Facts About Student Loans in India

As explained in my previous article, “Getting a Student Loan in India”, there are many factors to consider before taking a student loan and they are:

• Nationalized banks will provide you with lowest interest rates on student loans in India.
• Private banks like ICICI and HDFC will provide loans at high interest rates for any type of educational loan.
• Also, for an educational loan, don’t forget the rider that comes along with it.
• Hypothetical scenario: Suppose you accept an offer from Hopkins University and you have shown your total expenditure (fees plus miscellaneous) estimate to be 40 lakhs. An educational loan in India has a cap of only 20 lakhs with collateral so that means you have to shell out 50% of the total expense because the bank will provide the remaining 50%.
• So the total ratio for the cash to be paid by you and that given by the bank is 1:1. So during every semester when you have to pay the fee (say $10000), you will have to pay 50% of that and the bank will pay the other 50%.

• For a student loan in India, you will not get the entire loan amount of 20 lakhs sanctioned to you by the bank at one go, so you have to be prepared financially with your ratio of personal funds every time you pay a certain University for higher studies. Complicated? Yes it is a true fact. Talk to your bank and they will be able to clarify better.
• For Hopkins (tuition 48k plus living 14k) ideally you should look to borrow only 24k at most (12 lakhs) and expect to pay the other half of tuition and entire living on your own to avoid being saddled with a bigger loan than you actually needed.
• Another important consideration to discuss with banks when taking loans is currency fluctuations. When my friend booked a GRE slot back in February 2008, the rupee was at 39 to the dollar if I remember it correctly. Now it is 45 in January 2011, so if it goes back to 39 at some point of time late into your student program, suddenly your loan will pay for a greater percentage of your tuition than you expected. There are loans, which assume fixed conversion rate, as well as loans that change according to Forex fluctuations. You need to see what works for you.

• As an aside, a lot of clever people actually did something known as “shorting the dollar” in May 2008 when 1$ was 40 rupees. Basically if you converted all your rupees to dollars back then, your tuition would now have been (1$=45 rupees) be a whopping 15-20% cheaper! (assuming of course that you were good at predicting this change in rates over 1-2 years)
• For student loans, try SBI, Allahabad Bank and Punjab National Bank. I think they are the best bets. Frankly, it is a very hard task to assemble the whole amount unless there are some huge savings. The irony is that if USMLE is the sole target, 5 Lakhs Rs Max is what is required for everything.

Bottom line

Now you are into the process, so no use wondering, somehow get the money.

PS: For student loans, I don’t recommend taking collateral loans from two separate banks because someone told me that it is illegal unless the collaterals are different assets.