The best approach to understanding your repayment capacity is to leverage the use of an Education Loan calculator. This free-to-use tool allows you to experiment with different combinations and permutations of the interest rate, EMI value, and repayment tenure. You can arrive at a combination that best suits your needs.
However, these terms and conditions also depend upon your credit score. A higher credit score can give you access to lower interest rates and a longer repayment tenure. Hence, it is advisable to keep building your credit score and achieving a score of 700 and above.
Types of Education Loans
There are two main categories of Education Loans:
Federal student loans
This is a type of Education Loan by the government, offered under a government scheme. There are pros and cons to taking a federal loan. For instance, the interest rates will be lower. However, the value of the loan is also limited. The loan may also be for a public sector institute in India. You may not be able to opt for a private university in India or abroad, of your choice.
Private student loans
This is a type of Education Loan, which is offered by a private financial institution such as a bank, which comes with considerable flexibility. You can apply for a loan as per your real-time funding needs, and choose a repayment structure that suits your cash flows. A private student loan can be used to fund your education at a private or public sector institute in India, or abroad. Typically, the interest rates range between 8.5% and 16%.
Benefits of taking an Education Loan
- You need not liquidate your savings to pay for education, or borrow from family and friends.
- You do not need to make a lump sum payment and risk running into debt. Education Loans come with flexibility, enabling repayments in instalments as per your monthly cash flow cycles.
- As part of the Education Loan process, you can claim a tax rebate on the interest paid by you on your Education Loan under Section 80 E of the
Income Tax Act 1961.
- Education Loans come with a moratorium period of the course duration plus up to 12 months after which EMIs kick off.
- Education Loans cover tuition fees, and additional expenses such as accommodation, laptop, study material, and travel.
- Study at your dream university in India or abroad even if it is more expensive. Reap the power of choice.
Effective techniques for managing student loan debt
- Ensure that the cost of your programme aligns with the potential salary you can earn after graduation, to reduce the risk of debt.
- Seek admission to a credible institute and not a fly-by-night operator. If the latter shuts down you still need to repay the loan.
- Negotiate for a lower rate of interest and a higher tenure, so you have adequate time to repay the loan at an affordable cost. Be aware of the terms.
- Ensure that you have enough funds in your account to make the repayment. Missed payments result in penalties, which increase loan costs.
- Cut down expenses during your college tenure. Work part-time and grow your savings, so you can pay off your loan faster.
- Consider prepayment. This feature allows you to pay a one-time prepayment fee and the principal amount while reducing the interest paid.
Also Read: How to select the right Education Loan for you?
The takeaway
Now that you're aware of the Education Loan definition, consider multiple aspects such as benefits, your Education Loan eligibility, repayment potential, and terms of the loan during the application process. Axis Bank offers competitively priced Education Loans which enable you to pursue a quality education in India and abroad. You can access an Education Loan as low as ₹50,000 and up to ₹40 lakhs, based on your needs. The loan amount can cover tuition, accommodation, travel, study material, among all expenses. You can take up to 15 years after graduation to repay the loan.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
