Education Today: Now, you can take a loan to pay school fee

(Source: Economic Times) It's very likely that the fee your parents paid to educate you from kindergarten till graduation is less than the annual fee that you pay for your child's playschool today. In a metro city, a playschool can make you poorer by Rs 35,000-1 lakh a year, while primary and secondary education in a private school can cost between Rs 50,000 and Rs 5 lakh a year.

Paying such high fees could be a problem if you face a financial crisis, but there's no way you can remove your child from school, can you? Now, you can resolve this dilemma by simply stepping into a bank. Yes, banks have started offering education loans for children's school fees, a phenomenon that took off about a year ago.

Loan criteria

Earlier, education loans were offered only for professional courses. Now, you can take them to pay the school fee for classes ranging from nursery to senior secondary. The banks that offer this facility include public sector entities, such as Bank of Baroda, Central Bank of India, State Bank of Hyderabad and J&K Bank. The loan amount usually varies from Rs 30,000-1 lakh, but the Bank of Baroda has an upper limit of Rs 4 lakh. Though you don't need an account with these banks to avail of the facility, accountholders are given preference. As a senior official from the Central Bank of India affirms, "We will give a loan to a customer even if he does not have an account with us, but serving an existing customer will be our first priority." Another condition is that the school should be affiliated to ICSE, CBSE or any state education board.

The loan is primarily meant to fund the tuition fee, but it can also be used to pay for other expenses, such as buying a laptop or any apparatus that may be required for projects. However, in such a case, the equipment will remain in the bank's name as security till the total amount is paid.

Cost of loan

Another option to tide over the difficult period is taking a personal loan , but this comes with a high rate of interest, which ranges from 14-19% and can go up to 24% in certain situations. On the other hand, an education loan is available at 12-13%. Despite the fact that both are unsecured loans, the one for education is cheaper. If you are taking a loan to finance your daughter's education, you will be able to get an additional concession of 0.5-1% on the existing rate.

"Generally, education loans are based on the parents'/guardian's income level and their capability to repay. The interest rates also depend on the income as well as the credit profile of the borrower. You could also get a concession if you provide a security or a collateral," says Adhil Shetty, CEO of BankBazaar.com, a financial services company.

Funding for coaching

Coaching classes, which help students prepare for various entrance exams, have become a vital part of the education system. Ranjana Sharma, who scored 95% in her higher secondary, aspires to become a doctor, but her father cannot pay the hefty fee demanded by the coaching institute. He can now approach the banks as they provide loans for coaching taken for professional courses. So, students appearing for entrance exams for civil services, medicine, chartered accountancy, engineering, etc, can opt for this loan.