Education loan plays a critical role in the lives of meritorious students who aspire to study at a premier institute but lack the required financial resources. Thanks to education loan, it has become easier for parents to send their children abroad for higher education. In India, many banks and financial institutions extend financial aid to students aiming for higher education abroad. Just like choosing the right course and university that best fits your interest area and career goals is important, similarly, choosing a bank or financial institution for education loan is equally crucial. Competitive interest rates, longer moratorium periods and repayment terms also enable the students to take responsibility of their higher education. Selecting the best bank for your overseas education loan requires extensive research and deep analysis of your financial standing and requirement.
However, the set of features and services associated with every lender are different. The interest rates, processing fee, moratorium period, prepayment terms, tax benefits, repayment tenure and conditions vary largely among banks. It is, thus, advised to compare and then opt for a package that is aligned to your needs.
Go through the complete overseas education loan requirements in the following points before making a decision.
Interest Rate
Interest rate is the most important factor to be considered while selecting a bank for education loan since even a small difference can help you save a significant amount of money. Understand the difference between fixed and floating rate of interest, compare interest rates offered by various banks and financial institutions and opt for the most cost-effective option.
Tax Benefits
Education loans taken from scheduled Indian banks and gazetted financial institutions are eligible for tax deductions on interest part of the loan under Section 80E of the Income Tax Act of India, 1961. Tax deductions can be availed for a total of 8 consecutive years – the year in which the loan is taken and 7 consecutive years or till the interest part of the loan is completely paid off, whichever occurs earlier.
Eligibility and Documents
Most banks and financial institutions have an evaluation process to determine your eligibility of the loan. The process includes a thorough review of your academic background, credit worthiness, co-applicant details, family income etc. The amount of loan sanctioned also depends on the nature, of course, you have applied for, the reputation of the college or university and the employment probability post course completion. All the lenders do not extend financial aid for all courses, so it is recommended to check your eligibility in advance.
Costs Covered
The amount of education loan sanctioned depends on a lot of factors like academic background, the reputation of college/university, co-applicant’s credit history etc. Some banks cover the complete cost of education, while some banks cover only a part of it. Do not forget to ask your education loan provider about the costs covered in your loan. These costs are tuition fee, lab and equipment charges, library and examination fee, personal expenses and travel fare and overseas health insurance in case of overseas education.
Moratorium Extension
Lending banks and financial institutions give a grace period known as job search period which is six months to one year after the completion of the course before the prepayment starts which is known as the moratorium. This is done to give time to gain financial stability before you begin to repay your education loan.
Loan Processing Time
While applying to foreign universities, meeting deadline is crucial. The loan sanction letter is an important document that is to be shown as a proof of financial resource at time of university and visa application. It is important to ask the loan processing time of various lenders to help you plan your complete application process accordingly.
Total Cost over EMI
Education loan is repaid in EMIs that are distributed evenly through the loan tenure. According to individual requirement and repayment capacity you can decide the repayment tenure. Some of them go for longer loan tenures to bring down the amount of the monthly instalment. Though this seems to be a convenient option for short term, the total cost of your loan will climb higher with each year that is extended on the loan tenure. The right approach would be to go with the lender who offers you the best interest rate during a loan tenure that makes your package cost-effective.
Service Charges
Apart from the loan amount, there are many charges that are applicable to your education loan. The banks terms them as service charge. It is better to have a clear discussion with the banks or your finance lender about all the extra charges apart from loan processing fee, moratorium extension fee, prepayment charges, etc.
In addition to analysing and comparing the education loans on your own it is advised to consult the education loan advisors to help you find the bank that best suits your unique financial requirements.
