This is a no-brainer that when it comes to an education loan, Government banks have the best to offer. According to the data released by the Reserve Bank of India, over 90% of education loans in India are provided by public sector banks. Unlike most of the private banks and NBFCs, which are mostly consolidated in all the major cities of India, public sector banks have a reach to almost every corner of India.

It is not only its presence across India but its flexible education loan policies, additional benefits, and overall deal that draw students, and in this article, that is specifically what we are going to discuss about. We will compare the government bank education loan offer with that of private lenders' to give you a fair picture so that you all can understand better.

An overview of Government bank education loan

Government banks like SBI, BOB, PNB, etc have different education loan schemes to cater to students with various needs. Government banks provide unsecured education loans of only up to 7.5 lakhs and secured education loans of up to 1.5 Crores at an interest rate starting at 7.65%. 

Now with that said, let us see the what are benefits of opting for an education loan from a Government bank. 

Benefits of a Government bank education loan

The Government of India, in its continuous efforts to encourage more and more students to pursue their higher studies, has come up with some provisions regarding education loans abroad. The following factors have played a significant role in providing benefits and making Government bank education loans one of the best options for students for their higher studies abroad. 

1. Lower Interest Rates
2. Higher Loan Amount
3. Affordable Processing Fees
4. Non-repayment moratorium period
5. Freedom to choose course and country
6. Flexible education loan eligibility criteria
7. Income tax benefits
8. Education loan interest subsidy

1. Lower Interest Rates

Public sector banks certainly have the lowest interest rates on education loans in the Indian market mostly ranging between 8-9%. On the other hand, education loan interest rates from private lenders start at 10%.

Even a 0.5% difference in the rate of interest can help reduce the huge burden off the student's shoulder considerably. To understand the significance of a difference in the interest rate of even just 0.5%, try this education loan EMI calculator by WeMakeScholars. Follow the simple instructions then calculate and compare the actual repayment considering your moratorium period, partial disbursements, and more!

2. Higher Loan Amount

Although public banks can offer only up to 7.5 lakhs of unsecured loans, with collateral, depending upon your collateral value and your total loan requirement you can get anywhere from 7.5 lakhs to 1.5 crores. It is always preferred to initiate the process with public banks for a secured loan and private lenders for an unsecured loan.

Private banks can at max offer up to 40 lakhs unsecured loans depending upon your university and country. They might offer 45 lakhs but only if you get a very strong (earning) financial co-applicant. 

NBFCs' offer varies from county to country. They can offer up to 60 lacs for the US, 40 lacs for the UK, 25 lacs for Canada, 20 lacs for Germany, and 15 lacs for Australia, and Ireland.

3. Affordable Processing Fees

The processing fee is the charge students pay to banks for an education loan. It is around 10K plus GST for public banks and it is also refundable for some public banks. Since students have to pay this processing fee at the start, if for some reason the bank rejects the application, students get back the processing fee of 10K. And if students withdraw their application then it won't get refunded. 

Students pay the processing fee to private banks and NBFCs in the last stage because the processing fee of private banks is 1% of the sanctioned loan amount, and the processing fee of NBFCs can be 1% to 2% of the sanctioned loan amount. And Private lenders don't refund processing fees.

Note that public banks don't charge any processing fee for amounts up to 7.5 lakhs. So if you take an education loan of 40 lakhs from a public bank, you pay 10K, but to a private lender, you have to pay 40K. Straight away it is a 30K difference.

All government banks charge a certain fee for the legal and valuation of the collateral pledged for the education loan. However, even with the additional charges in the picture, the maximum amount charged as processing fees for a government student loan never goes beyond INR 20,000.

4. Non-Repayment Moratorium Period

One of the biggest highlights of any government student loan scheme is the provision of a payment-free moratorium period. A moratorium period essentially refers to a loan holiday before the repayment tenure begins. During this period which consists of a course period plus 6 months to 12 months, students need not pay any interest to banks. Though simple interest will be charged which you can pay if you want to.

You get this benefit only with the government banks as private lenders have made it mandatory for students to pay part or full interest during their moratorium period.

5. Freedom to Choose Course and Country

Unlike private lenders, who have preferences about which courses to fund and for which countries, government banks fund for almost all courses and countries. Private lenders prefer PG courses over UG courses in countries like the US, UK, Canada, Germany, Ireland, New Zealand, and Australia.

Although NBFCs do not finance any UG program, Private banks can finance UG degrees from top universities but they can give unsecured education loans up to a maximum of 20 lakhs, whereas there is no such limit in public sector banks.

But many students have come across such a situation where when they had visited the bank, the bank's official refused them to finance the UG courses because they were not aware of their policies. Later when those students applied through WeMakeScholars, we spoke to the bank official and apprised them of their policies and availed loans for the students. 

6. Flexible Education Loan Eligibility Criteria

All the students are required to fulfill certain criteria to be eligible for any education loan. The eligibility criteria for unsecured education loans are much more stringent as compared to those of government bank education loan schemes. Especially when it comes to co-applicants. 

In order to get an unsecured education loan, individuals who have a stable income profile alone are considered as co-applicants by private lenders. Government banks, on the other hand, allow students to name individuals who are retired, those in the farming industry, etc. as co-applicants.

7. Income Tax Benefits

Under Section 80 E of the Income Tax Act, those who have borrowed an education loan to support their studies can claim an income tax exemption on a certain percentage of their education loan interest payment. This benefit can be claimed by either the student or their co-applicant, whoever among the two begins the education loan repayment first.

8. Education Loan Interest Subsidy

Students belonging to certain sections of the society who borrow abroad education loans from government banks are eligible for an education loan interest subsidy under three different schemes for subsidy introduced by the government of India.

1. Central Sector For Interest Subsidy Scheme: Applicable to education loans to study in India.
2. The Padho Pardesh Central Sector Education Loan Interest Subsidy Scheme.
3. Dr Ambedkar Central Sector Education Loan Interest Subsidy Scheme for students belonging to EBC and OBC

Despite all the above plus points of taking an education loan in a government bank, many students face hurdles in the government bank education loan process. This is when the services of an organization like WeMakeScholars come in handy.

Many students who have applied for an education loan abroad have had to face rejection from a lot of lenders. This is also true in the case of government banks, where they pay more focus on other categories of loans such as personal loans and home loans, the bank officials as mentioned are least aware of the courses that are eligible for education loans. 

Therefore, when a candidate approaches any such bank/branch with an application for an education loan to fund non-traditional courses, their officials are hardly aware of the provisions of the specific education loan scheme offered by their own bank, thus rejecting the loan application. 

At WeMakeScholars, the financial team has a good grasp on the education loan schemes introduced by all types of lenders and has been able to help candidates get their education loans abroad even in the most difficult situations. Hence, if you are looking to fund your education abroad with the help of an education loan, do get in touch with our team.