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1. What are the different courses for which banks provide educational loan?
Ans: Banks provide educational loans to pursue a wide variety of courses like school/graduation courses, like High School, B.Sc., B.Com., B.A., etc.
» Post-graduate/specialized courses, like B.Sc., M.Sc., B.A., M.A., B.Com., M.Com., etc.
» Professional courses, like M.B.A., M.C.A., B.E., M.E., B.Tech., M.B.B.S., etc.
» Some other courses include computer courses, fashion designing, commercial pilot training, etc.
2.What all expenses are covered under education loan?
Ans: Most educational loans cover the costs of tuition fees, hostel fees, mess fee as well as examination fees. Some banks also finance the cost of books, equipments and other instruments required by the student for that course. For studies abroad, banks also provide one-way air fare.
3. What are the eligibility criteria for an educational loan?
Ans: There major eligibility criteria for a student to get an educational loan are that the student must has qualified for, or must have a confirmed admission in a college or institute. Some banks even consider the age band, i.e. the student applying for the loan must be in the age group of 16-26 or some such specified range. Some other criteria are good academic record; a regular source of income for the parents as well as recognition granted to the institution the student has opted for is also an important criterion.
4. What is the maximum amount that can be availed under educational loans? / How is the maximum loan amount calculated?
Ans: The maximum loan amount varies from bank to bank, but, most importantly, it depends on the course for which the loan is sought and the institution chosen. For example, the loan amount for an M.B.A. course would be different for different institutes--the fees at I.I.M.'s would be approximately Rs 2 Lac, whereas at Somaiya it would be Rs 80,000. Hence the loan amount will vary drastically. But many banks have a margin criterion, which means that they would provide up to 75 per cent or 90 per cent of the total cost of the course, while the balance has to be paid by the applicant. The loan amount can also depend on the borrower's parents/guardians net monthly salary. The loan amount could also be calculated as being six or 10 times the monthly salary of the parent. Ultimately, however, the loan amount would depend on the discretion of the bank.
5. What kind of security does a bank agrees to?
Ans: The security mainly depends upon the amount of loan as banks do not require security for a loan of up to Rs 4 Lakh but would require it for amounts greater than that. National Savings Certificates (NSCs), bonds, gold, vehicle, house or property, etc are some of the securities that bank agrees to. Some banks might also require the applicant to have a life insurance policy equivalent to, or greater than, the loan amount.
6. What are the documents required for an educational loan?
Ans: Almost all banks to a certain extent require same documents. Some of the most important documens include proof of confirmed admission from the college/institute that the student has a confirmed admission there. proof of residence of both the student as well as his parents/guardian, proof of age of student as some banks do not finance a student above a certain age limit. Proof of regular source of income i.e. salary statements, IT returns, etc that the parents/guardians have as well as student’s past academic records.
7. What is a holiday period?
Ans: The maximum time given to the student before he/she needs to start paying back the principal loan in Equated Monthly Installments (EMIs) is called the holiday period. It can also be seen as the period between the student's final examination in the course for which the loan was availed and when he/she actually starts paying the EMIs. Typically, it ranges from six to 12 months.
8. How does the bank disburse the loan amount?
Ans: All banks disburse the educational loan directly to the institute/college to which the student has applied for admission. For mess and hostel charges, the relevant amounts is given to the concerned authorities. Even for air fare that is given to students for education abroad the amount is given directly to the airlines. Some banks may give the students themselves a certain amount on a monthly or quarterly basis for purchasing books, equipments and other related material associated with the course.
9. Why do banks require an insurance policy?
Ans: When the loan amount is greater than a lakh, banks usually prefer students to have Life Insurance Corporation (LIC) policies equivalent to, or more than, the loan amount. This is nothing more than a security feature that also forms a part of your collateral. In case the student is not able to pay back the loan, the bank does not lose money on it and can recover the outstanding amount from the student's LIC policy.
10. Why does the repayment of education loans taken for school/high school/graduation studies start immediately?
Ans: In the case of educational loans taken for school/high school/graduation courses, the student is not the borrower; his/her parents or guardians are. And since it is assumed that they have a steady source of income, the loan repayment can start immediately without any holiday period. Hence the repayment starts immediately.
11. Is there any special privilege for students in the Scheduled Caste/Scheduled Tribe (SC/ST) category who avail of educational loans?
Ans: Yes, special privileges, in terms of eligibility and margin money, are given to Scheduled Caste/Scheduled Tribe students availing educational loans. The eligibility criteria are lowered from first/second class to pass class for SC/ST category students. Further, the margin money for them is sometimes nil or lower than the normal amount. Only nationalized banks offer these privileges to SC/ST students, and not private or foreign banks. Even with nationalized banks, one needs to properly check out these privileges beforehand.
12. When do I need to apply for a loan?
Ans: One major criterion that banks seek is confirmed admission. So, once the student has secured a confirmed admission in an institute, along with a break-up of fees and other related issues from the college, he/she can approach a bank for an educational loan.
13. I don't have a continuous track record of First Class, but I have secured admission in a reputed institute. Will I get an educational loan?
Ans: Yes, a good academic record is essential, but not compulsory. A lot depends on one's relations with the bank, and the bank has a sole discretion over the disbursement of the loan. Also, a lot depends on whether you are able to provide the collateral required by the bank. If both of the above factors are in your favour, you could be the lucky one to get an educational loan from the bank for your further studies.
14. Why are guarantors required?
Ans: Guarantors are essential for sanctioning of loans. Usually, a guarantor is required so that if the applicant fails or becomes incapable of repaying, the guarantor will be responsible for clearing the debt. Usually, a guarantor so chosen is a person with a net worth (i.e., annual income) equivalent to, or more than, the loan amount.
15. Will I get an educational loan for `payment seats' also?
Ans: Yes, one can get an educational loan for payment seats too. Usually, the banks have a ceiling for each course, and, based on that, they decide the loan amount. So long as the loan amount does not cross that ceiling, the student can be assured a loan, provided he/she satisfies the other eligibility criteria.
16. What are `professional courses' and `other courses'?
Ans: Professional courses are ones that are very specialized, like M.B.A., M.C.A., M.B.B.S., Engineering, C.A, Architecture, etc. These courses are usual graduation courses spanning three to four years, but since they deal in very specialized fields, they are termed `professional courses'. `Other courses' are those that are not included in any other category, like school/graduation, post-graduate and professional courses. These could include courses like fashion designing, computer courses from reputed institutes or courses affiliated to the Department of Electronics, etc, commercial pilot's courses, and courses for fine arts.
17. What is the margin amount and how is it calculated?
Ans: A margin amount is the amount that the applicant pays through his/her pocket. A bank can either pay 100 per cent of the cost of studies or a certain percentage of the total cost. The margin is usually the amount not covered by the bank for the payment of the essential and necessary fees to the college/institution. Consider an example: Bank XYZ offers a loan for an M.B.A. course, and the margin is 10 per cent. Here, 90 per cent of the cost of the course will be borne by the bank and the balance 10 per cent has to be borne by the student/applicant.
18. Is the student's age a major consideration while applying for an educational loan?
Ans: This again depends on the bank and its discretion. Quite a few of the nationalized banks follow the criterion of sanctioning loans to students falling in a particular age group, e.g. 15-25 years. But this is not so with private and foreign banks. It is always safe to check with your bank first for all the details regarding eligibility.
19. Will air travel fare be given by the bank as part of the educational loan?
Ans: That depends on the bank concerned. Some banks provide for air fare, applicable only once, and one-way, at the time of joining the course. This is given to students going abroad for further studies, and is not applicable for students going for domestic studies. The money for the one-way fare is given directly to the airline concerned, and not to the applicant.
20. Is it necessary to have an account with the bank to avail of an educational loan?
Ans: Initially, this used to be important criterion with nationalized banks. Now, however, with more relaxed norms, it is not mandatory to have an account. However, if one does have an account with that particular bank, it becomes easier to get the loan sanctioned. This is because the bank can examine your past financial records and transactions, and make a decision quickly.
21. What do banks mean by `recognized' and `reputed' institutions?
Ans: `Recognized' institutes refer to those that are affiliated to the State/Central universities and come under the Central government's University Grants Commission (UGC) programs or the All India Council on Technical Education (AICTE). The majority of the colleges fall within the ambit of the UGC and AICTE. `Reputed' institutes are those that are pretty well-known and have standard courses of repute. The definition of `reputed' institutions might vary with banks, which usually have a list of colleges and institutions that they consider reputed. Hence, you need to check with the bank whether it will finance courses run by that particular college/institute.
22. How are my second- and third-year fees going to be disbursed?
Ans: The fees for all the years will be disbursed to the college/institute directly. Initially, while applying for a loan, the bank will verify the tenure of the course, and determine the cost of the entire course, as applicable at that point of time. Then, each year, the applicant is required to submit a form available from the bank that gives the details of the money required, and then the bank directly disburses the loan to the college/institute.
23. Can educational loans be availed for part-time courses/distance-learning programs (correspondence courses)?
Ans: Most of the banks prefer not giving loans for part-time or correspondence courses, but ultimately it all depends on the bank's discretion and your relation with the bank. Since eligibility criteria are relaxed for these types of courses, and the chances of getting a good job after such courses are generally bleak, and also assuming that the applicant would be already working somewhere, banks prefer to stay away from financing these kinds of courses. But there are banks like the State Bank of India that provide students' loans for part-time and correspondence courses.
24. What is an interest portion and EMI?
Ans: The interest portion is the amount paid by the student during the time of his course that starts immediately from the month following the loan disbursal. During the tenure of his course, he/she keeps paying interest to the bank, whereas the main principal is only paid at the end of the holiday period. EMI or Equated Monthly Installment` is the amount payable by the student after the end of the holiday period that includes a certain portion of interest and principal. EMIs are calculated on a quarterly reducing basis.
25. Can a minor avail of an educational loan?
Ans: No, a minor cannot avail of an educational loan. But his parents/guardians who satisfy the eligibility criteria can do so. Banks assess the individual's repaying capacity at the time of disbursing the loan, and, hence, minors are ineligible for educational loans
26. What happens if I take a break from my studies?
Ans: If, for any untoward reason, you are unable to complete the course, you will have to start paying the EMIs immediately. Some banks might give the students some grace period, either to continue his/her studies or to start repaying the loan. But this is entirely the bank's discretion.
27. Is there a penalty for pre-payment?
Ans: That depends on the bank. Nationalized banks do not have any pre-payment charges, but private and foreign banks usually charge a penalty, which usually ranges from 0.25 per cent to 2 per cent of the outstanding loan amount.