Educational Loan

Educational loans are now more sought after worldwide as there is an emerging demand for quality education. Educational loans are now much more sought after in India with increasing tuition fees .RBI  has  made educational loan to meritorious students a priority to ensure that higher education remains affordable.The trend of borrowing for studies abroad and within the country seems to be growing and will continue to grow for a while.

However with increase in  educational loans the level of Non Performing Assets (N.P.A) on educational loans also seems to be trending upwards.So the educational loan scheme has been revised and banks have become more strict about giving educational loans.Students generally don’t have any credit history  so their credit worthiness along with their parents credit worthiness is checked before granting them the  loan.

At present the interest on education loans is approximately between 11 per cent and 15 per cent it varies based on loan amount and college the student is getting admitted into,the loan amount which is  usually between 2 lakh to 22 lakh. A moratorium which is a legal permit by debtor to delay payment which usually is between six months to a year for educational loans is given  and after that they have to  start payment on the loan even if the student doesn’t get a job at the end of this period.

The moratorium period is provided by banks keeping in mind cases that students might get unlucky on their first job and get one which pays very little moreover some companies  only provided stipend during the starting phase which can last up to 1 year however interest can be charged during this period based.Choice of taking a moratorium period is completely optional and students can get a one percent rebate on interest rate if they decide to start paying installments right after completing their education.

A simple interest is charged during the study period and after the expiry of the moratorium of the educational loan. Banks usually monitor the  academic progress of student  as  it is necessary for banks to ensure asset quality of loans. However the subsequent installments can’t be stopped for the mere reason that the student has failed in one or two subjects but one still needs to be careful so as to maintain a certain level of academic progress throughout the course of study. Students going overseas for studies might have to work must consider additional sources of funding such as scholarships or part-time jobs as the costs are very high which a bank loan will not cover.

Usually educational loans are the first loan a student avails and by repaying the loan on time, students can build good credit histories which will go a long way to help them when they seek to avail of loans for automobile ,house, credit card and also for getting a good credit rating.Their is always a possibility that the student may not get a job immediately after completing a course so it is advisable for parents to be prepared for such a circumstance.

Even though there are provisions for educational loans the student community should insist to the government that too much reliance on educational loans is not advised as people might develop the habit taking a lot of credit  and hence drown in debt.The government needs to play its role to make higher education opportunity affordable for all.

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