For many students in India, pursuing an MS in US forms the basic building block of living the American way of life. Funding is a major cause of concern for many of them who are often unable to afford the high tuition fees and living expenses. Borrowing an education loan for their MS in US is the only way out for such students. This is where the education loan schemes of numerous Indian banks and NBFCs come to their rescue.
Many students who are looking for affordable methods to fund their higher studies in the US often choose to do so with the help of collateral education loans from government banks. However, a good number of students are unaware of some of the basic requirements of the collateral education loan process. However,Before understanding the concept of collateral security and its significance in the USA education loan process, it is important to take note of the two different types of student loans in India.
A lot of higher education aspirants keep asking about finding the best abroad education loan in India. If you are in need of an abroad education loan which can help in funding your MS in US, stop looking for the top contenders. It is extremely crucial to evaluate your finances before applying for a USA education loan, i.e, you need to know how much money will be required by you during your course of study in the USA and you also need to take an estimate of your own financial capacity.
Classification of Education Loans in India
In India, education loans are classified as secured and unsecured on the basis of one exclusive factor, i.e, collateral security. If you are familiar with how loans work, you may have come across this term multiple times. Collateral security refers to assets which are pledged by the borrower as security for a loan. Secured education loans are granted when the borrower pledges collateral security with the lender. Government banks like the government banks, Bank of Baroda, the Punjab National Bank, etc. are some of the lenders of secured education loans.
Unsecured education loans do not involve the pledging of assets. These loans are granted by private financial institutions called NBFC (Non Banking Finance Companies), as well as private banks like Axis Bank, ICICI Bank, etc. To get further details on the policies of these lenders regarding unsecured education loans, do get in touch with the financial team of WeMakeScholars.
What are the Benefits of Secured Education Loans For MS in USA?
- Interest rates are always in the range of 8% to 10% per annum.
- The total loan amount significantly depends on the fair market value of the asset being pledged as collateral security.
- Education loan co-applicants get to claim an income tax exemption based on their salary bracket. They can claim the same under Section 80 E of the Income Tax Act.
- If the loan applicants are economically challenged, they may check for their eligibility and qualify for an education loan interest rate exemption under the various subsidy schemes introduced by the government of India.
The second episode of Loanflix, which is a series of short videos explaining the various aspects of the abroad education loan process, explains the benefits of borrowing a government bank education loan in great detail.
However, the process of borrowing secured education loans for an MS in US is not as simple as it seems. Students who apply for a USA education loan are often faced with a common dilemma when they begin their collateral education loan process with any of the government banks - What type of collateral security can be pledged to borrow a government bank education loan for MS in US? Here is a complete list of the different regulations set by government banks for assets that can be pledged as collateral security for a USA education loan. If you are stuck in any phase of your education loan process, do get in touch with the financial team of WeMakeScholars at the earliest to get the best assistance.
Types of Assets Which Can Be Pledged As Collateral Security For Secured Education Loans For MS in US
Immovable Property: An immovable property is one of the most frequently pledged categories of assets as collateral against an abroad education loan for MS in US. This category involves assets like a house, a residential flat, a plot with defined boundaries, an independent house, a non-agricultural land, etc. come under this category. The value of the property must exceed the total education loan amount required by candidates. This is a mandatory requirement and all candidates are required to meet this in order to get a government bank education loan to fund their expenses in the USA.
Liquid Security: Did you know that government banks do accept liquid assets as collateral against an abroad education loan for MS in US? Assets such as Fixed Deposits, government bonds, life insurance policies from government-approved lenders, etc. are accepted by government banks like the government banks, BoB, PNB etc. as collateral security.
A Third-Party’s Assets:
All government banks allow students to pledge a third-party’s assets as collateral security under the following conditions. This provision is only applicable to students who borrow government bank education loans.
Loan applicants who are unable to pledge their own assets as collateral and if the market value of the asset being pledged does not cover the required education loan amount. This third-party can be individuals who are not part of the candidate’s immediate family. For e.g., uncle, aunt, friends of the candidate or the primary co-applicant, etc.
The categories of collateral security mentioned in the paragraphs above are just a preview of the basic types of assets which are accepted by different government banks as collateral security for USA education loans. Let us move on to understand some of the more specific rules regarding the same.
Types of Security For Student Loans: Immovable Property
As mentioned in the previous section, immovable property is one of the most commonly pledged assets in the education loan process. Many students get stuck in various stages of the collateral education loan process despite pledging assets which meet the lending bank’s requirements.
The main reason why many of them are unaware of the legal restrictions of the immovable property owned by their co-applicants.
Many government banks give due consideration to certain factors of the asset which has been pledged as collateral security before they process an application for a USA education loan. Property owners are required to abide by the following regulations in order to get an education loan for MS in US.
- If the property was co-owned before and has been divided amongst two people of the same family, then it has to have clear, defined boundaries separating both sides.
- If the property in question is part of a bigger plot which was later divided into different sections, then loan applicants will be required to submit the registration documents of the bigger plot or the motherland, as is known in bank terms.
- If the property being pledged as collateral was gifted to the candidate or their co-applicants, then the gift deed of the property has to be submitted Gift deed and Will should have been registered and now the property should be registered on New owners name.
- If the value of the education loan or that of the property being pledged as collateral exceeds INR 1 Cr., then the bank will require two legal and two valuation reports.
Types of Immovable Properties Which Are Unacceptable For a USA Education Loan in Government Banks
Agricultural lands are NOT acceptable, even if someone has built a house on it, it is still not acceptable. If that area is converted to residential, then get a “conversion document”.
Gram panchayat properties are NOT usually acceptable. Property has to be under Municipal Corporation. According to the rules and regulations, Gram Panchayat property is not accepted. But the trend in certain states like Kerala is somewhat different. Such properties are acceptable for government banks located there, and sometimes in other regions. So it is better to first fill the education loan form, and then ask the Branch Manager.
Cantonment Area property is NOT acceptable.
Types of Immovable Properties Accepted by government banks
- Immovable properties located in urban cities are accepted as collateral security by government banks, as opposed to those located in rural areas.
- Residential properties are given greater preference as opposed to commercial properties. It is recommended that you pledge commercial property as collateral only if you do not possess a residential property.
- Empty lands are often less preferred by most government banks. Properties which have a building/house on them are often accepted for USA education loans.
- If you plan on pledging an empty plot as collateral, candidates need to bear in mind that plots whose boundaries are clearly defined are given preference over those which do not have one.
As mentioned in the above paragraph, government banks mostly prefer properties which are located in urban cities as opposed to those located in rural areas. However, government banks have introduced certain regulations for urban properties as well. These regulations differ on the basis of the city in which the properties are located. Let us take a look at some of them below.
Types of Urban Immovable Properties Accepted In the government banks Education Loan Process
For Immovable Properties in Bengaluru/Bangalore:
In 2007 all immovable properties within Bangalore were divided into different categories or ‘Khatas’. These 'Khatas' are divided into three different categories:
- 'A' Khata properties: Immovable properties belonging to the ‘A’ Khata are majorly accepted by all government banks as collateral for an abroad education loan under both the schemes.
- 'B' Khata properties: Properties under this Khata have a conflicting legal status and hence these properties may or may not be accepted by government banks for an abroad education loan. It is possible for B Khata property owners to upgrade their property to an A Khata by paying ‘betterment charges.
- C Khata properties: These properties are either unregistered properties or illegally constructed properties. Properties that come under this category are not accepted as collateral for any loan.
For Immovable Properties in Mumbai
- Education loans are not possible for Chawl properties.
- Properties under the pagdi system are not acceptable.
- SRA Properties (given by govt to Slum people for Rehabilitation) are NOT acceptable.
- Many flats in Mumbai do not have an OC Certificate, Such properties will not be accepted by Govt banks. Very rarely we can try alternate documents like certificate of possession and property tax. NBFCs can accept it.
For Immovable Properties in Telangana
- In Telangana, there is an additional document required which is - LRS (Land regularization scheme) it is required for open plots and BRS (Building regularization scheme) is required for built-up properties. Most of the students do not have this document as it came into the picture only a few years ago. The LRS alternative is a Land Use certificate which we can get easily.
- Notary registered properties are not acceptable. This is not considered as proper registration of property.
For Immovable Properties in Delhi
- Noida, Gurgaon- Properties which are on Lease or GPA or Power of attorney cannot be considered for an education loan in government banks.
Conveyance deed is required for DDA flats- Conveyance deed is the conveyance of right of ownership of the flat to the allottee, after the payment and the documents are received from the allottee and possession is taken over by him/her. Conveyance Deed is executed in the cases of freehold allotments only.
For Immovable Properties in Kerala
Wetland or Nilam land is not acceptable for a loan.
With the rising amount of students who have been applying for an education loan in government banks in current times, it is extremely essential to be well aware of the different types of collateral that are accepted by the bank. For any further doubts about the types of collateral security which are accepted for an education loan in government banks, do get in touch with the financial team of WeMakeScholars.
Also read about Education Loan Terms: A Glossary of Common Terminology
Types of Security For Student Loans: Liquid Security
Unlike immovable properties, the criteria set by government banks for liquid security are relatively easier. The following Liquid assets which fulfil the following criteria can be accepted as collateral against an education loan for MS in US from government banks.
Type of Acceptable Liquid Assets
Value considered by government banks for Education Loans
Own bank deposit (TDR/STDR/RD)
For TDR - Face Value will be considered for STDR/RD - Face value + Accrued interest
Insurance Policy (From government banks Life/LIC)
The surrender value of the insurance policy
Face value or Issue price, whichever is lower
Mutual fund schemes of government banks Mutual Funds (FMP/DAF)
Loan margin will be calculated on a case by case basis
The process of getting an education loan in India to fund an MS in US is considered by many students to be a painful affair because very few candidates have a good knowledge of some of the basic education loan concepts. In order to know more about the different factors of an easy education loan process, do get in touch with WeMakeScholars. Our financial officers have been able to help out close to 3000 students with their abroad education loans despite the complicated status of their profile. Register a callback or write to us regarding your education loan issues and our team will definitely help you with the end to end process within a short period of time.
Note: WeMakeScholars is an organization funded and supported by the Government of India that focuses on International Education finance. We are associated with 10+ public/Pvt banks/ NBFCs in India and help you get the best abroad education loan matching your profile. As this initiative is under the Digital India campaign, it’s at free of cost. The organization has vast experience dealing with students going to various abroad education destinations like the US, Canada, UK, Australia, Germany, Sweden, Italy, China, France among others