Worried about getting education loans? Not anymore, say bankers. Here's why.

CHENNAI: It was a pleasant surprise for Mahesh Kumar, an engineering aspirant from the city, who thought he wouldn’t be able to accomplish his dream of getting admission to an Electronic Engineering course in a private college owing to his economically poor background when an education loan got processed within a short span of two days.

When the parents of Mahesh were struggling to arrange funds to pay the fees of the private institute, which is high compared to government colleges, a private bank came to their rescue. Within two days after all the documents were submitted, the loan was processed, dispelling many myths about educational financing through public and private sector banks.

Availing of education loans from nationalised banks and private financial institutions has been made easy in the recent past, say people in the sector. All that the banks want is relevant documents and due formalities and processes followed, they say.

Nationalised banks in the state and non-banking financial companies (NBFCs) have started to offer education loans with less formalities, says K Hariharan, a senior manager with a private bank in the city. “Pursuing courses abroad has also become more affordable as the loan processes have been made hassle-free,” he points out. In the last ten years, more than 5 lakh students across the country have availed of education loans, especially for studying abroad, the banker said.

Hariharan added that education loans are granted for pursuing almost all sorts of courses, including UG, PG and diploma programmes, offered by various affiliated universities and colleges. “The students have to check whether the particular educational institution, within India or abroad, has a relevant affiliation with either the State or the Centre,” he added.

Common misconceptions

Did you assume that education loans are only for students with top grades and excellent academic records? If so, you are wrong. Many banks and financial institutions provide education loans to students who meet their eligibility requirements and not grades, says K Madhavan, a financial advisor at an engineering college, who facilitates the students to get loans from various banks. “It boils down to the course you want to pursue, the institution you are attending and your financial background,” he adds.

Aspirants who are keen on education loans are also scared away by assumptions over collateral. That is also far from the truth, as not all education loans require collateral, says Madhavan. “Many parents without approaching the banks conclude that collateral is a must and approach private lenders for high interest rates. Collateral will be demanded only for loans above 7.5 lakh,” Madhavan adds.

There is also a widespread belief that loans aren’t extended for getting an education abroad. “It is available provided the course of the university is approved by the Indian government”, Madhavan said. He also allays fears of parents over repaying the debt. “Education loans come with payback terms of up to 15 years. This allows students to repay the loan amount in smaller instalments, over a longer period, which takes away much of the burden. Education loans have tax advantages too.”

Steps to avail loan

The first step for the students is to approach the bank and get the relevant details. “Each bank will have a liaison officer, who will explain to the students how to submit the required documents,” CH Venkatachalam, general secretary, All India Bank Employees Association (AIBEA) said. “The banks cannot deny or reject the loan application if all the documents were submitted”, he added. He points out that all the educational loan application processing has been made online and there is no chance of delay in sanctioning funds for the right beneficiary. “This also helps the students to know the status of the loan application online.”

Santhosh Kumar, who got sanctioned a loan from a private bank to pursue a BTech Computer Science course in a Deemed to be University, said submitting relevant documents was enough to get the loan. “I submitted KYC (Know Your Customer) documents including proof of identity, PAN, voter and Aadhar card, and proof of address. Other documents such as mark sheets, admission card issued by the college, bank statements of the parents for six months and Income Tax returns were submitted from our end. These were enough for us to avail the loan.”

TN government’s push

The Tamil Nadu government has decided to take measures to ensure that education loans to the tune of Rs 2,500 crore will be sanctioned and disbursed by various banks to more than one lakh students, who will be pursuing various courses in 2024.

A senior official from the Higher Education Department said that the state-owned Tamil Nadu Minorities Economic Development Corporation will also take steps to disburse loans to the students.

The official added that education loans for students hailing from minority communities, who pursue short-term high-skill development courses, professional courses undergraduate and postgraduate and job-oriented degree courses in the government or private institution recognised by the government will get financial aid at the rate of Rs 3 lakh per academic year up to a maximum of Rs 15 lakh at 3% rate of interest per annum.

The only condition laid down by the State government is that the annual parental income of the beneficiaries should not exceed Rs 98,000 in rural areas and Rs.1,20,000 in urban areas, the official added. Those who study abroad are eligible for a loan amount of Rs 4 lakh per annum up to a maximum of Rs 20 lakh for a maximum period of 5 years at a 3% rate of interest per annum as per the above income criteria, under the financial aid scheme of the State government.