Funding fundas

Neeraj Kumar, a youngster from Patna’s Postal Park area always aspired to be a software engineer. He came very close to achieving his dream when he was selected for the Masters in Computer Application (MCA) course at Banaras Hindu University.

But like so many others, there were major niggles to contend with. His retired father was unable to fund his educational expenses. For a while it appeared that his dream would be shattered.  But no sweat. Determined, he went ahead seeking avenues for funding, which he did in due course by getting a student loan from a nationalised bank. Neeraj, who now works for a reputed multinational software firm at Gurgaon, says, “When I look back I feel lucky. Despite financial obstacles I could complete my education. This would not have been possible without financial assistance in the shape of loan from the bank.”

The availability of finance for education is gaining importance even as expenses like tuition — fee, books and stationery — allied with living expenses — are getting steeper and projected to go up in the immediate future. Now even private banks have got into the funding act, with the result that loans are now easier to get than ever before, a departure from the past when funding remained a big obstacle and many meritorious students were thrown by the wayside. The education loan portfolio of banks has been growing over the years. According to a RBI report of 2009, the education loan portfolio of banks has crossed the Rs 40,000 crore mark. This sector has witnessed a healthy growth rate of 30 per cent, according to reliable media reports.
Realising the potential of education loans, banks have eased loan processing procedures, which is no surprise given that the growth rate, too, is expected to be consistent. The State Bank of India (SBI) which dominates this retail banking space, accounts for about 20 per cent of the total education loan portfolio. Some Indian entities like Allahabad Bank, Canara Bank, Central Bank of India and the Punjab National Bank have made significant investments in the sector and encourage students seeking loans.

Students, in general, are also not clear where to apply for the education loan and what are the documents required. Problem comes in the case of those students whose parents are not salaried. They have difficulty in giving proof of regular income. However, one can overcome these difficulties by being pro-active. Just try to talk to students who have taken education loan earlier and they will share the idea. This is a simple thing and can save a lot of time and energy.

However, considering the limited time that students have after the entrance examinations results, it becomes very important to understand the process as it helps save precious time and energy. Due homework is necessary before you approach any bank. This will help you understand what banks require. You can go through various bank websites to learn their terms and conditions, minimum and maximum loan amounts on offer, rate of interest, margin money, collateral requirement and repayment period. Education loans, unlike personal and home loans, are not complex. The only difference is in the repayment period that begins only after the study period is over. Most banks do not demand any collateral up to Rs 4 lakh. However, banks demand collateral security if the loan amount exceeds Rs 4 lakh.

Generally, banks demand third-party guarantees, but if it is satisfied with the candidate’s creditworthiness, this can be waived. For higher studies, banks demand margin payment. It means loanee will have to pay only a small proportion of the amount. The terms of the loans are quite favourable. For example, if you want a loan of Rs 200,000 and the margin requirement is 10 per cent, the bank will pay Rs 180,000 while the rest you will have to arrange on your own. Sweet deal indeed. The margin requirement varies between 5 and 15 per cent for studying in India. Whereas if the loan is sought for education abroad the margin is generally pegged at around 15 per cent.

However, banks are not too rigid and are willing to provide relaxations if the student has a good track record and the course opted for has sound job prospects. Though, banks claims to disburse the loan within a few days, in reality it could take up to 30 to 60 days. If all documents are in place, the process becomes faster. However, arranging relevant documents and searching for third-party guarantee is not always easy. It makes sense to begin securing the documents a month or two before the results are out. Problems could arise in the case of overseas loan if the institute is not recognised.
Private players, however, are a bit lenient when it comes to providing loans, even if the institute is not top rate. For public sector banks, the moratorium includes the course period, plus a year or six months after getting the job, whichever is earlier.

Loan is to be repaid, generally, within five to seven years after commencement of repayment. However, if you are capable of paying installments then you can start paying EMIs a month after the disposal of loans. Repayment can be problem for those who opt for jobs outside the country after completing their education abroad.  Locating a good branch can be difficult. Says Dinesh Gehlot, assistant vice-president Credila, education loan division of HDFC, “Keeping this problem in mind, we have electronic clearing systems (ECS). The monthly repayment amount will be deducted from the bank account of the borrower or co-borrower. This is quite hassle-free.”
Overseas education is very expensive which only a few can afford. Nonetheless, the numbers of those opting to go outside the country has increased.
Rajesh Kumar, who now works in Singapore, had applied for loans to study there. “Even though availability of education loan has made it easier to go abroad, the interest rates are higher. Despite this, it is a good opportunity,” he says.

Generally banks have their own parameters to judge overseas colleges. More than ranking, they rely on a college’s reputation.
Banks try to gauge potential employability. Dinesh Gehlot has a very interesting take on loans for overseas education. “The process is akin to the chicken or egg syndrome. Most banks require confirmed admissions before they sanction the loan, while students are still uncertain about their admissions.”
With that uncertainty, students do not apply for top colleges and the quality of education is compromised. Sad, but true.

‘We pay attention to a host of factors’
Dinesh Gehlot,

Assistant vice-president, HDFC Credila Education Loan Company, says banks have to take into account the feasibility of the course that a student opts for

What is the most important thing that Credila stresses while sanctioning education loan?

Credila pays attention to a combination of factors. It is not that you choose any course in any Tom, Dick and Harry college and we will sanction the course. We assess its worth after completion of the course. We also study content of the course and its relevance to industry.

Paying margins becomes difficult in the case of overseas loan. What is the way out?

We understand this problem. We provide loans without any margin requirement once other eligibility parameters are fulfilled by the candidate. We provide 100 per cent loan.

What is the typical problem with students?

Generally, students know very well how and where to apply. But they are under the mistaken impression that their parents are loaded and that they would be able to fund their education on their own. This is not the reality.

What are the key terms that students and parents ought to know?

Students and parents should know about the co-borrower, collateral requirement and documents related to know your customer (KYC) norms. These are the most important things.

‘Solvency of parents not a factor’

Manik Kumar, Chief Manager, Oriental Bank
of Commerce
says under the Ministry of Finance guidelines, meritorious students are eligible for educational loans


What is the criteria for providing educational loans?

It is a government’s welfare scheme and banks are participating. The Ministry of Finance has certain guidelines under which meritorious students are eligible for educational loans. In fact, sound solvency of parents is not required, which makes it really easy for students to pursue their studies even if their parents are not financially sound.
What courses attract most loan applications?

Normally, we receive applications for higher education though we provide loans for under graduates too. Students generally apply for courses like Engineering, MBBS, B.Tech, M.Tech, MBA, Hotel Management in India and abroad.
Besides government universities, we offer loans to certain private institutions approved by us. For overseas, we provide loans for degree or diploma courses with a mandatory clause that the institute should fulfill the visa requirement of the student.

What is the repayment procedure?

Students after completion of their course start working and we expect them to repay the money then. At the initial stage there is no obligation of repayment. Our interest rates are between 12.5 and 13.75 per cent. We provide clean advance up to Rs 4 lakh. Between Rs 4 to Rs 7.5 lakh, a third-party guarantee is required and above Rs 7.5 lakh some tangible value of security (home mortgage, LIC policy or postal securities) is needed.

What are the basic requirements for students interested in applying for loan applications?

The first and foremost requirement is that a student needs to have secured admission in the university for the course. We ask them to provide us with the admission letter and details about the component of finance for all the semesters, which may include lodging expenses also. Normally, bank asks students to contribute a minimum of 5 per cent if they want to study in India and 15 per cent if going abroad.