Finance your future

Source :HT :Sparsh Sharma, Hindustan Times :New Delhi, December 06, 2011

There are two situations in which students, who are considering a loan for their foreign education, find themselves in currently. The rock: interest rates are in double digits and international jobs are not easy to come by. The hard place: the depreciated rupee has made it difficult for middle-class students to fund their higher education without the support of a loan. Here are the steps you need to keep in mind before you apply for a loan. 

Step 1: Choose the bank carefully The first thing you need to ascertain is that the bank you approach is listed by your destination country’s embassy. Otherwise, your visa application stands the risk of being cancelled. Students must take care not to take loans from co-op or lesser-known banks. “Reserve Bank of India’s scheduled commercial banks, which include most of the well known public sector banks such as SBI and associate banks of SBI, PNB, Canara Bank, Central Bank, Syndicate Bank, Union Bank, as well as large, private sector banks such as HDFC Bank and ICICI are acceptable. Foreign commercial banks such as HSBC, Bank of America, Scotia Bank and so on, are also acceptable,” says Renuka Raja Rao, country coordinator, Education USA Advising Services, United States-India Educational Foundation. 

Warning: A majority of the Indian banks acceptable to international universities make students the main applicant and their working parent needs to stand as co-applicant, thereby making them liable for repayment. A guarantor and collateral (for instance, an owned house) is needed for approval of loan amounts between Rs 7.5 lakh and Rs 20 lakh. 

Step 2: Find out what the processing time is Although banks treat education loans as part of their priority sector lending, many still lag behind when it comes to actul processing time and subsequent disbursal of the amount. Some banks process student loan applications within a week or two while others can sit on your application for a few months. 

Warning: Pratik Shah, who flew to Canada for his MBA programme this month, says, “The first bank I applied to took more than 30 days to process the loan and then the branch manager changed. I applied with another bank, which cleared my application in 20 days. However, because of this confusion, I missed the August intake and had to join the university from this November.” 

Tip: Students can choose banks that have been recommended by their seniors or friends who have applied for loans in the past so that they have an idea as to how long that particular bank takes. 

Step 3: Fix your loan amountStudents can get a maximum loan of up to Rs 20 lakh for studies abroad, irrespective of the course they are applying for. Loan amounts that are worth Rs 7 lakh and above are usually sanctioned against fixed deposits, national savings certificates, property worth the loan amount and a margin amount of 15% (which is 85% of the total loan amount).
 
Step 4: Know the rates The interest rates offered by banks are fixed or floating. Go for a floating rate of interest, so in case of reduction in interest rates, you will benefit. Earlier, the interest rate charged was 2% to 6% over the base rate, but this was revised to 10.75% per annum from August 1, 2011, with a 50% discount for female/SC/ST students. 

Tip: The Paras Education Foundation, Mumbai, an associate of The Indo-American Foundation gives loans at 7% to 9% ROI, without collateral, but a US co-signer is an added advantage here.

Step 5: Repayment Figure out when the repayment period starts; the later it does, the better so that you have ample time to find a job after your course. Counsellors feel that the burden of loan repayment puts several students off. Pratibha Jain, a Mumbai-based international education consultant says, “With the rate of interest ranging from 12.5% to 15.5% at a compounding rate of interest per annum, students will be concerned that the interest component of the EMIs will be more than their salary, forget the principal component. To enter a job with such a big loan burden rattles many students.”

Warning: Compared to banks in the US and UK, where students have 20 to 30 years to repay their loans, banks in India give loans for shorter time periods. 

Tip: “Most students going to the US or Canada prefer taking loans for 50% of their total expenditure. There are banks on campuses that offer loans at 2.5% to 3% ROI, for students who have a local guarantor. So many students prefer local funding options and part time on-campus or off-campus jobs for meeting their expenses,” says Jain.

Eligibility for getting a loan * The applicant should be an Indian national 
* The applicant must have a letter of acceptance from a foreign university 
* The applicant must have secured admission to professional/ technical courses through entrance tests/selection process

Documents required * Marksheets of last qualifying examination/entrance test and all school and college studies in India 
* Proof of admission to the course i.e. the letter of admission 
* Schedule of expenses for the duration course 
* Copies of letter confirming scholarship, if any 
* Copies of student visa, if applicable 
* Two passport sized photographs 
* Statement of the bank account holder for the last six months (for all – the borrower, co-borrower and guarantor(s)) 
*  Income tax returns or Form No 16 of the last three years 
* Brief statement of assets and liabilities of borrower 
* Identity and address proof 
* Collateral documents, for example fixed deposit receipt or in case of the house being mortgaged, all its original papers