In today’s age where the cost of education continues to rise, an education loan can be helpful for students who want to pursue higher education in India or abroad without imposing a financial burden on their parents. Acquiring an education loan requires individuals to go through a systematic process that involves submitting specific documents to prove eligibility. This article explores what an education loan is, the list of documents required including co-applicant/guarantor requirements, and a few tips for a smooth loan application process.
Education Loans Explained
An education loan is a type of loan that is designed to assist students in covering the costs associated with higher education including tuition fees, accommodation costs, examination fees, and sometimes even the cost of travelling abroad. These loans come with flexible repayment options and competitive interest rates and are provided by various banks and Non-Banking Financial Institutes (NBFCs). These loans empower students to focus on their academics rather than worrying about the costs involved. Some features of education loans are:
- Moratorium Period: One unique feature of this type of loan is the moratorium period. During this phase, the borrowers receive a break from making loan repayments. This period can help students.
- Interest Rate and Tax Benefits: Various lenders offer different rates. However, students who are eligible for government schemes may get subsidised rates. Furthermore, the interest paid can be claimed as deductions under Section 80E of the Income Tax Act.
Documentation Required While Applying for Education Loan
Before applying for an education loan, individuals must arrange the documents mentioned below for a smooth loan application process.
Identity and Residential Proof
To validate the identity of an applicant, lenders ask for documents like a passport, Aadhaar card, voter ID, or driving license. The address verification is performed with documents like utility (electricity or water) bills, rental agreements, or even passports. All these documents should be up-to-date and free from any potential errors.
Educational Documents
Educational documents are useful to indicate the applicant’s eligibility for a certain course and their potential to complete it. Some of the documents that fall under the category of education documents are:
- Letter of Admission: A copy of the admission letter that proves that the applicant has been accepted into the program.
- Academic Certificates: Mark sheets or certifications that showcase previous qualifications and verify academic performance such as HSC and SSC mark sheets.
- Fee Structure: A detailed schedule of the fee structure to help lenders assess the total loan amount.
Co-Borrower’s Proof of Income and Relation
To ensure that the lender has a financial backup in cases where the borrower faces financial challenges, most education loans require a co-applicant or a guarantor. Their proof of income is necessary to evaluate their financial stability and repayment capacity. For income proof, lenders ask for salary slips or Form 16 if the co-applicant is salaried along with bank statements of the past six months. Self-employed individuals may need to submit Income Tax Returns (ITR) for the past two to three years. Furthermore, documents like birth certificates, ration cards or any family ID are required to prove the relationship between the borrower and the co-applicant.
Collateral Documents
When the loan amount exceeds a certain threshold limit, lenders may request collateral as security. Collateral can include various assets like property, fixed deposits or investments. The documents needed to provide collateral are property documents, title deeds or proof of ownership for fixed deposits or other investments.
Passport, Visa and Loan Application Form
If the applicant is going abroad, they may need to submit a copy of their passport, visa of the destination country and the loan application that contains all the information about the applicant and the co-applicant.
Making the Application Process Smooth
To ensure that the application process is completed without any issues, individuals must prepare all the documents mentioned above beforehand. Moreover, they must check the requirements of various lenders and maintain copies of all the documents that are submitted to the preferred lender.
Conclusion
Completing a loan application can seem like a difficult task at first. However, individuals can simplify this process by understanding the education loan documents required and preparing accordingly. Borrowers can start by collecting identity and address verification documents, academic records, co-applicant’s income, relation proof, and collateral documents, alongside the passport, visa, and application form. To make the application process smooth, borrowers can prepare documents before applying and check the documentation requirements of various lenders. Choosing lenders with minimal requirements individuals can simplify the application process.