What is the procedure to apply for an education loan?

Education loan has appeared as a boon for each and every student who does not want to overburden their parents and want to bear the higher studies expense on their own. The procedure to apply for an education loan differs widely across banks in India. This article delves deeper and fetches out some basic steps that one needs to follow to apply for an education loan.

Step 1: Fill up the loan application form

Like in the case of other loans, the foremost step to apply for an education loan is to fill up the loan application form which may require you to input some basic details such as your name, date of birth, contact details, scholastic details, etc. Your loan application form should be duly filled with all accurate details. Any minor error here would result in loan application rejection in the very first step.

Step 2: Personal interview stage

Once the applicant fills up the loan application form and submits it to a bank from where he wants to take a loan, there is a personal interview session held by the bank representatives who ask the application about his academic performance, the course he is planning to pursue and also the institution where he is going to study. At this stage, an applicant should be logical and indomitable about one’s decision of choosing a course and the future potential of generating income. While some lenders in India consider applicant’s academic record important, some may give it a slight attention and notice other aspects as well. Hence having a good academic record may not always help you in getting a loan for future studies, there are other factors too including the course you choose and its future potential as well. In addition to this, banks also access the employability and earning potential of students before sanctioning the loan. So make sure you have answers to all those questions to face in the personal discussion with the bank representative.

Step 3: Submit all supporting documents

Unlike other loans where the documents submission might come at the later stage, in case of education loan, one needs to submit all the documents relating to the admission before the bank approves the loan application. This is significant because the bank verifies the student’s enrollment at a college/institution and also requires a collateral security that may include property papers or any other asset that one can put as loan collateral if the loan amount exceeds Rs. 4 Lakh.

Step 4: The process of loan approval or denial

In an education loan, an applicant must include a guarantor. It can be anyone including the applicant’s parents or local guardians. The bank will conduct a detailed verification of the guarantor and their financial history before approving the loan application. Once done with this process, the loan may be sanctioned or denied.

Step 5: Borrower’s Signature on a Promissory Note

Once the loan is sanctioned after inspecting the guarantor and their credit history, the student being the actual borrower of the loan has to sign the promissory note at the bank to process the loan application further.
Step 6: Loan Disbursal
Upon successful completion of the formalities which include the submission of documents, signed post-dated cheques (if required), the loan will be disbursed by the bank. Some banks directly disburse the loan amount to the concerned educational institution. Hence, you must confirm this with your bank prior to applying for a loan at that respective bank.

The benefits of educational loan

The education loans not only fund your higher education, it also offers a variety of other benefits which are listed as below:-

1. The education loan not only funds your higher education in India and abroad, it almost covers your entire expenses of higher education. A majority of banks in the country cover majority of the cost associated with your higher education. The expenses which are covered under popular education loans are tuition fee, hostel fee, exam, library and lab fee (if applicable), cost of uniforms, books and other essentials, traveling expense and all other refundable fees that a student has to pay to the educational institution.
2. For girl students, the bank charges 0.5% fewer interest rates than the actual interest rate on education loan.
3. Borrowers also get a holiday period in education loan. This means the students are not liable to pay the interest rate soon after the completing their studies. Generally, this period ranges from 6 months to one year or after you get a job (which-so-ever is earlier).
4. Section 80E of the Income Tax Act articulates that borrower of the education loan can claim entire interest on the loan under tax deduction. However, these deductions can be claimed under two conditions:-
a. If the loan is taken for higher education after passing the senior secondary exam.
b. If the loan is taken from the scheduled commercial bank or either of the two gazetted institutions namely Credila Financial Services Ltd and HDFC Ltd. Loans taken from any other institution other than these will be acknowledged under tax deduction.

The Bottom Line: Thanks to the internet that applying for an education loan these days have become simpler. All one needs to do is to log in or register at the bank’s website from where he/she want to apply for a loan, fill in the application form and submit it online. The bank representative will then visit you for discussion and document collection. If all goes well, your loan will be sanction is a couple of weeks. Applying for an education loan online is a simple and hassle-free process. It also eliminates your bank visits and you need not have to stand in long queues as well to get a loan from the bank.