Be cautious before taking an education loan


Quality education frequently comes at a cost that rises dramatically over time. For example, an MBA degree from ISB used to cost roughly Rs 26 lakh in 2016 but now costs Rs 40 lakh in 2021, a 65 percent rise in just 5 years. Education abroad is no exception. In this situation, educational loans become a lifeline for students who can’t pay such exorbitant costs.

How should you fund your higher education?

The types of education loans accessible for studying in India and abroad may be divided into two categories based on the kind of loan and the lender. Public sector banks, private banks, NBFCs, and alternative lenders like Prodigy Finance and Gyan Dhan are the four types of lenders, whereas the types of loans are divided into two categories: secured loans (loans with collateral) and unsecured loans (loans without collateral) (loan without collateral).

The education lending industry is dominated by public sector banks such as SBI, Bank of Baroda, and Punjab National Bank. Lower interest rates, longer payback terms, no payback during the study time, and tax advantages are only a few of the perks of borrowing from public sector banks. Only loans beyond Rs 7.5 lakh demand security from banks. Students seeking loans for admission to India’s top educational institutions can obtain unsecured loans with low-interest rates, starting at 6.75 percent in the instance of Bank of Baroda. Public sector banks should still be chosen for abroad studies, according to experts, assuming the applicant can offer collateral.

“In case one does not have any collateral to give and the demand surpasses Rs 7.5 lakh, unsecured loans from private banks, such as Axis Bank or ICICI Bank, maybe the next choice,” says Ankit Mehra, Founder, and CEO of Gyan Dhan. NBFCs have the highest interest rates on loans and are last in line for education loans.”

Factors to keep in mind while taking an education loan

The nature of the interest rate (floating vs fixed), additional costs, margin money, simplicity of processing, and flexibility in loan terms being given, according to experts, are some of the things to consider when choosing the proper lender.

Another significant thing to consider when comparing school loan packages is the processing cost. Other costs, such as late fees, pre-payment penalties, and other hidden costs, should be checked as well.

Another crucial factor to consider is the financial margin. The portion of total expenditures that you will have to pay yourself while the bank covers the remainder is known as margin money. Banks such as SBI charge a 10% margin money on their Global Ed-Vantage program, whereas Bank of Baroda does not charge any margin money for admission to institutions on the list of premier colleges under its Baroda Scholar Scheme for Study Abroad.

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