Career prospects are overrated

For high-value loans, lenders evaluate the student’s future repayment capacity, the reputation of the institution, the curriculum and his placement record. But these are not the only considerations. “They also check the credit history and credit score of the student and, where applicable, that of the parents or other co-borrowers or guarantors as well as their income, current liabilities and other standard eligibility criteria,” says Raul Kapoor, co-chief executive officer (CEO), Andromeda Sales & Distribution.

He says if the parent or co-borrower has a poor credit score, weak repayment history, or has high existing liabilities-

That is, the lender may reject the application.

Remember that the co-borrower shares the responsibility of repayment. If the student defaults, the lender can recover the outstanding amount from the co-borrower.

Education loan covers tuition, books, study materials, hostel and accommodation fees.

Additionally, they also cover expenses such as foreign travel and essential equipment.

“Banks set loan limits that differ for domestic and foreign studies. The loan is generally disbursed against actual expenses. Students may have to submit bills and other supporting documents before the funds are released,” says Kapoor.

Advertised Rate: Not for everyone

Not every borrower gets the lowest advertised rate. Lenders consider the applicant’s profile, creditworthiness of the co-borrower, course, institution and loan amount while deciding the rate. Ankit Bagadia, Director-Business, BankBazaar.com, says, “Check whether the loan has a fixed or floating rate. Compare the total borrowing cost across all lenders. Don’t depend only on the prime interest rate.”

Margin money is the borrower’s share in the total education cost. The lender finances the rest. Requirements vary according to the lender, loan amount, institution, place of study and lender’s policy.

“Before applying, students should understand the total cost of education and check whether any margin contribution is required. Some education-focused lenders may finance up to 100 per cent of the total cost for eligible borrowers,” says Yogesh Rawat, chief business officer-student loans international, Avanse Financial Services.

Collateral is necessary in some cases, not all. “Lenders decide whether collateral is required or not based on their credit policy, considering factors such as loan amount, applicant profile, course and institution,” says Bagadia. “While some borrowers may qualify for an unsecured loan, others may have to provide collateral as part of the credit assessment.”

Moratorium: interest accrues

Moratorium defers the equated monthly installments (EMIs) until the course ends or the specified moratorium period ends. But during this period interest continues to be received.

“Some lenders allow borrowers to pay interest during the moratorium, which helps reduce the overall loan cost,” says Bagadia.

Default hurts credit profile

Education loan default has serious consequences. The credit bureau records missed payments against both the student and a co-borrower, usually a parent. Anuj Mehta, partner, personal finance platform 1 Finance, says, “Default can damage the credit score, making it harder to get future loans, including home loans. Even government interest subsidy schemes do not waive the repayment obligation. Education loans must be repaid like any other loan.”

(The author is a freelance journalist based in New Delhi)

• Claim deduction only for interest paid, not for principal
• Claim the deduction for eight years from the start of repayment or till the interest is fully repaid, whichever is earlier
• You can claim deduction only under the old tax regime
• If you are availing the benefit of this deduction then keep the interest certificate of the lender with you.