And if that degree’s from a premium university — an Ivy League college in the US, perhaps, or the Indian Institute of Management (IIM) — the whole world’s your workplace, so to speak. So spending on an education is considered one of life’s biggest investments. But a huge amount is required to pay for a professional course from a premium institute these days. Take for instance: the total outlay for a four-year professional course like engineering is Rs 1.2 lakhs in Maharashtra. This excludes the ‘donation,’ or capitation fee, that may be demanded unofficially. Three years ago, the same course would have cost Rs 40,000 in a private college, or even less in a government college. A professional course in a premium inland institute like IIM could cost up to Rs 3.5 lakhs, and a degree could entail an investment of up to Rs 20 lakhs. And not all these programmes offer financial aid. No surprise that people quake at the thought of paying for such courses.
So apart from busting a bank, the only legal option left for a student is to go for an education loan.

Scrutinise the loans
This is where banks — both nationalised and foreign — come into the picture. They offer education loans with attractive features. With a low interest rate, and a waiver on the collateral requirement for loans up to Rs 4 lakhs, these loans are so affordable that students are flocking to avail them as they pack their bags and prepare for their years in academia. Banks offer loans for a wide range of courses. Typically, loans are for courses in universities that figure on an approved list: these include graduate courses (BA, B.Sc. and B.Com), and professional courses in engineering, medicine, computers, law and management. Proof of admission is in most cases sufficient in order to apply for a loan.
There are some banks like Canara Bank and Union Bank of India who also fund degree, diploma and certificate courses in chartered accountancy (offered by the Institute of Chartered Accountants of India), cost accountancy (Institute of Cost and Work’ Accountants of India), CFA (Institute of Chartered Financial Analysts’ of India), and CMA (Chartered Institute of Management Accountants), besides courses for a commercial pilot’s license.
Most banks offer up to Rs 7.5 lakhs for inland courses and up to Rs 15 lakhs for study abroad. The student is required to pay a margin of 5 per cent (of the cost of the course) for inland study and 15 per cent for overseas study. While applying for a loan, students can include hostel expenses, the cost of books, equipment, and examination fees in the loan amount. Students going abroad can also include airfare.
A student can take a loan jointly with his guardian/parent if he is over 18. Otherwise, the loan will have to be taken by a guardian.
Most banks charge about 12 per cent interest on loans up to Rs 4 lakhs and 13 per cent on loans in excess of that amount.

Collateral and security
Every loan application has to be backed with 100 per cent collateral. The security could be in the form of land, building, government securities, gold, shares or debentures, or bank deposits in the name of the student or parent or guardian or a third party.
However, banks do not accept fixed deposits (FDs) in other banks, or deposits in NBFCs (non-banking finance companies) as collateral.
It is easiest to pledge a house — if you own one — as collateral. But this is likely to cost a little more money. The house has to be valued by the bank’s appointed list of valuers and the title of the house verified by the bank’s advocate. The entire process is likely to set you back by about Rs 5,000. On the plus side, given the high value of real estate, a house is most likely to cover the entire loan amount. If you’re offering property as collateral, it’s best to move early, since the paperwork processing is long-drawn.

Pledgeable securities
These include insurance policies and shares, that feature on the bank’s approved list — generally ‘A’ group or well-known companies, mutual fund units including UTI, and post office savings like Indira Vikas Patras and National Savings Certificates. For listed securities, banks consider 50 to 60 per cent of the market value as collateral. It is possible a bank may accept long-term securities such as a 25-year ICICI bond, or an IDBI bond. This is because such securities are traded and can be realised after a long period.
It’s not a good idea to use a mix of securities as collateral. It’s better to consolidate your holdings before applying for a loan.

Repay at your own pace
The repayment schedule is far from taxing. The key feature of an education loan is the moratorium on repayment. During this period the student is not required to repay the loan. Repayment starts six months after completion of the course, or when the student gets a job, whichever is earlier. The installments are fixed on the basis of the expected earning capacity of the student.
What’s more, once the moratorium period ends, the newly employed graduate has up to seven years to repay the loan (plus the interest accumulated during the moratorium). In effect, therefore, a person who undertakes a two-year programme has up to 10 years to repay the loan.

Waiver benefits
The student has more incentives to look forward to. These include an interest waiver of up to one percentage point, if you service the interest component of the loan during the duration of the course. (The interest waiver applies only to the moratorium period.)
Take for instance, a loan for a course in an IIM: the typical fee for the two-year course is about Rs 2.5 lakhs. Assuming you avail of a loan of about Rs 2.4 lakhs and an interest rate of 12 per cent, the EMI (equated monthly installment) works out to Rs 5,253 for 84 months. If you pay off the interest component during the course period, the EMI comes down to Rs 4,237. Considering the earning potential of an IIM grad — the median salary — that’s easily serviced.

Do your homework
But before you sign on the dotted line, do your homework. It’s as important to choose the right bank as it is to choose the right college, for you may be paying off that study loan long after graduation day. Though a few private banks offer education-specific loans — hardly any of them can match the interest rates and repayment schedules of the PSU banks. But the private banks score in the packaging of their loans. Citibank and HDFC Bank, for instance, have tied up with premier educational institutions such as the IIMs and the XLRI, to offer loans to B-school students. Citibank also provides loans for NII’s GNIIT programme.
An important aspect to remember, while taking on a study loan, is that the interest rate is not fixed; it’s pegged to the PLR, and could go up if interest rates rise. Also, if you wish to prepay your loan — a likely contingency, given your earning potential — there’s no penalty.
Most nationalised banks sanction loans up to Rs 2 lakhs at the branch level and disburse the money in four-ten days, but larger amounts may take a long time to be processed.

Upshot
Study loans are definitely a boon, but it’s best to lend a hand to the loan with your own savings.This would ensure that
on your graduation day, as you stand be — robed and beaming with pride, your squared shoulders do not droop under the weight of debt.