The Ultimate Guide to Student Loans in India: Eligibility, Application, and Repayment Tips : Higher Education is one of the most critical stages in Student’s Lives, yet it happens to be very Expensive. With increasing Tuition and Ancillary Fees, Living Costs, and Extras, funding for Higher Education has become very difficult for many families to Finance.
One of the prerequisites of many an aspirant, who wants to fulfill his academic and professional ambition, more so in a country like India where education is considered a gateway for a successful career and a way to develop one’s personality, has become student loans.
Understanding the Need for a Student Loan
In India, higher education either within or outside the country tends to be expensive. Most of the institutions that provide professional courses, such as engineering, medicine, and management, have a premium tuition fee. In addition, living in metropolitan cities where most of the major universities and colleges are can contribute more to this expense.
Therefore, middle-class family students cannot afford the cost of higher education. This is where student loans do a very important job. They fill this financial gap so that students can pursue their dreams without putting an immediate financial burden on the family.
Eligibility Criteria of Student Loans
Before applying for any student loan, one must be aware of the eligibility criteria set by the Banks or any other Financial Institute in India. Though they slightly differ from one lender to another, generally they include:
- Citizenship and Age: Must be an Indian Citizen and lay within the age group, generally decided by the Banks, which usually falls between 16 – 35 years.
- Admission to a Recognized Institution: Admission must be assured into a recognized institution whether in India or Abroad. The course that is going to be pursued must be a graduate, postgraduate, or diploma program with an employment–oriented course content.
- Academic Record: A strong academic record can sweeten the chances of loan approval. Most banks require a minimum of 50% marks in previous qualifying examinations.
- Most student loans still require a cosigner, who is usually a parent or guardian, for the loan to go through. The approval takes place with regard to the income of the co–applicant as well as their credit history.
- Expenses Covered by the Loan for the Course: It usually covers the tuition fees, examination fees, hostel charges, the cost of the books, and other related costs towards the course of study. Some banks also include travel expenses of students going abroad for studies in this category.
Documents of the Co-Applicant / Guarantor
A Joint Applicant is an applicant who on an application of loan or credit applies and is responsible for an equal-amount of repayment for the same. The financial information given by them is considered primarily. The loan approval likelihood increases with the availability of a joint application. Both applicants are equally responsible for the loan amount. This again usually involves spouses/family members as co-applicants.
- Identity and Address proofs.
- Proof of Income: Salary slips, IT returns, and bank statements for salaried individuals; GST registration, profit and loss statements, financial records for self-employed individuals in case of clarifications.
- Property Documents: In case a collateral-based loan is applied for.
CIBIL Score and Loan Approval
In the process of loan approval, a co-applicant CIBIL score becomes very important. Again, it is through a CIBIL score that a lender will check on the creditworthiness of the borrower for many things.
- High Chances of Approval: A high CIBIL score would mean that one would definitely have a low CIBIL score, which increases the probability of getting approval of a loan. In most of the cases, the score of below 600 will result in outright rejection or approval at higher interest rates.
- Amount and Terms for Loan: Higher loan amounts with flexible repayment options, including lower interest rates, may be approved for individuals having good CIBIL scores.
- Interest Rates: A good CIBIL score will allow the borrower to have the loan at a decreased interest rate; hence, he/she pays a lesser amount in interest.
Most lenders consider the best CIBIL score as a sense of your financial reliability, and that can go a long way in determining the status of your loan application.
Documents Needed
To apply for a student loan, you will need to use and produce some important documents that are part and parcel of your application for the loan. Some of the required documents include:
Documents from the Student Applicant:
- Identity Proof: Aadhaar card, PAN card, passport, etc.
- Address Proof: Passport, Aadhaar card, driving license, etc.
- Academic Record: Mark sheets from 10th onwards and Entrance Exam results.
- Proof of Admission: Admission letter of the academic institution.
- Cost of Study: Statement of expenses and course prospectus.
- Photographs: Two passport-size photograph.
Steering Through the Application Process
There are a few steps involved in the process of applying for an education loan in India, and quite a bit of preparation does help in going through the experience more smoothly and efficiently.
- Research and Compare Loan Options: Compare different banks and other financial institutes with their terms related to student loans. Compare interests, loan tenure, processing fees, and ways repayment is done. Some banks offer special schemes for economically weaker sections or students in certain fields of study.
- Gather all the relevant documentation in advance: Ensure you have all the necessary documents, such as a letter of admission, course fee constructions, academic papers, proof of identification, residence and, if applicable, the income and tax returns of the co-applicant.
- One can fill an application form and apply for the loan with the required documents, after making out the best choice for a loan. Some banks have the facility of applying online, and use may also foster the rate of process.
- Loan Processing: After submission, the bank will process the loan. All submitted documents are checked, and the student along with the co-applicant can be contacted/visited as necessary. If the loan is sanctioned, the bank issues a sanction letter whereby the amount of loan is ideally disbursed directly to the educational institute, towards tuition, hostel, and all other approved fees.
Repayment Period:
Repayment of the student loan usually starts after the course ends. Most banks operate with a moratorium period also termed as a repayment holiday, through which a student can only start repaying the loan when they secure a job. The calculated moratorium period is the time taken to complete the course and another 6 to 12 months. The interest begins to accrue in this period, offering the choice to students to pay only simple interest or accrue it.
How to Manage Student Loan Repayments
Managing student loan repayments can be difficult for any student, more so for fresh graduates who have just joined the workforce. Here are a few tips that can help in the effective management of repayments:
- Budgeting: Make a budget in which the monthly loan payment amount is to be included and stick to it. First and foremost, pay off your loans to avoid any penalty and to build a good credit history.
- Repayment Options Step-up EMIs: Repayment options in which the EMI amount increases with each increase in income Extended loan tenure to ease out on the monthly burden
- Pre-Payment and Part-Payment Options: Make prepayment or part payments as much as possible in order to reduce the outstanding principal and save on interest costs. Most banks do not levy a prepayment penalty for student loans.
- Monitor Your Credit Score: Making timely payments on your student loan will boost your credit score, which can help you when applying for things like a home loan or credit card in the future.
Education Loans for Studying Abroad:
- Indian students can also get educational loans if they plan to study abroad.
The eligibility criteria for an educational loan in this case are as follows:
- Admission Confirmation: Admission in foreign universities/institutions should be having tie-ups with bankers.
- Loan Features: Education loans for studying abroad would typically include tuition fee, living expenses, travel, and other education-related expenses. Depending on the course and the study destination, a few banks may offer up to ₹45 lakh or higher.
- Collateral Requirements: For secured loans, the banks will request and assign collateral — a term used to describe mortgage or assurance of property. In this regard, unsecured loans are also available of ₹4 lakh where there is no such requirement.
- Interest Rates and Repayment Terms: Interest rates vary from lender to lender, and loans tend to be flexible in their repayment terms. They also have a grace period after the completion of the course.
Application Process
The steps mentioned below are a way forward in the process for application regarding a student loan in India:
One must search for banks and compare loan terms and conditions to get the better option.
All Necessary Papers: According to the requirements of the bank, all the necessary papers must be gathered.
- Applicants Apply Online: Same with SBI, HDFC, Axis Bank, and others ─ the applicants are able to apply online at the desired bank’s website.
- Submit Documents: Documents to be uploaded or submitted.
- Processing of the Loan: Once your application is received, the bank is going to process and verify all the uploaded documents. Should the loan be approved, you are going to get a sanction letter with the amount of the loan and all the terms and conditions through which you are going to repay the loan.
- Disbursement: If one agrees to the terms of the loan, then it will be disbursed to the learning institution on the fee structure.
Government Schemes for Education Loans
The Government of India, on August 15, 2015, launched an online portal to facilitate students in availing educational loans from banks. The arrangement was worked out among the Department of Financial Services, the Department of Higher Education, and IBA.
The portal was created following the announcement of Pradhan Mantri Vidya Lakshmi Karyakram in the 2015-16 budget by Union Finance Minister Arun Jaitley. It had initially been integrated with 5 banks including SBI, IDBI Bank and Bank of India, which expanded over the years. Now, as of August 15, 2020, it has 37 registered banks featuring 137 different loan schemes.
Vidyasaarathi Portal:
- Due to the ever-increasing cost of education, NSDL e-Governance launched the Vidyasaarathi Portal to aid students even further. This can be regarded as an initiative on the company’s part in helping students get scholarships to pursue their studies in India as well as abroad. This would help to ease the financial pressure of higher education.
Vidya Lakshmi Portal: A Gateway to Education Loans in India
- The Vidya Lakshmi Portal, launched on August 15, 2015, simplifies the process of applying for education loans in India. Developed by the government in collaboration with the Department of Financial Services, the Department of Higher Education, and the Indian Banks Association, it now features 37 banks offering 137 loan products.
Key Features of the Vidya Lakshmi Portal:
- Single Application: Apply to multiple banks for an education loan using one application form.
- Wide Choice: The portal will provide you with access to a wide array of loan schemes from multiple banks.
- Online Tracking: Track the status of your loan application online. It will also bring transparency.
- Direct Contact: You can also contact the banks directly for any query.
The Application Procedure via Vidya Lakshmi Portal
- Register: Visit the Vidya Lakshmi website and register for an account.
- Apply Application: Enter information about your course, college, loan amount, etc, and personal information.
- Choose Banks: You can select up to three banks of your choice for apply.
- Upload documents: Upload the required documents as per the bank’s requirement.
- Check Status: Online you can check the status of your application through Vidya Lakshmi portal.
Why Apply from Vidya Lakshmi Portal
- One Window Solution: You can fill only one form instead of the bunch of forms for each bank.
- Large Number of Banks: Get details of various loan schemes according to many banks.
- Transparency: You can track your application status online.
- Direct Communication: Through the portal, you get to communicate with banks directly.
- No Hidden Charges: There are no hidden charges, and the loan application process is kept very straightforward.
Indeed, a student loan is almost the only alternative for the student who is on fire to continue further with studies but cannot finance themselves, more so financially.
Therefore, it becomes super easy for just about any student to go right ahead and apply for a loan through the portal to access the finance quite easily for the course of their choice.
Conclusion
Student loans, whether in India or abroad, meet the financial requirement for higher education. Key factors include citizenship of the country, good academic results, and a co-applicant with a steady income. A good CIBIL score for the co-applicant enhances approval chances and better terms.
Government portals are there, such as Vidya Lakshmi, which eases the stress out of the application process. Proper documentation and research regarding the lenders are key to the best available loan options.
Written by – Lavanya