Education loans are designed to cover the costs associated with higher education. Most often provided by banks, these loans must be secured with collateral before repayment can be deducted from income tax returns.
Parents and students should begin saving for education expenses early to ease their financial burden and avoid needing loans to finance it all.
Eligibility criteria
An education loan is a form of financial aid designed to help students pursue their educational dreams. It covers tuition, travel, accommodation and other expenses associated with study expenses such as tuition. Education loans are widely available from both private and government banks in India and can be applied for online or at bank branches; they’re especially suitable for those with poor credit who meet lender borrowing requirements in order to be approved for one.
Full-time students must include a co-applicant when applying for federal student aid; this co-applicant could be their parent or guardian, spouse or parent-in-law (in case of married applicants), with sufficient income to repay any defaulted loan in case it arises.
Many lenders provide flexible repayment terms to meet borrowers’ individual needs, and may allow interest prepayment. Before making any decisions regarding an education loan, it is wise to thoroughly research all options and consult a professional before making your final decisions.
Interest rates
As education expenses increase year after year, more students need help paying the cost. An education loan may provide relief; however it’s essential that individuals fully understand its terms before applying – interest rates vary based on type of loan and bank.
While federal student loans may have been easier to forget recently with payments and interest paused for several more months, their interest rates will once more increase this summer with undergraduate loan interest rates projected to jump up to 5.5%.
Federal loan servicers base their interest rates on an industry reference rate, typically the prevailing interest rate published by a major national bank. Your actual interest rate depends on both your borrowing amount and repayment plan; there are multiple income-based repayment plans that offer low monthly payments up to 25 years later.
Repayment options
When it comes to repaying student loans, there are various repayment plans, deferments, and forbearance options available to you. These strategies can help manage debt while potentially lowering interest payments.
Federal repayment plans offer you several choices that vary in terms and payments. A standard plan offers fixed monthly payments for 10 years while graduated plans start with lower payments that gradually increase over time. You can find the plan that best meets your needs by reaching out to your loan servicer.
The government is exploring an income-driven repayment plan known as REPAYE for Direct and FFEL loans, capping monthly payments at 10% of discretionary income and extending forgiveness terms up to 20 years for undergraduate loans and 25 years for graduate loans. However, the Department is worried this change would prevent borrowers from enrolling or recertifying for existing IDR plans.
Collateral requirements
Education loans provide maximum borrowing amounts that depend on several factors: where and what course you’re studying in India/abroad and any proof of income/assets required as collateral. Banks and NBFCs offer education loans to Indian citizens who have secured admission into recognized college/universities; interest rates differ between lenders.
Collateral can take the form of real property, cash savings accounts, paper investments or financial assets. For immovable properties the lender will appoint an appraiser and valuer who will perform an appraisal and valuation for them before taking all submitted documents into consideration when offering you a loan amount accordingly.
Non-collateral loans take into account your employability potential and credit score instead of collateral as the basis for repayment; however, the interest rate is much higher compared to secured education loans. Late payments on your education loan could adversely impact your credit rating and make future borrowing difficult or impossible altogether.
