Parents' income, child's record count in getting education loan: Experts

Students joining a professional course at a top-notch college will find it easier to get approval

If you are headed to the United States (US) for an undergraduate degree, you could well be looking at an annual tuition fee of $ 50,000-60,000 per annum. Throw in another $10,000-15,000 for living expenses. Multiply the annual expense of $60,000-75,000 by four for the entire course period and you are staring at an outlay of $240,000-300,000 (Rs 1.94-2.39 crore). A two-year Master’s programme could set you back by about half as much. Most students will have to take recourse to an education loan to meet expenses of this magnitude.    
 

Is your course covered?
 

An education loan is easier to get if you are headed abroad to pursue a professional degree (a STEM course, MBA, etc.) that improves your chances of finding a well-paid job. “Students looking to pursue an offbeat course like film technology or a liberal arts degree may find it harder to get financing,” says Adhil Shetty, chief executive officer (CEO), Bankbazaar.
 

Factor in rising costs
 

Colleges state a fee at the beginning of the course, which usually doesn’t change later. “High inflation globally will, however, push up the student’s cost of living. Further depreciation of the rupee could impose an added burden. Do your research and estimate the total cost properly before applying for a loan,” says Amit Gainda, managing director & CEO, Avanse Financial Services.
 

All loans cover the cost of tuition. However, the student will also incur a number of other expenses (lodging, food, travel, books, insurance, etc.). “Check the extent to which the lender will finance these other costs,” says Shetty. He adds that many lenders also impose a margin requirement of 10-20 per cent, which the borrower must put up.  

How to get loan approved  
 

If the parents are co-applicants, then their income, credit score and the collateral they are willing to put up matters. If the student is going to repay the loan, then the lender will focus on her income generation potential after she completes the course. “Her academic track record, the course, college and university she will join, the country she’s going to and the likelihood that she will be allowed to stay back and work, the salary she is likely to draw there, or in India, if she is forced to come back are all factors that a lender takes into account,” says Mayank Batheja, co-founder, Credenc.
 

A few steps can boost your chances of approval. “Explore the possibility of making a higher margin contribution and/or offering higher collateral,” says Arora.

Compare costs
 

Public-sector banks charge lower interest rates, but they demand collateral for large ticket-size loans. Private-sector education loan providers like Avanse charge 11-14 per cent and are prepared to offer unsecured loans.
 

“The education loan interest rates of lenders vary widely, depending on their cost of funds and their assessment of the applicant’s credit risk. Margin money and collateral requirements also vary widely. Hence, compare offers from as many lenders as possible,” says Sahil Arora, senior director, Paisabazaar.

Choose the right lender  
 

If you have collateral to offer, consider borrowing from a public-sector bank. Make sure you also have adequate time for approval to come through. If you are looking for faster approval, try a non-banking finance company (NBFC) education loan provider.

If your co-borrower (parent) has defaulted on past loans and his credit score is poor, try a foreign lender, who generally don’t look at the parent's credit score. A few foreign lenders are active in India. Foreign universities also have tie-ups with lenders.
 

“The only risk in taking a dollar loan is that if you have to return to India and earn in rupees, the loan may prove costly given the rupee’s tendency to depreciate against the dollar. The same holds true if your parents based in India will repay the loan,” says Shetty
.

Do service the interest component before the commencement of the loan repayment period. “Lenders offer an interest rate concession of 1 per cent for the entire loan tenure if you do so,” says Arora.
 

Not paying the simple interest during the moratorium period will also cause the principal to balloon.   
 

Finally, the tax deduction available on interest repayment under Section 80E is available for eight years from the start of repayment period, hence repay within this period.