Educational Loan in India
Scope:
The education loan is expected to grow at a rate of 32.3 per cent in 2009-10 and
At 39.8 per cent each in 2010-11and 2011-12 and
44.8 per cent during the period 2012-13 to 2014-15.
Outward remittances for overseas education in the year ending March 2013 was $114 million
Objective & Purpose:
The Educational Loan Scheme aims at providing financial support from the bank to deserving/ meritorious students for pursuing higher education in India and abroad. The main emphasis is that every meritorious student is provided with an opportunity to pursue education with the financial support on affordable terms and conditions
Eligibility Criteria:
For Student :
Should be an Indian National;
Secured admission to professional/technical courses in India or Abroad through Entrance Test/Merit based selection process.
Good academic career.
The student should not have outstanding education loan from any other Institution.
Father/Mother should be co-borrower.
Branch nearest to the permanent residence of student will consider the loan
Design elements for classification of education loans
a. Loans to students admitted to top rated institutions
b. Loans to students admitted to other domestic institutions
c. Loans to students seeking studies abroad.
Depending upon risk perception, reputation of the institution and employability of the students banks have to fine tune their terms and conditions of sanction suitably to these categories.
Courses Eligible for Loan:
Studies in India: (Indicative list)
Approved courses leading to graduate/ post graduate degree and
P G diplomas conducted by recognized colleges/ universities recognized by UGC/ Government/ AICTE/ AIBMS/ ICMR etc.
Courses like ICWA, CA, CFA etc.
Courses conducted by IIMs, IITs, IISC, XLRI. NIFT,NID etc.
Regular Degree/Diploma courses like Aeronautical, pilot training, shipping, degree/diploma in nursing or any other discipline approved by Director General of Civil Aviation/Shipping/Indian Nursing Council or any other regulatory body as the case may be, if the course is pursued in India.
Approved courses offered in India by reputed foreign universities.
Studies Abroad
Graduation : For job oriented professional/ technical courses offered by reputed universities.
Post-graduation: MCA, MBA, MS, etc.
Courses conducted by CIMA- London, CPA in USA etc
Degree/diploma courses like aeronautical, pilot training, shipping etc provided these are recognized by competent regulatory bodies in India India /abroad for the purpose of employment in India/abroad.
Reference: www.webometrics.info (indicative only)
AICTE approval
There is a Public Notice on the website of AICTE, wherein the students are advised not to take admission in technical education courses run by any Institute which has not been approved by AICTE. The students have been cautioned that joining such unapproved programmes can have serious consequences in employment as well as higher studies. The website also provides list of unapproved technical institutions including 169 Institutes running presently without AICTE approval and another
Time frame for disposal of applications Loan applications have to be disposed of in the normal course within a period of 15 days to 1 month, but not exceeding the time norms stipulated for disposing of loan applications under priority sector lending
Expenses Considered for Loan
Fee payable to college/school/hostel*
Examination/Library/Laboratory fee.
Purchase of books/equipments/instruments/uniforms.
Caution deposit/building fund/refundable deposit supported by Institution bills/receipts.
Travel expenses/passage money for studies abroad.
Purchase of computers - essential for completion of the course.
Insurance cover for the student.
Any other expense required to complete the course - like study tours, project work, thesis, etc.
(*As per brochure/ demand letter from the institution.)
Quantum of Finance
Need based finance subject to repaying capacity of the parents/students with margin and the following ceilings :
Studies in India - Maximum Rs.10.00 lakh
Studies abroad - Maximum Rs.20.00 lakh
Margin
Up to Rs.4 lakh : Nil, Above Rs.4 lakh - Studies in India : 5%, Studies Abroad : 15%·
Scholarship could be included in margin.·
Margin to be brought in on year to year basis as and when disbursements are made
Security
Upto Rs. 4 lakh : No security
Above Rs.4 lakh & upto Rs.7.5 lakh : Collateral security in the form of a suitable third party guarantee.
Above Rs.7.5 lakh : Collateral security of suitable value or at the discretion of the Bank suitable third party guarantee alongwith the assignment of future income of the student for payment of installments
Note : The security can be in the form of land/ building/ Govt. Securities/Public Sector Bonds/NSC/KVP/LIP/ Banks Term Deposit etc.,in the name of Student/Parent/Guardian/Guarantor with suitable margin.
PPF account is not accepted as security as the balance in a PPF account cannot be attached under an order or decree of a court in the event of any legal process if initiated in case of non payment of dues
Insurance
All the student borrowers are offered a specially designed Term Insurance cover and the premium can be included as an item of finance.
Repayment
Repayment holiday/Moratorium : Course period + 1 year or 6 months after getting job, whichever is earlier. Banks may also provision for moratorium taking into account spells of under-employment/unemployment, say two or three times (maximum of 6 months at a time) during the life cycle of the loan. Repayment of the loan will be in equated monthly installments for a period of 15 years for all categories.
While EMI based repayment is the generally accepted practice, many times the salary levels at the start of the career may not facilitate comfortable payment of EMI in certain cases (e.g. professionals like Doctors). Telescoping of repayment with stepped up installments with passage of time may be considered in such cases.
Processing Charges
No processing / upfront charges may be levied on loans sanctioned under the scheme.
Tax benefit
Education loan interest is fully deductible:
The cost of higher education is putting pressure on family budgets and forcing parents to borrow for their children’s professional education. The good news is that the interest paid on an education loan is fully deductible from taxable income under Section 80E.
Till a few years ago, this deduction was available only to the borrower. Now, even a parent or a spouse can avail of it. What’s more, this includes loans taken for vocational courses. If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for up to eight successive years, starting from the year in which the interest is first paid. So, if you take a 10 lakh education loan at 10% interest for 8 years, you can save 1.41 lakh in tax in the highest tax bracket. This will bring down the effective cost of the loan to 7% per annum. However, loans taken for siblings and other relatives do not qualify. Also, the lender must be a recognised financial institution; loans from employers or individuals do not count.
Conditions
Student should have secured admission in the University Abroad for pursuing Post-graduate Diploma, Masters, M.Phil or Ph. D level courses with the overall family income of not more than Rs. 6.00 lakh per annum. Family income means gross parental income in case of unmarried students and gross income of spouse incase of married students.
Education loan defaults rising
Education loans, a segment with lowest defaults among all other retail loans so far, have seen a sudden spurt in NPAs (non-performing assets) due to the shrinking job markets following the global economic meltdown. The defaults have been higher for loans given for courses in B-grade engineering or management colleges as these do not guarantee assured placements.
Thank You.