Money matters: Things to remember when applying for a student loan
Start your research ASAP, and compare expected EMIs with potential starting salaries to ensure you won’t default on payments, say experts.education Updated: Nov 09, 2017 15:54 IST
For many of the 5-lakh-plus students who leave India to study abroad each year, the most pressing concern is not what they’ll study or even where, so much as how they will pay for the course they have chosen.
“Almost 90% of the students that we deal with take loans,” says Vignesh Krishnamurthy, co-founder and director of The Mentor’s Circle, an education consultancy that helps individuals head overseas for further study. Even for study within the country, a loan is often helpful.
The good news is that there are new avenues for students seeking funding; the bad news, they don’t work very well, at least not yet.
In August 2015, the government launched the Vidya Lakshmi Portal, to help ease and streamline the student loan process. The idea was that students could just upload their documents onto the website, select three banks through which they would like to seek funding, and hit submit. The union finance ministry initiative made it compulsory for banks to get back to the student.
“A positive or negative confirmation should ideally be given within 15 days, but delays might occur due to system-related issues or in case of knowledge gaps,” says RK Mishra, chief general manager, personal banking, of the corporate centre for State Bank of India, Mumbai.
One such delay proved harrowing for Leela Sai Chaitanya, 24, an audit associate at business consulting firm Ernst & Young, Bengaluru. He applied for a Rs 3.8 lakh loan for the Chartered Financial Analyst (CFA) programme in July this year. He wanted to initially apply to the State Bank of India, as he had procured a loan from them before, of Rs 60,000, for his Certified Management Accountant (CMA) course.
When he went to the website, he saw that the online form redirected him to the Vidya Lakshmi Portal. He duly uploaded his documents, picked his three banks — and didn’t hear back for two weeks, when two of the banks asked for more documents.
Three weeks from the date of the application, he got a standardised response from the third bank informing him that the CFA programme was not recognised by the University Grants Commission. “That’s because it is offered by the CFA institute in the US,” exclaims Chaitanya.
His registration deadline was September 27. Desperate, he began doing the rounds of bank branches and officials in person, and finally, after much pleading and petitioning, got his loan sanctioned on September 26. “This is sad, because for my previous loan through the same bank, I had got it approved within seven days,” he says.
It was another five weeks before the portal updated the status of his application to approved.
“I don’t want people to be discouraged from using this scheme, if the government is trying to do something good,” he says, “but I hope they make the process less troublesome.”
Sahil Singla, 26, a chartered accountant from Raipur, would agree. He wanted a Rs 2.96 lakh loan to finance the education of a friend’s son, 17-year-old Aditya Ranjal from Punjab. The course was BTech in Computer Science from the Sagar Institute of Science and Technology, Bhopal. The application was made in June to three banks via the Vidya Lakshmi Portal.
Within two days the portal showed that one bank had forwarded the application to the local branch, but when Ranjal went there, they said they had not received it.
As the course registration deadline neared, with still no progress despite repeated meetings with bank officials, in August, Singla decided to supply the funds himself, so Ranjal’s education would not be affected. “Now, I am just waiting for a certainty, either a yes or a no, from the bank,” he says.
Delays might occur due to system-related issues or in case of knowledge gaps, says Mishra. “Internally, we are also educating our employees so the process can be made smoother.”
- Current interest rates for education loans range from 9% to 14%.
- Students have a moratorium period - the duration of the course plus one year - before they have to start repaying their loan.
- The maximum time for repayment is 10 to 15 years, depending on the bank.
- Banks look at three major parameters when considering education loan applications — the global ranking of your university, your past academic record and the financial status of your guarantor. They also often take into account the average starting salary in your chosen career.
October to January is the season for entrance exams and applications for higher studies both at home and abroad.
“Students who are interested to apply for loans, should start looking at options immediately after they are done with their applications,” says Kimberly Dixit, co-founder and president of study-abroad consultancy Red Pen.
Regardless of what route you take, keep in mind that banks look at past placement records of colleges and consider average starting salaries when deciding whether to sanction loans.
Niharika Aswani (name changed on request) used proof of average salaries in her field, for instance, to get a loan of Rs 38 lakh from a nationalised bank in Vashi for her Masters in journalism from Deakin University, Australia.
“To convince the officials, I used data from the job search portal Seek, on average salaries for journalism and public relations in that country. Since the salaries were higher than my expected EMI of Rs 50,000, I was granted the loan,” she says.
“It would be a good idea for students to understand the current salary brackets in the market for their professions before fixing the quantum of loan,” says Harshala Chandorkar, chief operating officer at credit information company TransUnion CIBIL. “This will enable them to plan repayment wisely so that they do not default on EMIs and hamper their credit score and chances of getting a loan in the future.”
First Published: Nov 09, 2017 15:54 IST