Banks want a guarantor for educational loans of Rs 4 lakh and even a collateral for amounts exceeding Rs 7.5 lakh.
With the exam season back, many students are already getting ready for various exams to pursue higher education. And while the children are busy buring the midnight oil, many parents would be concentrating on getting their finances in place for their further education.
The fear, in most cases, is that if one falls short of the required sum, the child will not be able to get the education as per their his/her choice.
One option is parents’ personal loans or loan against jewellry to arrange for funds.Banks usually give this loan to the students aged between 16 and 26 years with a good academic record. However, this may vary from bank-to-bank. The institute, where the child is applying, should have a valid recognition.
To qualify for the loan, a parent or guardian needs to have a regular source of income.
Minors are not eligible for education loans, as banks assess the individual's repaying capacity while disbursing the loan. But, if the parent satisfies the eligibility criteria and is ready to repay the loan, minors may be considered, in special cases.
As education loans are high-risk loan, banks also seek a guarantor. This person is contacted, if the applicant fails to repay. The criterion for a guarantor is that he should have the net worth and/or annual income equivalent or more than the loan amount. Reason: Education loans are unsecured loans and in case the borrower defaults, it puts the lender in a sticky position.
However, the co-borrower – the parent or the guardian – is required to furnish bank account statement, tax returns of the previous two years, statement of assets and liabilities and income proof. The usual security that banks accept are National Savings Certificates (NSCs), bonds, gold, house, property, among others.
If the loan amount is between Rs 4-7.5 lakh, banks ask for third party guarantee. Loans above Rs 7.5 lakh require collateral security of a suitable value and/or a suitable third-party guarantee. The collateral may be waived off if the bank has a tie-up with the institute, the child has applied to.
Students with life insurance are preferred for loans above Rs 1 lakh. This is nothing more than a security and forms a part of the collateral. If something unfortunate happens to the borrower, the bank can recover the outstanding amount from the insurance policy.
Here is a list of expenses covered:
- Fees payable to the college, school or hostel, including tuition fee
- Examination, library and laboratory fees
- Cost of books, equipment, instruments and uniform
- Caution deposit, building fund, refundable deposit supported by the institution's bills or receipts
- Travel expenses for studies abroad
- Cost of computer essential for completion of the course
- Any other expense for completion of the course - study tours, project work
- State Bank of India’s education loan also covers the cost of two-wheeler bought, up to Rs 50,00
The writer works with ApnaPaisa.com