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deepa mittal

Educational Loan : Indian Students Going Abroad

Author: deepa mittal

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You have got the skills and talent but lack of funds to pursue your ambition of studying abroad.

Why not consider an educational loan and turn your dream into reality!! Remember, choice is yours.

In an endeavor to grant privilege to all meritorious students to pursue their ambition of studying abroad, most large commercial banks have increased their educational loan portfolio.

To be eligible for loan, you should be an Indian resident having secured admission in any of the bank's list of approved course or universities.

The quantum and terms of loans vary from bank to bank. Currently, they lend up to a maximum of Rs 20 lakhs for studying abroad. It covers typically:

Tuition fees payable to college/school;
Examination /library /hostel charges;
Travel expenses;
Purchase of books /equipment /uniform;
Cost of two-wheelers (optional).

Repayment is in the form of equated monthly installments (EMIs) which commences one year after the course or six months after the graduate has got a job, whichever is earlier.

The tenure can be from 3-8 years. Most banks do not require any margin up to Rs 4 lakh and, beyond that, 15 per cent margins are charged.

SECURITY: Usually for loans up to Rs. 4 lakhs, no collateral security is required.

For loans ranging from Rs. 4 lakhs to Rs. 7.50 lakhs, collateral in the form of a satisfactory third party guarantee is required.

For loans above Rs. 7.50 lakhs, collateral security of suitable value or co-obligation of parents/guardian/third party guarantee along with the assignment of future income of the student for the payment of installments may be obtained.

Security can be in the form of :

Government Securities/ public sector bonds
Land/building
Units of UTI, NSC, KVP, LIC policy, gold, shares/debentures,
Bank deposit in the name of the student, parent/guardian or any other third party with suitable margin.

Generally, the interest charged is tied to the Prime Lending Rate (PLR). This rate is applicable for certain amounts of loans. If it is higher than this amount, you may be required to pay one per cent more or less.

The PLR is the rate at which a bank offers loan to prime borrowers.

Interest Rates for some banks in India follows as:

Bank	Amount (Max in lakhs)	Rate of Interest
Bank of Maharashtra	20	Upto 4 lakhs: 12% Above 4 lakhs: 12.75% Upto 4 lakhs:0.50% below SBAR* i.e.13.25% p.a. Floating
State Bank of India	20	4-7.5 lakhs:1.00% above SBAR 14.75 % Floating Above 7.5 lakhs:SBAR 13.75% p.a. Floating
Punjab National Bank	20	Upto 4 lakhs: BPLR - 1.50% Above 4 lakhs: BPLR - 0.75%
Allahabad Bank	20	Upto 4 lakhs: PLR-0.75% Above 4 lakhs: PLR - 1.00%
Indian	20	Upto 4 lakhs: 12.50% Above 4 lakhs:13.00 %
Dena Bank	20	Upto 4 lakhs: 11.25% Above 4 lakhs: 14.25%
Union Bank of India	15	Upto 4 lakhs: PLR Above 4 lakhs : PLR + 1%

The Benchmark Prime Lending Rate (referred to as SBAR) of State Bank of India.
Steps to follow before filling out loan application form:

STEP 1. Check if your course or institute is recognized by the bank.

STEP 2. Figure out how much loan you would require.
Roughly estimate your expenditures. Discuss with your family how much they can afford and the amount you would require to take as loan.

STEP 3. Search out various loan options.

STEP 4. Compare the different options and find out the optimum one.
Make sure you go through all the terms and conditions from the bank before you opt for education loan.
You might ask yourself following questions:
- Which offers the lowest interest rate.
- How long will I be paying the loan.
- How long can I defer payments while studying.
- Is there any option for deferring payments if faced into a financial problem.
STEP 5. Apply for the loan.

Important Documents required for Loan Application.
- Completed Education Loan Application Form.
- Mark sheets of last qualifying examination
- Proof of admission scholarship, studentship etc
- Schedule of expenses for the specified course
- 2 passport size photographs
- Borrower's Bank account statement for the last six months
- Income tax assessment order, of last 2 years
- Brief statement of assets and liabilities, of the Co-borrower
- Proof of Income (i.e. Salary slips/ Form 16 etc)
Important things that bank scrutinize before granting loan:
- The repayment capacity of the student's parents/family/Sponsor.
- The value of Collateral Security. Bank usually got the valuation of the collateral done from an approved Valuator only then process the loan application.
- Margin money: Usually in case of Overseas education loan the student family to contribute some margin money, usually its 25%. For example if a student is applying for Rs. 20 Lakh loan and the margin money is 25% then Rs.5 lakhs has to be contributed by Student's Family.