How to apply for an education loan – a step by step guide

By: Bank of Baroda
Fri Nov 1, 2019
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The cost of seeking a quality education is rising every day. Schools and universities charge fees to the tune of several lakhs of rupees, making it impossible for parents to fully fund their child’s education. High costs of education are especially a burden on parents whose children aspire to attend private institutions in India or prestigious universities abroad. In such a situation, the only respite is offered by banks which provide education loans. Such loans cover everything, from tuition fees and cost of books, apparatus etc., to lodging charges, dormitory fees, travel allowance and so on. Let us find out the step-by-step procedure to take education loan.

Step 1 – Filling the application form

Just like with any other loan, the first step is to fill an application form. The application form is a simple form in which you must provide your personal contact details as well as your academic details. Ensure that you provide accurate and truthful information in this form. As per the instructions of the Department of Financial Services, Ministry of Finance, Government of India, all education loan applications (including applications received by Bank in physical format) are to be applied through Vidya Lakshmi portal, i.e. https://www.vidyalakshmi.co.in/Students

Step 2 – Interview

The next step in the education loan procedure is the interview round. After considering your application, your bank typically calls you for a personal discussion or an interview. Note that the loan is offered to the student and co-obligation of parents/ guardian and the student is considered as the main loan applicant. You may be asked several questions pertaining to your academic performance, the institute you wish to attend, the course selected by you, future scope of your chosen course and so on. You must be honest and should be able to convince the bank that you are choosing a stream that has the potential to generate good income, thus enabling you to repay the loan.

Step 3 – Documentation

Before the loan is processed you need to prove to the bank that your chosen university has extended an offer of admission. This is the primary document that all banks ask for, even before one begins the actual loan application process. The bank can get in touch with the university to verify your enrolment. If your education loan amount exceeds ₹4,00,000, you would be required to provide some sort of collateral in the form of third party Guarantee if the required loan amount is upto Rs.7,50,000, and if it exceeds 7,50,000 you are required to provide collateral security equivalent to 100 % of the loan amount along with assignment of future income of the student for payment of instalments.

Assignment of future income of the student for payment of instalments is applicable to all Education Loans irrespective of Loan amount.

Step 4 – Loan approval

As per the education loan repayment procedure, banks offer the loan to the student applicant, and since the student cannot repay the loan until the course is completed, the bank considers parents/guardians as co-borrower of the loan. The Bank also verifies the credit history of the Co-borrower/guarantor before sanctioning the loan. Bank offers moratorium period equivalent to the course period plus one year and it is optional for the borrowers to serve the Interest on Education Loan during this moratorium period. Once the loan is approved, the borrowers will receive a Sanction letter from the Bank. Once the Borrowers accept the terms and conditions of sanction, Bank calls them for execution of loan documents and hand over of collateral security papers in original to the Bank if it is required as per terms of Sanction.

Step 5 – Loan disbursal

The final step in the education bank loan procedure is loan disbursal. Banks typically directly disburse the loan to your chosen university by way of Banker’s cheque, Demand draft or SWIFT message as per the location of the chosen University/Institution along with your margin if stipulated in Sanction.

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