Q: How the education loan granted to a minor student binds him to repay the loan, as he is not the executant of loan documents? What is the procedure to be followed in cases of minor students as borrowers?
Reply: If the student is a minor, then the parent/guardian would execute loan documents on behalf of the minor. The bank will obtain a letter of ratification from him/her upon attaining majority.
Q: The parents of a boy are poor and not in a position to extend collateral or third party guarantee for the education loan for pursuing higher studies. Is there any Government scheme to help such poor students?
Reply: Government of India has introduced a scheme effective from the academic year 2009-10, known as Central Scheme to provide Interest Subsidy (CSIS) for the EWS students ( EWS general category students are eligible under the scheme) to pursue Technical/ Professional education studies in India. Under the scheme the interest payable on education loan by the students will be borne by the Government of India during moratorium period. Students whose annual parental family income from all sources is below Rs.4.50 lakhs are only eligible under the scheme. Furthermore, Credit guarantee programmes of CGFEL offers guarantees for Education Loans by the member banks of IBA up to ₹ 7.5 lakh extended without collateral or third-party guarantee.
Q: Who should be the joint borrower for a study loan, parent or spouse?
Reply: The joint borrower should normally be parent(s)/guardian of the student borrower. In case of a married person, joint borrower can be spouse or the parent(s)/parents-in-law.
Q: If education loan requirement is more than prescribed limit of Rs.10 lakhs and Rs.20 lakhs respectively for domestic and abroad studies, whether bank can consider request for higher loan amount?
Reply: Yes. In such cases need based finance to meet the expenses worked out and the banks consider higher quantum of loan on course to course basis (ex: courses in IIMs, IITs, and ISB etc.). However, bank cannot categorize such loans under priority sector portfolio if the loan amount exceeds priority sector limit (Rs.10 lakh/20 lakhs)as per norms fixed by the RBI.
Q: My son qualifies for a seat under merit quota. However, he chooses to pursue a course in a reputed college under Management quota. Will he be eligible for loan under Education Loan scheme?
Reply: It would be in order for banks to consider a meritorious student (who qualifies for a seat under merit quota) eligible for the education loan even if the student chooses to pursue a course under Management Quota.
Q: What is the moratorium period fixed by the bank, if the student borrower wants to set up start-up unit after completing the course?
Reply: Banks are expected to encourage student borrowers who want to set up start-up units. The banks may help such student borrowers by giving moratorium on repayment of principal and interest during incubation period which is normally considered for up to 2 years.
Q: My daughter got admission for research programme in a reputed University in USA directly (without qualifying examination). Is she eligible for study loan?
Reply: Normally, the student should have secured admission to a higher education course in recognized institutions in India or Abroad through Entrance Test/ Merit Based Selection process after completion of HSC (10 plus 2 or equivalent). However, entrance test or selection purely based on marks obtained in qualifying examination may not be the criterion for admission to some of the post graduate courses or research programmes. In such cases, banks will have to adopt appropriate criteria based on employability and reputation of the institution concerned.
Q: What is the process in a situation where the student is not able complete the course within the scheduled time?
Reply: If the student is not able to complete the course within the scheduled time, extension of time for completion of course may be permitted for a maximum period of 2 years. If the student is not able to complete the course for reasons beyond his control, sanctioning authority may at its discretion consider such extensions as may be deemed necessary to complete the course. In case the student discontinues the course midway, appropriate repayment schedule will be worked out by the bank in consultation with the student/parent.
Q: What will be the repayment period for education loan?
Reply: Repayment of the loan will be in equated monthly installments for a period of 15 years for all categories. (i.e. Repayment period=Study period+ 1 year Moratorium +15 years)
Q: Is servicing of interest during study period and moratorium period is compulsory. Whether account to be classified as NPA if interest is not serviced during study and moratorium period.
Reply: Servicing of interest during study period and the moratorium period till commencement of repayment is optional for students. Therefore, account will not be treated as NPA if the interest is not serviced during above period. Accrued interest will be added to the principal amount borrowed while fixing EMI for repayment.
Q: How the EMI is fixed if interest is not serviced during the study period?
Reply: The accrued interest during the holiday period will be added to the principal amount borrowed while fixing EMI for repayment.
Q: Is life insurance cover mandatory for student borrower in education loan?
Reply: Normally, all the banks in India make it mandatory to arrange for life insurance policy on the students availing Education Loan.
Q: Whether processing/upfront charges levied on education loan?
Reply: No processing / upfront charges are normally levied on education loans. However, the student applicant may be required to pay fee /charges, if any levied by third party service providers in relation to loan processed by the bank. Some Banks may charge processing fee for considering loans for studies abroad. The fee so charged may be refunded at the discretion of the bank upon the student taking up the course.
Q: Whether sanction of loan to more than one child from the same family is allowed?
Reply: Yes. Bank can grant education loans to more than one child in the family. Education loan granted by the bank earlier to a sibling shall not affect the eligibility of another meritorious student of the same family.
Q: In case the student wishes to pursue further studies, whether the bank would consider the request for top up loan?
Reply: Banks may consider top up loans to students pursuing further studies within the overall eligibility limit.
Q: Whether interest rates on education loan are uniform in all the banks?
Reply: No. Interest to be charged at rates linked to the Base Rate / MCLR as decided by individual banks. Banks may charge differential interest rates based on status of collateral, non-collateral, employability and reputation of institutions in placements etc.
Q: What is the margin to be brought by the borrower?
Reply: There is no margin requirement for the loans up to 4 lakhs. Above 4 lakhs Studies in India 5% and studies Abroad I5%. (Scholarship/ assistantship to be included in margin and the margin may be brought-in on year-to-year basis as and when disbursements are made on a pro-rata basis.)
Q: Is ‘No Due Certificate’ from existing bankers shall be a pre-condition to sanction the education loan?
Reply: Banks do not insist ‘No due certificate’ as a pre-condition for considering education loan. However, banks may obtain a declaration/ an affidavit confirming that no loans are availed from other banks.
Q: What is the Capability Certificate issued by bank for students studying abroad?
Reply: It is mandatory in some foreign universities that the students admitted are required to submit a certificate from their bankers about sponsor’s solvency/financial capability with a view to ensure that such sponsors are capable of meeting the expenses of the student till completion of studies. Such certificate issued by the bank is called capability certificate. For this purpose certificate issuing bank, if required, may obtain financial and other supporting documents from the applicant.
Disclaimer: Individual Banks may fine-tune the modalities of education loan scheme formulated by IBA. The implementing bank will have the discretion to make changes in education loan scheme as deemed fit and they may even consider stream wise/institution wise cap on education loan amount by taking into account reputation and placement history of the education institution concerned. Therefore, replies given above are only for general information which may not be the rules of education loan scheme of any bank.