Education Loans in India – understanding the basics- formalities and repayment

This article is the second part in the series of education loans in India. Like the previous article, this post too describes a few more important aspects of taking an education loan.

Security to be provided for education loan in India

• Security for loans up to Rs. 4 Lakh – No security is required but parents must be joint borrowers
• Security for loans between Rs. 4.0 - 7.5 lakh – Parents must be joint borrowers plus a collateral security like a third party surety. It is at the discretion of the banks to cancel the third party security sometimes.
• Security for loans above Rs. 7.5 lakh – Parents must be joint borrowers plus some tangible asset (land, property, gold, etc) of required value and assignment of the student's future income for repaying the installments.
• If the loan is availed by joint borrowers, then both parents and students must execute the loan document. Land, property, building, bonds, government securities, shares, mutual funds, gold, bank deposits, debentures, tangible assets, etc., can be given as security.
• If an already mortgaged house or building is used as security then the unencumbered part (part free from any debt/liability) maybe taken as security on the basis of second charge, given that it covers the requisite loan amount.

Education loan in India

Rate of interest charged for education loan in India

The rate on interest is not fixed and is depends on the base rate of banks fixed by the RBI. Base rate is the rate below which banks cannot give loans. Simple interest is applicable on the loan amount during the study period and before start of loan repayment. The payment of interest is optional during this period. After this period, when the EMI will be fixed, this accrued interest will also be included in the principal amount. Banks may provide a concession of 1% if payment of interest was regular during the study period and before start of loan repayment.

Also See: Education Loans in India – understanding the basics - Eligibility and limits

Approval process of education loan

• One can apply for education loan either manually or by online mode.
• The bank will provide an acknowledgement number after the application in received.
• If all the documents are correct and properly filled, the loan can be approved within 15 days or it may also be rejected.
• The future income generating aspect of the student is also taken into consideration while approving or rejecting a loan application.
• After a loan is approved, the amount will be disbursed in installments at various stages of your course.

Repayment of education loan

Education loan repayment will commence one year after completion of the course or 6 months after acquiring a job, whichever is earlier.
• In case the course is not finished within the given period of time, an extension of two years will be provided.
• If the course is still not completed even during the extension period, it is at the discretion of the bank whether or not to increase the extension period.
• If the student has discontinued from the course, banks fix a suitable repayment amount after consulting the student and parents.

Tenure of education loan repayment:

• For loans up to Rs.7.5 lakh: 10 years (Maximum)
• For loans above Rs. 7.5 lakh: 15 years (Maximum)

A person usually tends to earn less at the beginning of his career and due to this the banks may make the process of EMI a bit easier by allowing a stepping EMI facility. This means that the EMI will be less at the beginning but will be gradually increasing with time.
There are usually no processing charges on loans taken for studies in India. But some processing fees might be charged for studies abroad, which will be reimbursed after the student takes up the study program. There is no penalty if the loan is repaid early.

Also Check out: Guarantor Loans - What They Are and How They Benefit You

Miscellaneous features of education loan in India

• Depending on the financial position of the student, banks may provide a financial capability certificate, which is necessary for studying abroad.
• If the parents have already taken an education loan for one child, then it may have an effect if they want to take loan again for another child in the same family.
• There is no age limit for taking an education loan in India.
• Additional or top-up loan will be given if further study is required during the moratorium period (period until loan repayment begins).
• For unmarried students, usually parents or guardian will act as joint borrowers. But for married students, either the spouse or parents/in-laws may act as joint borrowers.


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