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An in-depth understanding of all the essential aspects to be kept in mind before finalising the right financial institution

The Decisive Factors

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Banks and financial institutions usually sanction Overseas Education Loans for almost all programs of higher education such as<ul><li>Bachelors</li><li>Masters</li><li>Ph.D.</li></ul>But all the banks do not sanction loans for diploma and certificate courses. So it’s essential to check which program are you opting for and whether the particular bank or financial institution sanctions the loan for your desired program or not.

Overseas Education Loan interest rates vary from 9% to 14% depending on the kind of financial institution.Overseas Education Loan interest rates vary among Nationalised banks, Private banks and Non-Banking Financial Corporations (NBFCs).<ul><li>Rate of interest at Nationalised Banks ranges from 9% to 10.5%.</li><li>On the other hand, the rate of interest at private banks usually range from &nbsp; &nbsp; &nbsp; 10.5% to 13.5%, and sometimes can be 14% as well.</li><li>At NBFCs, the Overseas Education Loan interest rates are usually around 11 % to 14%.</li></ul>Servicing of monthly interest during the study period and moratorium period is optional for students. &nbsp;Few Nationalised Banks offer 1% concession on interest rate, if the student starts paying the simple interest during the study period and moratorium period.Penal Interest @ 2% p.a. on overdue amount, if the loan amount exceeds Rs. 4 lakhs.Concession on Rate of Interest (Based on the financial institution)<ul><li>Concession for students getting admission in top rated Premier Institutions</li><li>Concession for Merit students</li><li>Concession on GRE score card</li><li>0.5% concession for girl students</li><li>Concession towards existing home loan customer</li></ul>

NBFCs provide 100% Overseas Education Loan. But Nationalised Banks and Private Banks expect 10% to 30% margin money from the applicant which is the student’s contribution to the education loan. So its essential to check how much loan can be sanctioned and what would be the margin money to be contributed by you. The margin may be brought in on year to year basis as and when disbursements are made.Scholarship / Assistantship if any received by the student will be included in the margin.

Most of the financial institutions sanctioning educational loans for studies abroad cover expenses like<ul><li>Tuition and examination fees; library and laboratory charges</li><li>Purchase of books, laptop, equipments, instruments, uniforms, etc…</li><li>Any other expenses like study tours and project work</li><li>Oncampus or off campus accomodation charges</li><li>Travel expenses</li><li>Insurance premium for student borrower</li></ul>

The interest paid on education loan is allowed as deduction under the Income-Tax Act, provided the loan is taken for higher education in India or abroad. The deduction is available for regular as well as vocational courses. Ensure that you obtain the interest certificate from the bank/ lending institution to claim the benefit. Kindly note that the Income Tax Benefit can be claimed only if the loan has been taken from a bank, approved financial institution or an approved charitable institution.

Education loan disbursement means actual release of funds. The disbursement is done after the loan has been sanctioned. Education loan sanctioned will be disbursed in single or multiple instalments depending on the demand raised by the college, university or the educational institute.It takes approximately 3-4 working days for the disbursement to get processed. The loan applicant has to submit all the necessary documents at the respective bank so that the process can be done at the earliest.At the time of loan disbursement, the bank may insist on an Insurance Policy for the student.

The tenure of overseas education loan generally ranges from 10 to 15 years for loan above Rs. 7.5 lacs, giving the student enough time to repay in smaller instalments. A longer tenure can reduce your EMIs, making repayments comfortable; while opting for a shorter tenure increases your EMI but you’ll be paying the interest only for that span of time instead of the full tenure.By and large, the repayment starts one year after the course completion or six months after the student is employed - whichever is earlier. But, the interest is charged even during the study period and the moratorium period. Most private banks and NBFCs demand payment of full or partial interest during the study period.The interest charged during the study period and moratorium period is Simple Interest whereas the one charged after this is Compound Interest. As soon as your loan amount is disbursed, simple Interest has to be paid from the next month itself.Students also have an option to prepay the loan for which the bank does not levy any prepayment charges. However, most of the students prefer not prepaying the loan as the interest paid on the loan helps earn Income Tax benefits under Section 80E.

Most of the Nationalized banks do not charge any processing fee for education loan but certain banks charge a specific amount. Private Banks charge an amount which is refundable at the time of disbursement. NBFCs charge 1% of loan amount sanctioned to you as their processing fee.

Having acquired a fair idea of the various factors to be considered for availing an Overseas Education Loan, you can choose a financial institution based on your preferences of loan amount, interest rates, margin money, processing fee and other relevant aspects at nationalized banks, private banks, and NBFCs.If education loan interest rates and processing fee concern you, then you should choose a public sector bank since they offer loans on low-interest rates. Overseas Education Loans offered by Nationalized Banks like State Bank of India, Bank of Baroda etc., are usually the most sought after. So, make sure you’re availing a loan at a competitive rate of interest. It makes sense to compare interest rates before applying to any bank.In case you don’t have any immovable property but you have secured admission in a premier institution, then you can approach Private Banks or NBFCs.

The Decisive Factors

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