Types of Education Loan

Education loans are very important in the perspective of students’ studies, especially for the students who are willing to study higher education. Education loan is often called student loans. There are various types of education loans available in India. In this article, we will learn about education loans along with the various types of education loans and their brief discussion.

Education Loans can be defined as a type of loan offered by banks, Non-Banking Financial Companies (NBFCs), or any other lenders to support students with financing their college or university education with an agreement to pay it back within a certain time duration. These loans can cover tuition fees, hostel charges, books, and other education-related expenses.

Education loans are very useful for students who want to acquire higher education from reputed educational institutions within India and Abroad. Education loan is provided to students in the form of funding, scholarships, financing, and rewards, and even sometimes granted in cash. Education loan helps to pay the tuition fee and other expenses in education. The rate of interest on the education loan varies from 8% to 11.5% which depends on the scheme and the loan provider institutes.

There are various types of education loans available in India. Education loans can be classified on the basis of different factors. Below we will discuss the types of education loans –

Based on the geographical location, education loan is classified into two types – domestic education loan and overseas education loan.

Domestic Education Loansupport: Domestic education loan is a type of loan which is offered to the students those are planning to study in Indian institutes.

Overseas Education Loan: Overseas education loan is offered to the students those are planning to study in the abroad.

Features:

• Geographical Criteria: These loans could be based on the residency f the students or the location of the educational institution they plan to attend.
• Expenses: These loans based on the tuition fees, cost of living, and other expenses of the student’s location.
• Repayment nature: The students who are borrowing loan will get specific repayment options in accordance to the student’s location.
• Interest Rates: Interest rates may vary depending on the location.

Advantages:

• Affordability: It offers affordable repayment options that will help the students belonging to economically disadvantaged areas.
• Favorable Interest Rates: It offers better interest rates compared to standard loan offerings.
• Community Support: Local lenders and institutions support and lend these types of loan to the students.

Disadvantages:

• Limited Access: These types of loans provide limited access to the students.
• Unpredictable type: It is a very risky type of loan because of the unpredictable economic conditions.
• Lack of administrative control: Since it is widely supported by local people and institutes, there are lack of administrative controls.

Course based education loan is offered for various degree courses as well as professional courses.

Undergraduate Education Loans: After the completion of secondary education, a student can acquire undergraduate degree. Undergraduate degrees can be a duration of 3-5 years and you can get the undergraduate education loan for the same period. To avail undergraduate education loan, a student must have passed higher secondary (12th) examination. This loan helps the students to pursue bachelor’s degree from national or international institutes.

Post Graduate Education Loans: Post graduate education loan is provided to the students those are willing to pursue master’s degree ( duration 2 year) from national or international institutes. To get the post graduate education loan a student should have passed a bachelor degree.

Career Development Loanstypes: Along with the undergraduate loan and post graduate education loan, lenders also offer the career development loans. Career development loans are offered to the students those are willing to do any professional courses or any training to enhance their skills and opportunities at jobs.

Features:

• Amount: These types of loan fixed their amount on the basis of the student’s course expenses including tuition fees, living expenses and other related expenses.
• Repayment option: Lenders provide an affordable repayment option to the students. Due to the flexibility of repayment option, there are very less burdens on students.
• Collateral: Depending on the course and expenses, a student has to provide collateral to get this loan.

Advantages:

• Low-interest rate: Lenders usually provide loans to students with affordable relatively low interest rates. So that a student can easily borrow this type of loan for their specific courses.
• Flexibility on repayment: Provide flexibility and many options for repayment. Students can repay according to their course nature.
• Provide sufficient loan: As it is a course-based education loan, so it will help the students to get higher education, especially for the students who are not able to study higher because of their financial hurdles.

Disadvantages:

• Limited type: This type of loan is very limited. As it is course-based, only selected course students will get the benefit of this loan.
• Collateral issue: Sometimes for specific courses which have a high amount tuition fee, students have to provide collateral to secure the loan. If the students can not provide collateral, they will not be able to get this education loan.
• Debt burden: Like any other loan, you have to repay the borrowing amount, so a student will always be in debt burden.

Loan Against Depositsproperty: A student can avail education loan against his/her deposits.

Loan Against Property: Loan against property is also known as mortgage loans. You can get an Education loan against your flat, house or any other property.

Loan Against Securities: Debentures, bonds, equity shares etc are securities, against these securities you can avail loan for your education purpose.

Third-Party Guarantee: Your friends, family members or any other person can be your third-party guarantor. When you acquire an education loan against third-party guarantee, the third party will be responsible for repaying your loan if you fail to repay the amount.

Features:

• Collateral uses: To get the benefit of this type of loan, you have to provide property, assets or investments as collateral to secure the loan.
• Maximum amount: As collateral gives high security to the lenders, students can get a large amount of loan.
• Nature of repaying: It provides a flexible option to repay the borrowing loan.

Advantages:

• Large amount: Students can get a large amount of loan.
• Highly secure: Secure Lenders get highly secure collateral assets. It provides them low-risk management.
• Flexibility on repayment: Students can get flexible type of repayment option.

Disadvantages:

• Collateral issue: The students who are not able to provide collateral assets, will not get the loan.
• High-interest loan: As it is a secure type of loan, the students have to repay the borrowing amounts with relatively high interest rates.
• Limited: Very few students can achieve this type of loan.

The parents are willing to provide a quality and higher education to their children but due to financial hurdles, they are unable to fund their children’s studies. In this case, they can avail an education loan for their children’s studies.

Features:

• Parental Responsibility: Parents of students can avail of this type of loan for their children’s studies. Parents are completely responsible for repaying the loan amount.
• Higher Loan Limits: Generally this type of loan provides a higher loan amount to the students.
• Credit-Based: This loan is a credit-based loan. This loan is provided on the basis of the creditworthiness of the parent borrower.

Advantages:

• Flexible Repayment Option: Parents will get a flexible repayment option. They can repay the loan amount in a flexible way.
• Lower Interest Rate: This type of loan is provided at lower interest rates rather than other loans such as personal loans or credit cards.
• No Cosigner Required: No cosigner is required to get the loan as parents are the primary borrower.

Disadvantages:

• Impact on Parent’s Credit: If parents can not repay the loan amount in time, then this can impact a negative on the parent’s credit score.
• Limited financial Aid: As this loan is provided to the parents, so parents will not avail to get another loan due to the previous loan.
• Responsibility: Parents are directly responsible for repaying the loan amount even if the students will not complete their course or education.

Education loan has many features along with several benefits. These are given below –

1. An amount up to Rs. 1 crore is available for education loan.
2. It has very few simple terms and conditions.
3. Repayment tenure is up to 15 years.
4. You can get an education loan to study at both national and international institutes.
5. Lenders provide doorstep verification.
6. Some banks offer lower interest rates, especially for female students.
7. You have to repay only after the completion of your education.

The list of expenses covered in education loan are as follows –

• Tuition fees
• Hostel fees
• Travel expenses ( In case studying abroad)
• Insurance premium
• Cost of books, uniforms, instruments or equipment charges
• Examination & library fees
• Cost of a computer or laptop (if needed)
• Caution deposit, building fund/refundable deposit supported by institution bills/receipts
• Any other expenses required to complete the course such as study tours/thesis/project work etc

An education loan is the utmost important thing that plays a crucial role in pursuing higher education, especially for the students those are unable to get higher education due to financial hurdles. Education loans not only provide financial aid but also fulfil the dream of a student.

Can I get a 25 lakh education loan without collateral?

Yes, non-collateral education loans are flexible in loan amount. Students can get upto 50 lakhs education loan without collateral.

Can I get a 70 lakh education loan?

Normally a student can get upto 50 lakhs loan without collateral. But when a student wants to get a loan more than 50 lakhs, he has to go for NBFCs. To get 70 lakh education loan, students have to repay higher education loan.

Can I get an 80 lakh education loan without collateral?

No, you can not get a loan of amount above 50 lakh without collateral. Without collateral, a student can get a loan upto 50 lakhs.