Things to know before applying for a student loan
The recent regression in the economy has affected each sector including the education sector. Many parents are unemployed, placements after graduation are scarce, many companies are reporting losses, and the inflation rate is higher than ever. In such situations, students who were initially aiming for higher studies, have taken a step back to rethink their decision. Through this article, we want to reassure all troubled minds that they can pursue their dreams.
Apply for student loans. These loans assist students in higher education and professional courses like engineering, medical and architecture. They usually cover your tuition fees, expenses of hostel accommodation, books and in rare cases, laptops. Public as well as private sector banks offer student loans under the direction of the Reserve Bank of India (RBI) to make education more accessible and affordable for students.
Student Loans are one of the best ways to support your education, However, it is important to know all aspects about it before applying for one. Improper knowledge about student loans can quickly turn them into burdens in the future.
Here are the top 7 points to consider before applying for student loans:
1. Deciding the course: Before applying for student loans, students should decide what course they want to pursue. Pursue courses in which you are passionate about aligning your capabilities. Research about it and the opportunities it holds in future and stay updated about placement and career prospects. Understand the demand of your chosen field in the market as it will be responsible for paying back your loans.
2. Choosing the College/Institution: Next step is to decide the best suitable institution for you. Choose colleges and institutions which are well known for your chosen course. Don’t just choose a top-ranked college, do your research and look for its placement strategy and its ratio. Universities and colleges also have an option for partial or complete scholarships based on an entrance test or merit. Be aware of their eligibility and time period, it will help in reducing the loan amount.
3. Choosing your Bank: Now, when the course and institution are figured out, the next step is to do your research and look for banks with maximum benefits. Several private and public banks offer student loans all over India. From a Loan with a small principal amount or for a specific reason to Loans for covering all the educational expenses and Tuition fees. Choose banks that offer you the best terms and conditions with the best moratorium period and interest rates. Also do your research for terms of paying loans and terms of prepayment and paying partially, Make sure you know all the charges and penalties.
Some Best Banks for Education loans are:
- HDFC Bank
- Axis Bank
- Union Bank of India
- IDBI Bank
- State Bank of India
4. EMI and Interest: Some people tend to take the loan for a longer period because the EMI will be lesser. But the cost of the loan and the interest that you have to pay will be much higher. Always plan and use an EMI calculator available online on different sites. So, if you are sure you can go for a loan within a short period. Your EMI will be high but your loan will be cheap. And try to opt for loans with low interest rates.
5. Eligibility and Documentation: Eligibility Student loans may differ from bank to bank. These are some general criteria Banks checks for while applying in an Indian bank:
- The candidate must be an Indian Citizen.
- The candidate must be above the age of 18 or parents can avail of the loan.
- The candidate must have a strong academic record.
- The candidate must have secured admission to the Institute.
Documentation: Mandatory documents which are to be submitted at the time of applying for loans:
- Duly filled loan application form
- Recent Photograph of the applicant and the co-applicant
- Age Proof
- Photo ID (PAN/Aadhar/Driving License/Voter ID)
- Address Proof
- Signature Proof
- Admission Proof (Admission letter with fee-break up)
- Marksheet (10th/12th/graduation/GRE/TOEFL/IELTS, whichever is applicable)
- Income proof (of co-applicant)
- Previous six months bank statements
- Income Tax return of the last two years with the income computation
- Last two years audited balance sheet
- Proof of turnover (service tax return/sales receipt)
- Collateral documents
6. Tax Benefits: Tax benefits can be availed under Section 80E of the Income Tax Act on the interest paid on your educational loans. Eligibility for these deductions is that your loan should be taken from an Indian scheduled bank or a gazetted financial institution. The maximum tax deduction period is 8 years. Going for a longer loan means that you will get the tax benefit only for the first 8 years. After 8 years, the tax deduction will not be applied. It is important to remember that Tax benefit is not applied to the Principal amount.
7. Pay on Time or Earlier: Moratorium periods are periods which are usually the duration of the course, adding 1 year after the completion of 6 months after being employed. During this period you are expected to pay the loan but you are free to pay the interest during the moratorium period. Start budgeting and cost-cutting according to your priorities. Learn to manage your money, it will help in taking off the loan burden. When you will start paying off with a loan, it will be paid with ease.
Benefits of Student Loans
Student loans are granted with the intention of making education feasible for students, so they don’t have to make compromises because of a financial crunch. Loans give them the opportunity to get the required education to build a successful career, successful to an extent that the loan amount can be paid easily. Paying the loan on time will build a good credit score for the students in future. It’ll increase the chances of clearing loans like home loans and car loans.
Student loans are a good option for your higher education. But if it is used irresponsibly, it can create a lifetime debt for you. If you can handle money smartly you can be benefitted from student loans and achieve your dream of a quality higher education.