What is an Education Loan?
Higher studies are becoming expensive day by day. Parents have to start saving right from when a child is born for his/her higher studies. Often, even that isn’t enough. In such cases, an education loan comes in very handy. Education loan software for financial institutions to simplify and streamline the complexities involved in processing a Student Loan. Education Loan Software is easily accessed, managed and tracked of an unpaid customer. Education loan software provides decision making support to all business.
An education loan is a loan provided by a bank or a nonbank finance company for financing education or school-related expenses. The amount is loaned during education and the repayment happens after the completion of the education course or sometimes after getting a job. Education loan is given with or without taking a collateral.
What is the process involved?
Education loans score over other types of loans because the repayment terms are deferred after the completion of the course. Moreover, the interest rate of education loan is lower than other types of loans like a personal loan or a gold loan.
An education loan is provided keeping the parent as a co-borrower. This is done to ensure that in case the student is unable to repay the loan due to any reason, the parents can do the same. In India, no collateral is required for loans up to Rs 7.5 lakhs.
Beyond Rs 7.5 lakhs, physical collateral is required. For loans between Rs 4 lakhs and Rs 7.5 lakhs, a third party guarantee is required for the loans. However, this is a standard rule and depends on the discretion of the bank or NBFC.
Repayment of loan:
Education loans are provided for the purpose of completing someone’s education. Hence, the repayment terms are planned to suit a student’s needs. Usually, repayment starts one year after the completion of the course or six months after a candidate gets a job. The repayment period is usually 10-years maximum for loan amount up to Rs 7.5 lakhs and 15 years or higher for loans above that amount.
The interest amount on education loan is tax deductible under Section 80 E. This deduction is available for eight consecutive years from starting the repayment.
The interest rate of education loans varies between various finance company. Since this loan is provided for a good purpose, the interest rates are always a bit lower than other loans like a personal loan or gold loan.
Advantages of Education Loan
Education loan comes with a range of advantages. To begin with, it makes education affordable for millions who could not afford it earlier. An education loan is available easily. Almost every bank and many NBFCs today offer education loan.
The loan papers are processed within 15 to 30 days of applying. Education loans are often modified as per the requirements of the students. The types of education loan available are large with a varied range of tenures, rates, and amounts.
On top of this, the repayment moratorium is extremely useful. Usually, repayment starts after one year of completion of the course or six months of commencement of work. If the interest is paid during the moratorium period, 1% rebate is provided in the education loan. As mentioned earlier, the interest of an education loan is comparatively lower than other options available.
What are the challenges institutions face?
Education loans are quite different from other loan products right from the origination phase till the repayment. Streamlining the workflow is rather time-consuming, cumbersome and really difficult. Here are the challenges institutions face while they offer an education loan product:
The default rates on student loans have started soaring. The major reason for this issue is the financial institutions are offering massive amounts of debt to people who have no hope of repaying them. Loans offered without proper credit risk assessment, and delinquencies are not being monitored properly.
Long Repayment Period:
The repayment model of education loan is quite unique. Since the loans are not expected to be repaid until an year after completion of the course, managing loan portfolios and keeping track of repayment dates becomes a hassle.
Using enterprise software to manage education loans would take a lot of time and effort to retrieve the credit information of a specific borrower from a different branch or location. Maintaining a huge database of records at all branches and updating them constantly will become a nightmare.
With the increasing tuition fees and living expenses, more and more students are applying for education loan to manage the expenses in college. So if an institution uses a legacy system to manage their loan products as the number of borrowers increase it may become a nightmare to manage and scaling up the solution might become too expensive.
Why Finabile for Education Loan Software?
Finabile’s exceptional features of the education loan software are capable of tackling even a complex loan product like Education Loan. Here is a list of reasons why finabile is the best education Loan Software which would meet the needs of every financial institution:
- The cloud based feature of Finabile gives instant access to critical data from anywhere. The cloud feature allows the product to act as a master record which stores all information in one place irrespective of the location or branch. The high scalability aspect of cloud based solution enables Finabile to accommodate increasing loan profiles and requirements.
- Quick integration with third-party credit assessment and verification solutions mitigates the usually higher risk of education loan considerably as the information obtained through verification would help to perform a complete due diligence and follow up mechanism in case of delinquencies.
- The robust reporting module offers a broad range of repayment options which could be used to customize the education loan products. Finabile’s unique feature to calculate, track and reconcile default loans, create or edit payment schedules, offering a clear view of the repayment and deferment history, helps financial institutions to streamline the repayment process.
- Finabile’s revolutionary reporting structure offers dynamic and interactive reports to lending agencies which would help them access, manage, retrieve and interpret the performance of a loan portfolio across the huge number of borrowers by month, quarter or year.
Register here to view a demo of Finabile for education loan software, a leading lending solution used by several prominent Financial Institutions