EDUCATION LOANS

Foreign Education Loans - Banks & Other Agencies

 

To meet the rising cost of higher education, particularly the professional courses such as engineering and medicine, banks and some non-banking financial institutions offer education loans to eligible students.  Almost all the banks give education loans. Some thirty five public sector and cooperative banks can be approached for education loan through the central government sponsored portal www.vidyalakshmi.co.in. 

 

The essential criteria of eligibility are-

  1. The student should be a citizen of India.
  2. The student should be eighteen years of age or older.
  3. The student should be admitted by an educational institution for bachelors, masters or doctoral program.
  4. While the student will be the borrower, the student’s parent or guardian or any other person who has undertaken to sponsor the student’s study abroad will be the co-borrower who will be primarily responsible for repaying the loan.

The Amount of Loan: The bank or the lending institution decides the amount of the loan to be given to the student on the basis of two factors.

  1. The cost of education and
  2. The repayment capacity of the co-borrower.

 

On the basis of the above, the documents required by the bank or the lending institution are-

  1. Loan application in the bank’s format for the purpose.
  2. The details of the property to be mortgaged to the bank and its valuation as done by the bank.
  3. The proof of admission such as a letter of admission or such as the I-20 form that the universities in the USA provide.
  4. The detailed statement of the cost of study.
  5. Mark-sheets of the tenth, twelfth and the college semesters that the student has completed.  The student must have at least a first-class score.
  6. Proof of identity and residence such as a current passport, etc.
  7. PAN and Aadhar card of the student and the co-borrower.
  8. Proof of income such as pay-slips, the copy of the employment contract that states the remuneration of the co-borrower, pay slips.
  9. Co-borrower’s income tax returns/IT assessment orders for the past two years  showing sufficient income
  10. 2 recent passport size photographs
  11. IT returns or IT assessment order of previous two years of the co-borrower
  12. Details of the co-borrower’s assets and liabilities.

 

It should be noted here that loans upto Rs 4 lakh do not require mortgage of fixed or other acceptable asset (Fixed Deposit) as collateral security or a third party guarantee.  For higher amount of loan upto Rs 7.5 lakhs, a personal guarantee from a person of sufficient financial capability may be required.  For loans of larger amounts banks obtain collateral security of value greater than the loan amount.

 

It is advantageous to have a good CIBIL rating (credit rating) to be able to borrow a sufficient amount and at lower rate of interest.

 

Which bank should one approach for education loan?

It is advisable to approach the bank with which the co-borrower maintains his/her accounts as that bank would know the co-borrower’s financial standing and transactions.  This will let the bank make a fair assessment of the applicant’s reliability as a borrower.   Having this essential information, the bank will be able to make a quicker decision on sanctioning the loan than a bank that doesn’t have this prior knowledge. 

 

The institutions that specialize in education loans will be quicker in sanctioning the loan as they are not burdened with other work as commercial or cooperative banks are.  Also, the interest rates are negotiable to some extent.  They can be flexible about disbursement of the loan.

 

The expenses that are included in the education loan amount are-

  1. The fees.
  2. Travel expenses to the overseas college.
  3. The expenses on books and study materials, laptop.
  4. Living expenses. Reasonable cost of food, rent.

 

The bank will not be disbursing the loan (giving the student the money) till the student has a valid visa to enter the country where the student’s college is situated. 

 

What will be the further procedure after the loan is sanctioned?

The bank will issue the student a letter of sanction.  It will be addressed to the student and the co-borrower.  With the letter of sanction in the student’s hand, the sanctioned education loan amount can be included in the ‘funds in the bank’ along with the parent’s/sponsor’s deposit accounts to demonstrate financial capability to the visa granting authority.  It is a substantial addition to the financial capability and removes a major difficulty in getting the visa.

 

The student must ensure that the letter is not merely a certificate that the education loan of such and such amount has been sanctioned.  It must be in the form of a letter addressed to the student and the co-borrower and contain all the terms and conditions. In the alternative, a list of terms and conditions may be attached to the letter as an annexure.  The terms and conditions are generally on the following lines.

  1. Creation of the bank’s charge on the collateral security.

           Here it must be noted that you need not deposit the title papers of the property (sale or purchase deed or the share certificates of the cooperative society and the                    society’s letter allotting the flat) with the bank.  These papers may be needed at the visa interview to show that the co-borrower has sufficient fixed assets.

  1. The period of moratorium on repayment of the principal amount. It will generally extend to six months beyond the student’s graduation or the student getting a job after graduation, whichever happens first.
  2. Other such terms as the margin to be provided by the co-borrower, interest rate, payment of interest during the moratorium, the EMI payable after the moratorium period is over, etc.
  3. The terms for early repayment of the loan.

The bank will expect the student and the co-borrower to sign on the extra copy of the letter in token of accepting the terms and conditions and return the signed copy to the bank.

The loan sanction letter is valid for three months.  The student must avail of the loan within that period. Once the visa has been received and the student is ready to go and needs the money, the student will be required to complete the conditions set by the bank. The conditions will be

  1. the execution of the loan documents,
  2. the guarantee by the guarantor,
  3. the authority for deduction of the EMI from the co-borrower’s account and
  4. the document for creation of equitable mortgage on the property of the co-borrower as collateral security.

 

 How will the loan be disbursed?

The student is required to take no more than the necessary amount out of the sanctioned amount.  The student will have to meet the agreed margin requirement each time the student approach the bank for disbursal of money.  The margin money will be taken from the co-borrower’s account (say, 15%) and the rest (85%) will be given by the bank out of the student’s loan account to make up the money the student asks for.  The foreign exchange will be issued to the student at the selling rate prevailing at the time of the transaction.  While the portion of the student’s demand that is meant for payment of the college fees will be issued to the student in the form of a demand draft payable in the country where the student is headed, a part can be issued in cash to meet the student’s needs during the journey. 

 

Later, any more money that the student may need from time to time in the course of study will be transferred to the student’s account that will be opened in the destination country or in the student’s Yatri Card that is an international form of debit card.  Of course, the student will have to convey the details of the account to the co-borrower, that is, the parent or sponsor.

 

Each time the parent wishes to send money to the student, the parent will be required to fill out the necessary form and provide the details such as the purpose (education) and the proof of the ward being a student at the overseas college, etc.

 

It does not need saying but must be said- use the loan amount very sparingly as it comes at a high cost and has to be repaid sooner or later.