Education proves to be the pillar of future success. With quality education, the professional worth of the young job seeker increases and gives the person the launchpad he or she needs. However, quality education sometimes comes at a steep cost, as the cost of most post-graduation has been rising fast in the last few years. The average cost of a post-graduate degree in business administration, for instance, has risen from Rs 2.5 in the early 2000s to over Rs 20 lakhs by 2020.
However, if the cost of higher education becomes a problem for a student, he or she has the option of an education loan to fall back upon. Education loans are personal loans available for young graduates as well, who can avail them to pursue the post-graduation degree of their choice.
A few important things you need to know about education loans for post-graduation include,
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Collateral
The thumb rule in education loans is that no margin money or collateral is required for education loans below the amount of Rs 4 lakhs. Beyond this amount, a suitable third-party guarantee is generally required, along with an assignment of future income.
If the parent who is the joint borrower has sufficient means of income or net worth, the requirement of the third party guarantee may be waived. The guarantee also gets waived at the discretion of the lender, in the case of highly meritorious students.
The request for collateral is made by a lender beyond a certain loan amount. This amount can vary from lender to lender and can differ on a case to case basis as well. Generally, collateral is sought if the loan amount is more than Rs 7.5 lakhs but can be higher in the case of some lenders. If the student is enrolling for premier institutes like one of the Indian Institutes of Technology or Indian Institutes of Management the need for collateral can be waived altogether.
Nature of the collateral
Tangible properties of all types are accepted by lenders as collateral against education loans. This includes immovable properties like flats, independent houses, a plot of land etc. Although agricultural land is not accepted by almost all lenders, non-agricultural open land with clearly demarcated boundaries is accepted as collateral. While attaching these properties as collateral, you will have to provide the property title documents and such other documents as applicable in the city or state.
Investments and liquid assets like a fixed deposit, government bond, shares, debentures, National Saving Certificates, life insurance policy etc. are also accepted as collaterals. Being easily convertible to cash, bonds and FDs generally don’t involve any collateral margin. The life insurance policy must have a specific maturity amount and date.
Vehicles can also be provided as collateral, as can be precious metal, bullions, jewellery and artefacts as well. Precious metals held as an investment in non-physical format, like gold Exchange-traded funds and sovereign gold bonds are also accepted as collateral.
If your collateral is already pledged under a loan and you are paying the EMI, it doesn’t lead to the rejection of the collateral. The lender assesses your property/investment and the loan outstanding against it to evaluate your eligibility for the post-graduation education loan.
Interest rate
Like most loan interest rates, there is no specific interest rate for education loans. There is a repo rate linked lending rate which is used by lenders as a benchmark, and the exact interest rate fluctuates around it.
Do note that the personal loan interest rate for education depends on the amount of loan, the tenure of the loan as well as an impressive credit score and income status of the borrower/co-borrower. With these things in mind, you can put your best foot forward while applying for your post-graduation education loan.