Parent’s Guide to Education Loans

Admissions are starting soon, and, as such, many parents may wonder how to pay for their college education. As a parent, you can either take an education loan on your child’s behalf or help them get an education loan for their education by being their cosigner.

Vidya Lakshmi provides a single-window platform for students to access financial solutions provided by banks. It is a government portal and has a Common Educational Loan Application Form for students which connects them to multiple banks with a single application form. The student must register and login to Vidya Lakshmi portal and then fill-up the Common Education Loan Application Form (CELAF) by providing all the required details. After filling the form, the applicant can search for an Educational Loan and apply as per his/her needs, eligibility and convenience.

If you have a bad credit score or don’t have a steady financial income, you can still help your child get the college education he/she deserves by taking a personal loan. You can get a personal loan from any public or private bank and use that funds for your child's college education.

Given that most public banks have strict credit policies, you can also apply for an education loan from a private bank. You can opt for a secured loan if you can provide collateral or go for an unsecured loan on a higher rate of interest than that of a secured loan.

In the case of public banks like SBI and Bank of Baroda, you have to be a cosigner for your child’s education loan and moreover has to have a decent credit score. But, on the other hand, private banks do offer education loans to students without any co-signor given the student has a good credit score and a steady income. Given that most high school students don’t have a credit history at all nor have a steady income, it becomes very hard for the banks to then give out education loans to those applicants. 

Just like in a public bank, private banks and NBFCs also provide education loans based on the positive credit history of the applicant or his cosigner. But such private banks and NBFCs offer education loans to the applicant who has either low credit score or has a cosigner with bad credit on the premise of higher interest rates. You can also check for merit-based education loans for your children where the interest rates are decided on the basis of your child’s merit/future employability.

With the ever-increasing rise in the cost of tuition fees, it may be daunting for parents to secure the entire funds for college. You can minimize the overall debt by applying for scholarships and grants. Moreover, it is very important to know the differences between an education loan of a public bank and that of a private bank/NBFCs and especially their role for parents in them so as to get the best education loan as per their child’s educational needs.