Students landing significant opportunities to study at prestigious universities can be the best possible news. However, with the highly competitive nature of scholarships, student loans are often the go-to solution for many. Typical education loans also have their fair share of problems, from insufficient amounts, high interest rates, harsh repayment terms, and lack of approvals for specific programmes. Among the several types of education loans, a Loan Against Property (LAS) can be the perfect solution for your child’s education. This article will cover everything you need to know about this choice.
Overview Of Education Loan Against Property
Leveraging property assets is an excellent approach for parents/guardians seeking financial support for their children’s education. Creditors and housing finance institutions can give an education loan with collateral as an economic solution to help you cover the tuition fees of your child’s higher education. A loan against property for education can pay local and international university/college fees to help students meet their academic goals.
Preferred Property By Lenders For Education Loans
Over the past few years, there has been a significant increase in the number of Indian students aspiring to study abroad. This is inspired by the limited accessibility of opportunities to learn in top global universities with state-of-the-art facilities, better professional opportunities, and promising a good future. However, paying the school fees at the international rate can prove challenging, but here are some properties lenders consider for education loans.
| Preference rate | Types |
| Mostly preferred | – Residential propertyUrban property – Build-up (flat/house) |
| Least preferred | – Commercial property – Rural property – Empty land |
| Not accepted | – Agricultural lands – Gram Panchayat Property – Cantonment Area Property |
*NB: Banks or other creditors don’t issue education loans against agricultural land.
City-Specific Collateral Requirements
With various cities’ unique financial and property laws, you can have additional consideration when applying for an education loan against property in your local area. These emphases are to meet local needs and ensure uniformity and equality for residents of a particular city.
| City | Requirements |
| Delhi | – Must present a DDA allotment letter and a conveyance deed for DDA flats – Don’t accept properties on leases – Don’t accept Red Line (Lal Dora) properties |
| Mumbai | – Don’t accept Chawl properties – Don’t accept properties with no occupancy certificate – Don’t accept properties under the Pagdi system |
| Bengaluru | – Accept A-Khata properties – Public banks don’t accept B-Khata properties (however, some accept upon provision of DC conversion) |
| Telangana | – Building a regularization scheme is necessary for build-up properties – A land regularization scheme is essential for open plots – Don’t accept notary-registered properties |
| Kerala | – Proper road access is necessary for pledged property (at least 8 feet wide municipal road) – Don’t accept properties with rubber plantations – Don’t accept Nilam land or Wetland |
Mandatory Documents Required
Essential documents are required for education loans against property to qualify for funding. These documents help ascertain property ownership and ensure a reasonable estimate of the amount issued reflecting the property’s value. The documents required for education loans abroad include:
- Property Title Deed
- Gift Deed/ Will/ Registered Sale Agreement
- Original registration receipt for an agreement
- Allotment letter by Municipal corporation
- Copy of plot layout or municipality-approved building plan
- Most recent property electricity and tax bills with the same address
- EC/ previous chain of sale deed establishing title/ 30 years link document
- A conversion document for agricultural lands converted into residential property
*NB: These requirements apply to salaried, professional, and self-employed applicants. They can easily be categorized into documents with identity proof, income proof, and property-related documents.
Interest Rates And Loan Limits On Collateral
Each creditor might set their loan limits on education loans with collateral based on the risk factor of the loans and the disposable amount available. However, the average range across India is ten lakhs to 1.5 crores. This is estimated using the total loan requirement and property value. On the other hand, the range of interest rates runs from 8.5% to 10%.
Repayment Terms
Repayment terms are agreed upon upon approval of the education loan against the property application. These terms are negotiated into two major sections. The repayment period and instalment amount. This enables the creditor to devise a payment plan to factor in their interest and repayment capability after reviewing the income documents.
Process of Getting An Education Loan On Property
The loan against property for the education application process is relatively straightforward. The step-by-step guide involves:
- Fill in the loan application – the bank or other creditor provides this.
- Submit your documents – you have to crosscheck all the required documents as they might differ from one city to another, and that changes even if it’s the same bank but a different branch.
- Acquiring of legal and valuation report – the bank often sends the report and attached documents to its central loan processing cell. The bank assigns the lawyer and valuer for this process, and the applicant pays their fees if the collateral is not liquid security.
- Loan application verification – a loan processing officer facilitates this to verify the application’s legitimacy.
- Loan sanctioning – once done, you’ll pay a processing fee and receive a sanction letter.
Benefits Of Opting For An Education Loan On Property
While time is often questionable, with some loan processes taking over a month before completion, the benefits always outweigh this challenge. Some of the advantages of a loan against property for education include:
- Quick solution – with everything in check, you can get speedy approval within 24 hours and swift disbursal within 72 hours. Furthermore, the university isn’t involved in the process, so there are no unnecessary delays.
- Higher loan amounts – typical student loans vary between Rs. 20-25 lakhs, but with valuable property, you can get much more to cater for tuition fees, accommodation, and other expenses.
- Decent interest rates – education loans on property have lower interest rates than typical student loans.
- Longer tenor – loans against property for education have more extended tenor periods of up to 15 years compared to the 5-7 years offered by normal student loans.
- Digital assistance – multiple online EMI calculators can help you understand the dynamics of how much you’d pay in instalments, making the application seamless.
- Grace/ Moratorium period – education loans against property give 6-12 months grace period to help you prepare for repayment.
Risks And Considerations
There is only one significant risk of a loan against property for education. In cases of default coupled with miscommunication with the lender, you risk losing property ownership. When a borrower can’t pay the loan, the bank will possess control over the property pledged as collateral. It’s up to the lender to decide whether they’ll sell or auction to recover the due payments.
Compare Education Loans Against Property With Other Financing Options Available For Education
There are notable differences between education loans against property and other financing options.
| Education loans against property | Student loans |
| High loan amounts | Low loan amounts |
| Longer tenor periods | Short tenor periods |
| Low interest rates | High-interest rates |
| Fast processing and disbursal period | More extended processing and disbursal period |
| College/University is not involved | College/University is involved |
| Fair demand, which increases accessibility | A surge in demand, thus challenging to get |
FAQs
Q1. Can I Get an Education Loan on My House?
Yes. A house (build-up or residential property) qualifies for an education loan against property.
Q2. How Much Education Loan Can I Get on Property?
The typical amount ranges between Rs. 20-25 lakhs.
Q3. How Much Property Needed for Education Loan?
Any property provided for processing qualifies; however, the more valuable the property is, the higher the expected loan amount.
Q4. What Is the Difference Between an Education Loan and a Loan Against Property?
Education loans don’t have any collateral/security, while loans against property have the property standing as collateral/security.
Q5. Is it possible to get a Tax Benefit on the Interest Paid for an Education Loan Against Property?
No. Property owners can only claim tax exemption from loans against the property if the amount is used for business and not education.
Q6. How Does the Loan-To-Value (LTV) Ratio Work for Education Loans Against Property?
The LTV will be higher for more desirable properties and vice versa.
Q7. What Happens if I Am Unable to Repay the Education Loan Against Property on Time?
Defaulting education loans against the property will result in a loss of ownership of the property.
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