Education Loan Disbursement Process in Government Banks and NBFCs

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Table of content

Government banks' education loan disbursement process
NBFCs education loan disbursement process
Common Problems Encountered By Students In the Education Loan Disbursement Process
Can I cancel my education loan after I get my disbursement?
FAQ's
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For a student flying abroad for their higher studies, an education loan is an essential aid. Taking an education loan is definitely a long process. But what gives happiness after that lengthy process is the last step - LOAN DISBURSEMENT. An education loan disbursement refers to the final phase of the abroad student loan process. The term, ‘Disbursement’, refers to the transfer of the education loan amount from the lender to the student. After taking the disbursement, the student can use the loan money to proceed with the visa, pay tuition fees to the university, book light tickets, and do other necessary work. In India, the loan disbursement process of different lenders is carried out in different ways. This article aims to educate you about the loan disbursement process of the two major types of education loan lenders in India in a detailed manner.

First, see how government banks disburse the loan amount.

Government banks' education loan disbursement process

Government banks or public banks are the most sought-after banks in India for student loans. Government banks such as State Bank of India(SBI), Bank of Baroda(BOB), Union Bank(UB), and Karur Vysya Bank(KVB) have a similar process of disbursement of their education loan.

Once the education loan is sanctioned, the steps adopted by the above banks for disbursement of education loans take place in the following sequence:

Education loan disbursement by SBI, UBI & BOB

Government banks approve the education loan by issuing a sanction letter to students.
On receiving the sanction letter, students and their co-applicants are expected to visit their respective bank branches for the creation of a mortgage and signing of the education loan agreement.
Once the agreement has been signed by the students and their co-applicants, the education loan is ready to be disbursed.
However, the education loan disbursement process does not commence immediately after students have signed the education loan agreement. In the next step, students are required to submit an education loan disbursement letter to their lending bank stating the method of payment of the tuition fees preferred by their respective universities. At certain times, international universities, especially those in the USA, prefer the payment of tuition fees via third-party payment services like Flywire, Globalpay, etc.
Similarly, many students who require an early disbursement of loans to study in countries like Germany and Canada also prefer paying their living expenses through third-party payment services. To get their education loans transferred at the right time, students are required to mention details of the preferred payment method to their respective government banks in an education loan disbursement letter which has to be submitted to their respective government banks post signing the loan agreement.
On receiving the education loan disbursement letter, most government banks disburse the tuition fee component of the abroad studies education loan either directly into the university’s tuition fee accounts or via a third-party payment software the credentials of which are to be mentioned in the education loan disbursement letter by the students.
All students need to bear an important point in mind- Government banks do not transfer tuition fees for the entire course in one go. The money is released as and when students submit a request to the bank which is either yearly or semester-wise, whichever is the interval preferred by universities for tuition fee payment.
Coming to the loan disbursement process one of the most important parts of the study abroad loan is the living expenses, most government banks transfer a student’s living expenses into a FOREX card. This FOREX card is issued to students to make it easier for them to withdraw money during their stay abroad. However, the FOREX card comes with an expiry date.
For countries like New Zealand, Germany, and Canada, there is a need to disburse living expenses beforehand. So government banks disburse the living expenses into FTS, Blocked accounts, and GIC accounts respectively.
Most banks, like the SBI and Bank of Baroda, lease this FOREX card to higher education aspirants for three months. Students are expected to open a savings account in their country of stay within this period. Their respective government banks will then disburse the education loan into this savings account, as per the directions mentioned by students in the education loan disbursement letter to the bank, for the remainder of their course of higher studies.

NBFCs education loan disbursement process

Embedded below is the 28th episode of Loanflix. The episode discusses how education loan disbursement takes place in India.

NBFCs are Non-Banking Financial Companies that students go for to get an educational loan because of their faster processing time, full amount disbursement, and non-collateral loans.

Notable NBFCs in India are Avanse, Auxilo, HDFC Credila and Incred. Compared to public banks, the disbursement process for NBFCs is simpler because:

NBFCs do not require a disbursement letter.
The disbursement time of NBFCs is faster.
Since there is no involvement of collateral, the education loan disbursement time taken by NBFCs is shorter.
NBFCs disburse the education loan amount according to the candidates’ convenience.

NBFCs education loan disbursement process:

If candidates require the entire education loan amount to be credited to their accounts, NBFCs comply with the requirement and transfer the loan amount directly to the student’s account or the university’s account. As mentioned above, it depends on the student’s preference. Since they do not necessarily have to comply with the norms laid down by RBI for the disbursement of education loans, NBFCs do not have subsidized interest rates for education loans, and they do not exactly have to worry about how students use the education loan amount.

Common Problems Encountered By Students In the Education Loan Disbursement Process

One of the biggest flaws of the education loan disbursement process of government banks is the fact that many officials are unaware of the financial obligations that students have to fulfill before getting their student visas in time. For example, countries like Canada, Germany, New Zealand, and Australia require international students to make payments for their living expenses before applying for a student visa. This clause is one of the major parameters of qualifying for a student visa to study in the countries listed above.
In the education loan disbursement process, when borrowers submit an education loan disbursement letter to the bank requesting early disbursement of a loan to fulfill this requirement, there have been a lot of incidents where bank officials have refused to fulfill such requests without seeing valid proof that mentions the need of an early education loan disbursement.
At other times, the local branch officials of certain prominent government banks also turn down requests for payment of their tuition fees to third-party services. Although many banks have issued multiple circulars that state that students are allowed to avail of a pre-visa disbursement to fulfill their financial obligations, a lot of branch officials are still unaware of its provisions.

Despite the modifications made in education loan policies concerning the loan disbursement process, many bank officials still refuse many students to approve the payment of tuition fees through third-party payment services. If you happen to be one of those students, please do not hesitate to request a callback.

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Can I cancel my education loan after I get my disbursement?

It is not very easy to cancel your education loan after the disbursement, but not impossible too. It would be a loss to the bank to cancel the loan after disbursement because they will have to suffer interest losses. And you will lose on processing, legal, and valuation charges.

There are a few conditions in which the bank may accept you canceling your education loan post disbursement. The conditions are:

If you drop your course, the bank might accept to cancel your loan.
If the institute you are studying at ceases its operations before your course is completed due to unfortunate events like wars.
If the loan is canceled after disbursement, banks offer you a cooling period during which you can return the money you took. After the cooling period, you will have to repay the borrowed amount with interest.

The education loan disbursement process is not exactly complicated. However, there are a lot of myths going around regarding the exact procedure. Through this article, we aim to dismiss these myths and give you a clear picture of the whole process. Keep reading our blog to get answers to some of the most complicated questions related to the abroad education loan process.

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Education Loan FAQs

How does the disbursement process work for an education loan?

The disbursement process for an education loan usually involves the bank directly disbursing the loan amount( mostly tuition fee ) to the institute where the borrower has enrolled and living expenses into your foreign bank account directly or via a third party. The disbursement may be made in installments or in a lump sum, depending on the bank's policies and the borrower's requirements.
When you can expect to see your funds in your account after disbursement of your loan amount?

After you've been approved for a loan and completed the necessary paperwork, you'll typically receive your loan disbursement within a few business days. However, the exact timeline for receiving your funds can vary depending on several factors, including the lender's processing time and the method of disbursement you've chosen.
What you can expect next after your Education Loan sanction?

Once your education loan is sanctioned, the lender will typically disburse the loan amount directly to your educational institution. You'll then receive confirmation of the disbursement. It's important to carefully review the terms of your loan agreement and plan for any potential delays in the disbursement process to ensure that you have the funds you need to cover your educational expenses. But if you apply via WeMakeScholars, you will not face any disbursement issues.
can I get my disbursement done whenever I want ?

The timing of disbursement for loans is typically determined by the lender, and cannot be initiated by the borrower. Disbursement occurs based on the lender's policies and the specific disbursement schedule associated with the loan. To understand when disbursement will occur and plan accordingly, it's important to consult before any process.

Our Education Loan team will help you with any questions

Abhinav Raj
WeMakeScholars- supported by IT Ministry, Govt. of India.

Published: 21 Feb, 2023 | Updated: 06 Mar, 2024