Education Loans are seen as a reliable investment by many since they give assured returns. The entire process of education loans may seem daunting to students and their families since it requires a lot of time and effort. However, the process has been remarkably simplified over the years for the ease and comfort of borrowers and their families. With basic guidance and care at every step, students can complete the loan process without any hassle or complication.
The following steps are involved in an education loan process –
- Step1: Determining the cost of education and loan amount
Begin with determining the overall cost you expect to incur during your study period. This cost includes tuition fees, books, accommodation, food, transportation, and personal expenses, etc. This information can be easily obtained from the university website or the student office. Your admission offer letter may also include the amount you need to dispense for your course every year/semester. Once you have the complete cost of education, you can figure out the amount of education loan you will need.
- Step2: Compare Education Loans from different lenders and schemes (Student credit cards etc)
The next step after determining your loan amount is to find the right lender. There are many banks and financial institutions in India that provide education loans to students studying in India and abroad. Approach them with your requirement and enquire about their education loan products. Some education loan providers even provide doorstep services and customized education loans to make the entire process simpler for students and their families. It is advised to base your decision on your unique needs and factors like interest rate, processing fee, income tax benefits, collateral, margin money, disbursement and repayment terms, etc.
- Step3: Applying for an Education Loan
Once you have chosen your lender, they will ask you to fill out an application form. Most lenders have an online loan application form for students to fill out. It is advised to fill in the correct information in these forms as discrepancies may be seen as a wilful distortion of data and can lead to loan rejection. The loan application form covers the student’s academic qualification, nature, of course, applied for, family income, co-borrowers earnings, and credit profile.
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- Step4: Reading and Signing the Loan Document
Once, and if, your loan is approved, the lending bank/financial institution will issue a loan document that outlines the various elements of the education loan along with the terms and conditions associated with it. This document includes, among other details, the loan amount that has been approved after evaluation of the applicant’s and co-applicants’ profiles, the mode/amount/timeline of disbursement to the concerned university/college, the interest rate, the loan tenure, the duration of moratorium period, the amount to be repaid, the amount and number of EMIs and the repayment terms. It is highly recommended that you read this document in detail and get your queries/doubts cleared before signing it.
- Step5: Disbursement and Repayment
Once you have signed the loan document, the bank disburses suitable installments directly to the concerned educational institution according to the fee schedule of the same. The loan sanction letter can also be used as proof of funds for securing admissions to foreign universities and for applying for a student visa. In cases of foreign education, banks pay in the receiving country’s currency and may charge you a remittance fee for the same.
The repayment begins after the moratorium period which may differ among banks and can vary from six months to one year after the completion of the course. The repayments are made in EMIs which are constituted of a portion of both principal and the interest amount.
The education loan process has become simple owing to a massive reserve of information available online and expert guidance of education loan specialists at every bank and financial institution.
Below are some other points that must be paid attention to during the loan process –
- Check if your course is eligible for an education loan. Courses that have a high employment probability have a better chance of approval for education loans. The reputation of the college/university also plays a vital role in loan approval. Also, not all banks extend financial aid for diplomas and vocational courses.
- Education Loans availed from gazetted banks and financial institutions are only eligible for tax benefits under Section 80E of the Income Tax Act of India, 1961. Ask for the Gazette Certificate of the financial institution to check eligibility for the rebate in income tax.
- While some banks cover the complete cost of education including tuition fees, books and equipment costs, library and examination fees, one-time travel expenses (in case of foreign education), personal expenses, etc., some banks cover only a part of it.
- The following types of collateral are accepted by most banks – Residential property (house/flat/bungalow), fixed deposit, life insurance, and non-agricultural land.
- Give yourself ample time to research, analyze and compare different education loan products to avoid last-minute rush and resulting complications. It is advised to start early for a smoother experience.
Documents Required for Education Loan
It is important to submit the correct documents to get your education loan from HDFC Bank approved quickly and smoothly. The documents required for such a loan may vary from bank to bank but generally range from identity proof and address proof documents to income proof (of parents in case of students or self in the case of salaried individuals) and educational certificates. It is crucial to get in touch with your bank and obtain the complete list of documents required before you start the loan application process but here’s some general information that will also be helpful for you.
It is crucial to get in touch with your bank and obtain the complete list of documents required before you start the loan application process but here’s some general information that will also be helpful for you.
The list of documents that must be submitted in case you are availing yourself of a loan from HDFC Bank are mentioned below:
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Before Sanction
- Educational Certificates and Admission Documents
- Mark sheets/passing certificates of SSC, HSC, or Degree courses
- Copy of admission letter of the institute
- Fees schedule of the institute
- Know Your Customer (KYC) Documents
- Proof of address: Voter ID card, Aadhar Card, Water/ Liquid Petroleum Gas (LPG)/ Electricity bill, Passport, Current house lease agreement
- Proof of identity: Permanent Account Number (PAN) card, Aadhar Card, Driving License
- Proof of signature: Permanent Account Number (PAN) Card, Passport
- Proof of age: Birth certificate, Aadhar card, Voter ID card, PAN card
- Income Proof Documents
- Bank statement for the last six months (salary account)
- The last two months salary slips carrying the date of joining
- Proof of turnover
- Audited Balance Sheet for the last two years
- Income Tax Returns (ITR) for the last two years
- Qualification proof
- Bank statement for the last six months
- Audited Balance Sheet for the last two years
- Income Tax Returns (ITR) for the last two years
- Duly filled Application Form
- Two photographs (passport-sized)
After Sanction
- In case the mode of payment is SI and ACH, three Security PDCs must be provided
- Automated Clearing House (ACH)/ Post Date Cheques (PDCs) or Standing Instruction (SI) mandate.
- The applicant and co-applicant must submit the completed loan agreement that is signed
Any other documents that have been requested by the bank must be submitted as well.
Documents required for the first disbursement
- A demand letter from a college or university
- Loan agreement signed by applicant, co-applicants
- Sanction letter signed by applicant, co-applicants
- Disbursement request form signed by applicant, co-applicants
- Receipts of margin money paid to the college/university along with bank statement reflecting the transaction
- Documents for collateral security (if applicable)
- Form A2 signed by applicant or co-applicants in case of overseas institute
Documents required for subsequent disbursement
- A demand letter from a college or university
- Disbursement request form signed by applicant, co-applicants
- Receipts of margin money paid to the college/university along with bank statement reflecting the transaction
- Exam progress report, mark sheet, bonafide certificate (Anyone)
- Form A2 signed by applicant or co-applicants in case of overseas institute
When you have put together all these required documents in place, you can be assured that your loan application process will be smooth and hassle-free.
