How to compare education loan schemes of banks and private companies

While educational loan schemes of all banks follow the model outlined by Indian Banking Association (IBA), the schemes differ significantly in terms of eligibility, cost heads to be covered, collateral and third party guarantee requirement, margin requirement, moratorium period, repayment and prepayment terms, processing fees etc. In this post, we provide the key parameters that a student borrower should compare and evaluate before deciding to take an educational loan.
  • Large public sector banks such as SBI and Canara Bank offer education loan at relatively lower interest rates as compared to specialized education loan companies like Credila and Avanse and may not even charge processing fees
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Leading private education loan providers such as Credila and Avanse charge slightly higher rate of interest and processing fees on education loan, but provide several additional benefits that government banks do not offer:
  • Pre-approved loans that prevents an undesirable scenario where the borrower may be unable to get a loan sanction even after he/she secures an admission in the course of his/her choice
  • Customized repayment schemes such as step up EMIs or an option to service partial interest during the course duration and moratorium
  • Easy processing and documentation along with fast turnaround time of 3-4 days compared to public sector banks which may take 10-15 days
  • Collaterals accepted from extended family of the student including brother-in-law and sister-in-law

Course cost heads covered under education loans

Every bank has its own definition on the type of expenses and amount of expenses that they cover under education loan. Before deciding on an education loan offer, it is important to compare the amount of loans that different banks can provide based on their inclusions and exclusions in education loan.
Cost heads that are covered by all banks
  • Admission fees including Monthly Fees and Examination Fees and Caution Money
  • Books, Stationery and Equipments
  • Airfare for joining the course abroad
  • Boarding & lodging expenses of authorized hostel or boarding house
  • Expenses required for completing the courses like those on study tours, project work and thesis etc.
Cost heads that may be covered partially by few banks
  • Airfares – may be restricted to economy class fares and 10-20% of total expenses
  • Life insurance premium – most banks will insist on a life insurance equal to loan amount for the student but only some banks will fund the premium for the same as part of education loan
  • Costs of books, stationery and equipments may be capped to a certain % of total educational loan
  • Expenses required for completing the courses like those on study tours, project work and thesis etc.
banks such as SBI and HDFC Credila are even willing to lend up to Rs 30 lakh without any collateral for admissions to reputed institutions such as IITs/IIMs etc.

Maximum loan amount eligibility and margin money required

In addition to the cost head inclusions, lenders also have a cap on overall loan amount they provide and would also require the borrower to pay a certain % of the cost of the education from his pocket (known as margin money). The overall cap, margin requirements and cost head inclusions will together determine the amount of loan that a student borrower can get:
  • Lenders such as SBI and HDFC Credila are willing to extend loans of up to Rs 30 lakh for reputed courses outside India, compared to other banks which provide a maximum of Rs 10 lakh loan for studies in India and Rs 20 lakh loan for studies abroad.
  • Most banks have a stipulation of charging a 5 % margin (own contribution) on loans above Rs 4 lakh for studies in India and 15 % margin for studies abroad. However, Credila and Avanse provide loans of above Rs 4 lakh as well at 0% margin subject to the borrower meeting their eligibility conditions.

Do you need to provide collateral security or third party guarantee

Banks which follow the IBA model educational scheme, offer collateral free loans of up to Rs 4 lakh and loans with third party guarantee of up to Rs 7.5 Lakh. However, for loans above Rs 7.5 lakh, most of the banks insist for collateral in the form of a property.
If as a student borrower, you do not have a family property to mortgage or are not willing to mortgage your family property, no need to worry as there are a few banks and NBFCs which are willing to offer loans of higher amount without 100 % mortgage.
Banks and NBFCs such as SBI, IDBI Bank and NBFCs such as HDFC Credila and DHFL Avanse offer unsecured education loans even for amounts as high as Rs 13-25 lakh, but the offer is mostly limited only to the well reputed and recognized professional courses and degrees offered by the top notch or top ranked institutes in India and abroad. In such cases, banks are more assured of the borrower’s employability and hence, their ability to service/repay his/her loan post completion of the education programme.
Compare Education Loan News - Dec 2016
03rd Oct 16 Bihar CM Nitish Kumar launches Student Credit card
Nitish kumar launches a student credit card scheme for the students who have passed senior secondary education and wish to persue higher studies. This will be treated as Education Loan. The withdrawing limit will be upto 4 lakhs where interest rate will be born by the Bihar government.
14th Sep 16 Cabinet clears student credit card scheme
The state cabinet gave its nod to Student Credit Card Scheme. Under this scheme, the 12th passout students can take education loans of up to Rs 4 lakh for pursuing higher education. The government will act as guarantor and provide support to the students to get loan from banks. The students who take admission to any recognised institution will be eligible for loan, irrespective of their financial background. The Bihar government will sign a memorandum of understanding this month with the banks and the interest rate will be kept at 2 per cent above the benchmark rate.
14th Aug 16 SBI raises education loan cap five-fold to Rs 1.5 crore
State Bank of India has increased its limit for overseas education loans to Rs. 1.5 crore from Rs. 30 lakh currently. SBI is also increasing loan amount of government guarantee loan to Rs. 7.5 lakh from Rs. 4 lakh. SBI is an improving demand for education loans since it combined with the government Vidya Lakshmi portal, and 10 percent of its education loan applications are already through the portal. The current education loan book of SBI stands at Rs. 15,000 crore and it is expecting a growth of 15 per cent and 20 per cent in number of loans disbursements respectively
23rd Jul 16 Banks cut education loan rates, bring them down to 2008 level
State Bank of India, Bank of Maharashtra have reduced interest rates on educational loans by about 25 basis points over the past weeks. This move has brought the interest rates down to 2008 levels. Depending on the tenure and the loan size , the new interest rates for loans are between 10.8% and 12.2% at public sector banks. Banks had charged interest rates higher than 13% for the previous year. Top private Banks, ICICI Bank and HDFC Bank have reduced their interest rate on educational loans by nearly 200 bps since June 1, to between 13% and 17%, with loans being half a percentage point less for girl students.
29th Jun 16 Odisha announces higher education loan at 1 per cent interest
Economically weaker students aspiring to pursue professional and technical education can now avail study loan up to Rs 10 lakh at one per cent interest rate. The state government will create a corpus of Rs 500 crore from its own resources for the subsidised loan scheme christened Kalinga Sikshya Sathi Yojana (KSSY). The subsidized higher education loan was part of BJD election manifesto before the simultaneous Lok Sabha and state assembly elections.
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