Various Hidden Charges involved in the Education Loan Process Students Should Know About

Due to the rising cost of education, many students struggle to finance their dream of pursuing higher education at a recognized university. As a result, the demand for student loans has significantly increased in recent years. Education loans enable students to afford their higher studies both in India and abroad. These loans are specifically designed to cover the expenses associated with their education.

However, education loans often come with several hidden charges that many students are unaware of. These are hidden fees in the education loan process that the students should know about. Students need to understand these hidden costs associated with education loans to manage their finances effectively.

This article covers the various hidden charges involved in education loans that you should be aware of while taking a student loan. Understanding these charges can help you make a well-informed decision when you are applying for an education loan.

Hidden Charges in the Education Loans

The following are the various hidden charges involved in the education loan process that you should be aware of:

Processing Fee

It is the fees that banks charge for processing the education loan application. The processing fees for an education loan can either be a fixed amount or a percentage of the loan amount, based on your lender and the type of loan.

It is one of the common fees involved in education loans that many students are unaware of. Lenders can add a service fee to the processing fees, increasing the total cost of the loan. Students should discuss the processing fee with the lender before applying for an education loan.

Prepayment Penality

Making pre-payments on education loans can shorten the tenure and reduce the overall loan cost. This is why many students prefer to make prepayments on their education loans. However, lenders can charge a prepayment penalty for making prepayments and closing the loan before the tenure ends.

A prepayment penalty for an education loan is often a percentage of the outstanding loan amount. Some public banks, such as the State Bank of India and the Bank of India, do not charge any fees for prepaying education loans at any time. Students should carefully read the prepayment terms and conditions of the lender before getting an education loan from them.

Late Payment Charges

It is a penalty that banks charge when students don’t pay the EMI for their education loan on time. Banks often charge either a fixed amount or 1% to 2% of the overdue EMI amount as a late payment penalty. A late payment or missed EMIs on an education loan can also affect the CIBIL score of the student and their co-applicant. To avoid getting late payment penalties, students should make sure to pay their education loan EMIs on time.

Interest during the Moratorium Period

Banks offer a moratorium period, of typically the course duration plus six months, for education loans. During this period, the repayment of the loan, i.e., the EMIs, do not start. Although the repayment of the loan doesn’t start, some banks charge interest during the moratorium period. Students should consider the moratorium terms of the lender before getting an education loan from them.

Legal and Valuation Charges

The process of secured education loans involves getting a legal and valuation report from the bank-appointed legal advisors and engineers. It is an essential process that helps lenders assess if there are any legal issues with the property and the value of the collateral involved. Banks charge a fee to students for processing the legal and valuation of their collateral. Students opting for secured education loans should be aware of the legal and valuation charges of their lender.

Currency Conversion Charges

Students taking education loans for studies abroad can be charged a currency conversion fee by their lender to make up for the fluctuations in the exchange rates. Abroad education loans typically involve the disbursement of funds in foreign currency. And most banks often disburse the tuition fee directly into the university’s account. When the banks transfer the education loan funds, they can charge a currency conversion fee to the students for converting Indian Rupees to a foreign currency.

Mortgage Charges

Secured education loans require students to pledge collateral as security for the loan amount. After the loan application is approved, the bank imposes a mortgage creation charge on the applicants to mortgage the property. It is an important fee in secured education loans that many students are unaware of. These charges cover the administration process involved in mortgaging the collateral. The mortgage creation charges can either be a fixed amount or a percentage of the loan depending on the lender. 

Disbursement Fees

Banks charge a disbursement fee on education loans to the students for transferring the funds of the loan. It is charged for releasing the education loan funds into the student’s account or the university’s account. The disbursement charge for an education loan varies from lender to lender. It can either be a fixed amount or a percentage of the amount transferred. 

Loan Insurance Charges

One of the major hidden charges of an education loan that most students are not aware of is the loan insurance. Most banks require the students to take a loan insurance on their education loans. It is typically a percentage of the loan amount and is often included in the education loan.

Taking a loan insurance on education loans protects the applicant and their family in case of any unforeseen circumstances, such as death or disability. Opting for a loan insurance on the education loan can even reduce the interest rate, depending on your lender. 

Tips to Reduce the Hidden Charges in Education Loans

Here are 3 ways you can use to minimize the overall cost of the education loan to manage your finances:

1. Compare Lenders

   Various lenders offer diverse education loans to cater to the different needs of the students. These hidden charges on education loans vary by lender. Students should compare the terms of all the lenders offering education loans and choose the most suitable lender satisfying requirements. Students should pick the lender that can help them minimize the overall cost of the education loan.

2. Negotiate with the Lender

   Depending on the lender, students can also negotiate to reduce the processing fee and other loan terms. Students should highlight their strengths, such as a strong co-applicant with high income and good credit score, any academic endeavors, and provide any test scores, while negotiating to minimize the cost.

3. Use a Forex Card

   Using a Forex card can help students manage their education loan funds for abroad studies. They are designed to offer a safe and secure way of managing funds for international students. They can help students minimize the currency conversion charges associated with education loans for abroad.

Conclusion

Education loans help students by covering various expenses associated with their studies in India, as well as overseas study. However, these loans come with various hidden charges that most students have never even heard of before. Understanding these hidden fees is essential while taking an education loan.

In this article, WeMakeScholars covered the major hidden charges involved in an education loan that students should be aware of before applying for one. We have also provided tips on how you can minimize the overall cost of an education loan to efficiently manage the loan funds.