Education loan is a type of loan offered to students pursuing post-secondary education in India or overseas. It can be taken to cover a part-time, full-time or vocational course and graduation or PG in engineering, medical, management, hotel management, architecture, etc. The money borrowed can be used to pay for the basic course fee and other related expenses, like accommodation, exam and other miscellaneous costs.
To take an education loan, an individual must be an Indian citizen, having been granted admission into an institute recognized by a competent authority in the country or abroad. The applicant should have finished his or her higher secondary level schooling. It should be noted that some lenders may be willing to offer loan even before the individual has secured admission into a university. According to the banking regulator, there are no restrictions on the upper age limit. However, some lenders may have it.
The education loan calculator computes the EMI payable on an education loan, on the basis of the details entered by the user. One will need to input the loan amount, interest rate and tenure into the calculator, and the tool will calculate the amount payable by the individual as EMIs. The loan amount here refers to the money borrowed from the financial institution. The interest rate is denoted as a percentage charged by the lender on the loan, and tenure is the time chosen or allotted to repay the loan with the due interest.
The mathematical formula that can be applied to calculate EMIs on education loan is:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
The eligibility criteria to avail an education loan will differ from one lender to another. Listed below are the basic education loan eligibility criteria for some of the financial institutions across the country:
India
Source: Kotak Mahindra Bank
Source: Axis Bank
Source: ICICI Bank
There are several benefits of using an education loan EMI calculator. Here is a look at a few of them:
Saves time and effort: By using an education loan calculator, individuals can find out the EMIs they will need to pay within a matter of seconds. They do not have to invest time toward manual calculations. All that users will need to do is input the loan amount, rate of interest and loan tenure, and the calculator will show how much they will need to pay as EMIs.
Accurate results: While performing manual calculations, there is always room for error if one is not careful with the numbers. On the other hand, one can be certain of accurate results when using education loan calculators.
Helps plan finances: On entering key details of an education loan into the calculator, users can find out the amount they would have to pay in the form of EMIs. Knowledge of this is important as it will help them identify whether they can afford the loan, and the toll it will take on their financial health.
Some of factors that have an impact on education loan interest rate include:
Type of educational institution: If the applicant has gained admission into one of the top universities in India or abroad, then chances are that a lower interest rate would be charged. Additionally, lenders may not insist on a collateral.
Gender: It has been observed that female students are offered a lower interest rate compared with male students by most lenders. The main intent behind this is to encourage the girl child to study further and achieve academic excellence.
Credit score of parent or guardian: A parent or a guardian typically becomes the guarantor when their child is seeking to avail an education loan. This is also the case when the student does not have a credit history – the lender would require a friend or a family member to be the guarantor of the loan. In instances like this, it is vital for the guarantor to hold a good credit score so as to ensure that the loan application is not rejected.
Credit score of the applicant: The lender may be willing to offer lower interest rate on an educational loan if the applicant himself or herself has a good credit score. The higher the credit rating, the lower will be the interest rate charged. Maintaining a score above 750 is always advised since the applicant will be regarded a creditworthy customer.
| Loan Type | Loan Amount | Effective ROI |
|---|---|---|
| Education Loan | Up to Rs. 4 Lakhs | 15.2% |
| Loans greater than Rs. 4 lakhs and up to Rs. 7.5 lakhs | 14.7% | |
| Loans greater than Rs. 7.5 Lakhs | 13.7% |
Source: Axis Bank
| Domestic PG/UG | International PG/UG | |
|---|---|---|
| Interest rate | Starting at 11.5% per annum | Starting at 11.5% per annum |
Source: ICICI Bank
| Loan Limit | 1 year MCLR | Spread | Effective Interest Rate | Reset Period |
|---|---|---|---|---|
| Upto Rs 7.5 Lakhs | 8.40% | 2.00% | 10.40% | 1 year |
| Concession | 0.50% concession in interest for female students | 0.50% concession in interest for female students | 0.50% concession in interest for female students | 0.50% concession in interest for female students |
| Above Rs 7.5 Lakhs | 8.40% | 2.25% | 10.65% | 1 year |
| Concession | 0.50% concession in interest for girl students | 0.50% concession in interest for girl students | 0.50% concession in interest for girl students | 0.50% concession in interest for girl students |
| Concession | 0.50% concession for students availing of SBI Rinn Raksha or any other existing policy assigned in favour of the Bank | 0.50% concession for students availing of SBI Rinn Raksha or any other existing policy assigned in favour of the Bank | 0.50% concession for students availing of SBI Rinn Raksha or any other existing policy assigned in favour of the Bank | 0.50% concession for students availing of SBI Rinn Raksha or any other existing policy assigned in favour of the Bank |
Source: SBI
What are the documents required while applying for an education loan?
The list of documents that need to be furnished will vary from one lender to another. However, the documents commonly asked for include - mark sheet of last qualifying examination, proof of admission and schedule of expenses for the course, among others. Those who are not existing bank customers (of the lender) will have to provide proof of identity and proof of residence.
What can education loan be used for?
Money borrowed in the form of education loan can be used to pay for basic course fee and other related expenses like accommodation, exam and other miscellaneous costs.
Is a co-applicant necessary for education loan?
Yes. Lending institutions generally insist on a co applicant for all full-time courses. The co-applicant could be a parent, guardian, siblings, spouse or parent-in-law.
Is prepayment penalty applicable in the case of education loan?
Most banks do not charge a prepayment penalty on education loan. However, individuals are advised to confirm with the respective lenders concerning the same.
How do banks determine the rate of interest on education loan?
Banks use the Marginal Cost of Funds based Lending Rate along with an additional spread to fix the interest rate.
What are the tax benefits available on education loan?
Under Section 80E of the Income Tax Act, 1961, one can claim a tax deduction for the interest paid on education loan. The loan must be availed for the higher education of self, spouse or children or for a student for whom the person is a legal guardian. Tax deduction can be claimed by parents for the loan taken for the higher studies of their children.
When does a student have to repay the loan?
The student is expected to repay the education loan in EMIs once the course is complete. Generally, banks require students to start repaying the loan six months to one year after they have finished the course.
Who can become co-borrowers?
A student's parents, guardians, siblings or spouse (if the applicant is married) can become a co-borrower. Banks and other financial institutions usually accept applications from individuals whose co-borrower has a regular stream of income and an excellent credit score.
Are processing charges applicable for availing education loan?
Generally, for pursuing higher education in India, no processing fee is involved. However, documentation charges may be applicable, along with GST.
Do banks ask for collateral for education loan?
Banks usually ask for collateral when the loan is greater than Rs. 7.5 lakhs. At present, lenders do not ask for any collateral for loan up to Rs. 4 lakhs. For loans between Rs. 4 lakhs to Rs. 7.5 lakhs, a third-party guarantee may be required.
