The investment you make in yourself through comprehensive learning has rich rewards for your career and life. Investing in quality education isn't just about gaining knowledge; it's a pathway to personal growth, enhanced career opportunities, and financial stability.
Yet, high tuition fees of esteemed universities and colleges might pose financial challenges to your educational dreams. In this situation, education loans are a practical solution to fund your chosen academic degrees and professional programmes.
However, with different types of education loans to choose from, finding the right one for your needs can be overwhelming. This article aims to help you understand the types of education loans, their benefits, and how you can access them.
What is an education loan?
An education loan is a financial tool designed to fund higher education. Financial institutions offer funds to students to enable them to pay for expenses related to attaining an academic or professional degree or certification. These loans cover tuition fees, examination fees, purchase of books and equipment, and living expenses.
Education loans help make quality higher education accessible and affordable. They allow students to gain qualifications, skills and competencies needed for personal growth and gaining suitable employment without financial constraints.
Types of education loans
Different types of education loans are designed to meet different requirements. To make the most of your loan, it is necessary to understand these types. Based on collateral requirements, there are two main types of education loans:
1. Secured education loan
A secured education loan, as the name suggests, is backed by some form of collateral offered as security against the loan amount. This collateral is typically in the form of property or fixed deposits and bonds.
If the borrower defaults on EMI repayments, the lending institution can recover the outstanding loan amount by liquidating the collateral. Secured education loans are best suited for funding higher-expense programs like studying abroad.
2. Unsecured education loan
An unsecured education loan does not require any asset or collateral to be pledged as security for ensuring repayment. These loans are ideal for funding when the cost of studying is relatively low.
Benefits of the types of education loans
Both secured and unsecured loans offer distinct advantages. For instance, with unsecured loans, there's no requirement to put up any asset as collateral. Conversely, obtaining a secured loan allows you to access a higher loan amount to fulfil your specific needs. However, they do share some common benefits.
1. Complete financial assistance
Most types of education loans help finance up to 100% of academic costs, covering everything from tuition and university fees to accommodation expenses, mess charges, books, and other supplies. This eliminates financial barriers to gaining admission to reputed institutes.
2. Flexible repayment
Repayment schedules for education loans are designed to provide flexibility to students. Repayment of an education loan commences only after the course is completed, and a moratorium period is provided by most lenders. This grace period allows students time to find employment and achieve some financial stability before beginning loan repayments.
3. Expert guidance
Some lenders have dedicated experts to guide customers on the types of education loans offered, documentation, eligibility criteria, and the application process. They assist in selecting suitable financing options tailored to the specific needs of the borrower.
4. Easy application process
Education loan applications involve simpler eligibility criteria and documentation compared to other loans. Disbursals for these loans are quicker since lenders recognize that course registrations have definite timelines.
5. Tax benefits
Regardless of the type of education loan you choose, you can claim income tax benefits on interest paid towards these loans under Section 80E of the Income Tax Act. There is no upper limit on the amount exempted under this section.
Documents required to get an education loan
Now that you understand the benefits and types of education loans, let’s look at the documentation required for getting education financing. The documents needed for an education loan are:
1. Applicant and co-applicant documents: These include photographs, ID proof (Aadhaar Card or PAN Card), age proof (Birth Certificate or 10th Pass Certificate) and address proof.
2. Applicant academic documents: These documents provide the lender with information about your qualifications. These are 10th and 12th grade marksheets, entrance exam scorecards and degree transcripts.
3. Applicant financial documents: These documents are essential to prove financial stability and repayment capacity. Financial documents that are typically required for an education loan are the last 3 months' salary slips (if employed), the last 2 years' Income Tax Returns, the last 6 months' bank statements, and the last 2 years' financial statements (if self-employed).
Application process for availing of an education loan
Here is the process of applying for and availing of an education loan:
Step 1: Many lenders have online application forms. Students and parents can submit education loan applications online by visiting their lender’s website.
Step 2: Applicants must upload scanned copies of required documents through the education loan portal of their lender.
Step 3: The lender will conduct a verification of documents and obtain any additional details needed to determine loan eligibility.
Step 4: Based on eligibility criteria and documentation, the lender formally approves and sanctions the education loan. Applicants are informed of the loan amount, interest rate and repayment schedule details.
Step 5: Finally, the sanctioned loan amount is disbursed into the account provided.
Find the right financial solution for your education
Education loans can transform lives by turning academic aspirations into realities. With financial support, deserving students can access top-quality higher education and fulfil their career goals. To make an informed decision, explore all the types of education loans that your lender offers.
However, navigating the loan process can seem complicated. This is where Tata Capital steps in with education financing solutions catered to individual needs. Our experts provide guidance on choosing suitable loans and assist every step of the application process.
We are committed to empowering students to achieve academic excellence, gain globally recognised qualifications and access life-enhancing learning. We offer competitive interest rates, a completely online application process and no prepayment charges. Additionally, you can choose between a secured and unsecured education loan, based on your specific needs.
For more information, visit our website today.
29 February 2024
6 mins read
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