Essays

Until a few years ago, higher education and quality education was not affordable to some illustrious students because of the financial constraints. There was no alternative but to jump in the job market prematurely which led to untimely end of budding talents and their forceful transformation to the mediocrity. Of course, there were scholarships, but those were so less in numbers that only luckier few could avail them. But now the scene has changed drastically.

The boom in the banking sector has led to release of large amount of funds for education loans. Now, education loans are easily available from various banks in India and this change is encouraging more and more students to take up higher education despite their financial shortcomings. Many nationalized as well as private banks have come up with various educational loan schemes that students can benefit from. The wave of change could be well gauged from the amusing situation that immediately after the results announcements of CAT or PMT/ IIT JEE, the representatives of the banks queue up for giving education loans to the successful candidate even with very flexible conditions. This scenario is certainly helping the illustrious students to pursue higher education and realize their dreams.

Some of the hanks which provide educational loans are Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Catholic Syrian Bank, Central Bank, Dena Bank, Development Credit Bank, Federal Bank, HDFC Bank, ICICI Bank, IDBI, Indian Bank, Indian Overseas Bank, Karnataka Bank, Mysore Bank, Oriental Bank of Commerce, Punjab and Sind Bank, Punjab National Bank, State Bank of Hyderabad, State Bank of India, State Bank of Indore, State Bank of Mysore, State Bank of Saurashtra, Syndicate Bank, UCO Bank, United Bank Of India, United Western Bank, Vijaya Bank, and Vysya Bank.

Due to such large number of banks providing educational loan facilities, students pursuing Higher Education do not have to struggle hard anymore to finance their studies. Further, private foreign banks also seem to be interested in funding students, enthusiastic enough to announce scholarships for bright and deserving students. With professional education becoming mandatory for people across the country a student loan seems the most effective way to tide over these expenses. Most students expect to land high salaries at the end of their professional training and are likely to be in a position to repay these loans over a period of time. The eligibility criteria for getting a loan is that the applicant should be an India National, the applicant must have  secured admission to professional/ technical courses through Entrance  test or Selection process.

In order to choose a loan, ideally, loan should be taken from a bank Located at your place of study than one located where you reside, unless It concerns overseas studies. This is because you will have better access to funds if you take a loan from the place of your study. Secondly, make sure the repayment period starts only after six to twelve months after you begin your working life. And thirdly, banks typically prefer to finance students who opt for traditional courses. Among the professional courses,, management students are among the top choices for most of  the banks. Technology, medical and engineering students from the country’s premier institutions can also get student loans from banks. However, banks do not provide loans for students with a bachelor's/ Master’s in Arts. Also, for courses where employment prospects are less (as per hank's own evaluation), loans are sanctioned on the basis of the Parents’ income.

Most of the Public Sector Banks in India have categorized Student Loans in two categories. For studies in India, students can borrow up To Rs.4 lakh without providing any security or margin. A loan amount Of Rs. 4 to 7.5 lakh can be availed against a third-party guarantee. This Loan comes with a five per cent margin i.e. you will get five per cent less the amount sanctioned as loan; you will have to put together the Rest of money. The third-party guarantee can come from an uncle, Neighbor or friend standing guarantee for the full amount.

For overseas study loans, amounts worth 7 lakh and above are usually sanctioned against fixed deposits, NSC certificates, property worth the loan amount and a margin amount of 15 per cent. Also, if a loan below 4 lakh comes at x rate of interest, the loan over 4 lakh is usually charged one per cent higher interest. The Reserve Bank of India prescribes the specifics such as amount, rate, repayment period, etc. of education loans and the Government provides a two per cent subsidy on these loans to the banks.

However, seeing the rising rate of default, the Indian Banks' Association (IBA) had set up a working group to address the issue. The group has submitted its findings to the Reserve Bank of India and the main suggestion is to make it mandatory for parents or guardians, of   the student borrowing loans, to be co-borrowers thereby making them liable for repayment.

While applying for a student loan, all students are required to submit mark sheets of last qualifying examination, proof of admission, schedule of expenses for the specified course, his/her bank account statement for the last six months, an income tax assessment order for the previous two years, a brief statement of assets and liabilities of the co-borrower, which is usually the parent or guardian and proof of income, if any. Other than the above, some banks require all or any of the following documents as pre sanction documents that are to be furnished along with the completed application form: Copies of foreign exchange permit, if applicable; 2 passport size photographs; and if you are not an existing bank customer you would also need to establish your identity and give proof of residence.

Presently, the student loan segment is being viewed as vast untapped potential and almost every prominent bank in the country has a student loan scheme in some form. What matters the most to an individual is obviously the cost of credit terms and conditions for education loans. These, like any other loan, vary among banks. Besides pricing of the product, the most important thing is documentation requirement and the quality of service offered by the bank and the speed at which the loan is approved. Some banks, such as SBI, also give you a choice between fixed and floating interest rate. Whereas, private and foreign banks offer loans with a fixed interest rate, some banks charge interest on a daily or monthly reducing balance. Some banks including the State Bank of Hyderabad and the Union Bank of India are offering special rates of interests for girl students availing educational loans.

There is a scheme under which public sector banks will soon start offering insurance-linked education loans. The insurance premium will be a part of the expenses for the loan. The Indian Banks' Association (IBA) has put together a model education loan scheme that entails a higher quantum of loan. Even as the scheme becomes more expensive, lending standards will become tighter for loans for overseas education. The loan limit would increase from? 7.5 lakh to Rs 10 lakh for studies in India and from 15 lakh to 20 lakh for studies overseas. Further, there will also be a provision of top-up loan for students for further studies. A cap has been fixed for the cost of such loans—the rate of interest should not exceed the benchmark prime lending rate (BPLR) for loans up to 4 lakh. For loans over this limit, the rate of interest should not him more than 100 basis points over the BPLR.

Under the scheme, life insurance policies and mutual fund units will he treat as permissible security for the loan? Banks will offer education loans for aeronautical engineering, pilot training, and shipping training, as part of eligible courses. The norms will, however, be stiffer for loans to overseas education. For loans between 4 lakh to 7.5 lakh, hanks will impose more restrictive security by including co-obligation of parents. Also, banks will charge upfront, the processing fees for education loans for studies abroad. Banks will also issue a unique identification number or an identity card for loans for studies overseas.