https://www.wemakescholars.com/blog/education-loan-disbursement-process-of-private-lenders
Education Loan Disbursement Process of Private Lenders
Private Banks/NBFCs | Updated
What is Loan Disbursement?
The disbursed amount means to release of a certain amount of money from the lender (the bank) to the borrower (the student). It is used when the borrowed funds are loaned to the borrower, either as a full disbursement or as partial disbursement, to finance the required purpose of being able to pursue their higher education. This is the stage where the borrower gets hold of the cash that he or she has borrowed and becomes liable to pay back the amount borrowed together with interest charges as well as the agreed period of repayment.
The Types of Disbursement Process
1. Full Disbursement
In this type of disbursement, you are offered the whole amount of the loan at once into your bank account. An example would be the disbursement of the lump sum of your living expenses which would be disbursed into your account at the start of every semester.
2. Partial Disbursement
Here, the education loan amount is split into many parts. The money is released in bits as you fulfill certain conditions. When it comes to education loans, these conditions may be passing each semester, achieving and maintaining a certain grade point average, or completing certain courses. This makes certain that the money has been spent properly and the student is serious about their
3. Direct Payment Disbursement
Sometimes, especially with education loans, the lenders may directly pay the money to your school or the service provider as opposed to paying you the cash directly. This prevents situations where the funds are used in other areas apart from those for which they had been intended.
Sanction and Disbursement Terms of all the Private Banks and NBFCs
Bank Name | Processing Fee | Processing Time | Moratorium period | Repayment Tenure |
Axis Bank | Up to 2% of the loan amount + GST | 15 working Days | 6 to 12 months | 15 years |
ICICI Bank | Upto 2% of the loan amount | 15 Days | Course period + Up to 12 months | Up to 10 Years |
HDFC Credila | Up to 1.25% + GST | Upto 14 Days | 6 to 12 months | 12 years |
IDFC Bank | Up to 1.5% | 10 - 12 days | 6 to 12 months | Upto 15 years |
Avanse | Up to 2% | 72 hours | 6 months | Upto 15 years |
Auxilo | 2% of the sanctioned loan amount | 7-10 days | 6 to 12 months | Upto 12 years |
Incred | Upto 2% of the Loan Amount | 5 Working days | 6 to 12 months | 5-12 years |
Full Education Loan Disbursement Process: Private Banks and NBFCs
The disbursement process for education loans from private lenders involves several detailed steps. Here is an expanded guide incorporating comprehensive information:
Step 1: Application and Approval
- Application: The initial stage is the submission of the loan application. You can submit this through the Common Application Form you can find on our website. The usual documents that are required are admission letters from an educational institution, identification documents, proof of income, and others.
- Verification and Assessment: The applicant will provide documents that will be verified by the bank or the lender and the creditworthiness of the applicant will be assessed.
- Sanction Letter: After satisfying all the checks and verifications the lender will provide the loan sanction letter. This letter contains the approved loan amount, interest rate, the period of repaying the loan, and other requirements. This letter is important because it communicates the approval of the loan and is needed for any further procedures of disbursement.
Step 2: Pay the Processing Fees
Most of the private lenders will charge you a processing fee, which is in the form of a percentage of the loan amount. This fee normally varies between 1% to 2%. For instance, the lenders such as HDFC Credila or Axis Bank may demand this cost. The processing fee is required to be paid for receiving the sanction letter for the loan, without which the amount cannot be disbursed.
Step 3: Get your Disbursement Schedule
- Date of Disbursement: The other advantage of borrowing an education loan from private lenders is that the borrowers are allowed to choose the date of disbursement. The borrowers can then select a date that is convenient to them for instance the date when they receive their visa if studying in another country or the due date for payment of tuition fees.
- Disbursement Amount: Borrowers have the chance to choose how much they want to receive in the initial disbursement. These are some of the aspects that should be taken into account when making this decision, including the last date for payment of tuition fees, the due date for rent, and other utility charges among others. Informing the exact date and the amount needed by the lender facilitates the disbursement process.
Step 4: Sign your Loan Agreement and ECS Mandate
- Loan Agreement: The borrowers then have to sign the final documents of the loan agreement after choosing the disbursement schedule and the amount. All the terms and conditions relating to the loan would have been stated in this document. The students should ensure that they go through all the clauses and understand them before they sign them.
- ECS Mandate: The ECS mandate forms have to be filled and signed by the borrowers. These forms sanction the direct debiting of the amounts owed for the loans from the borrower’s bank account. For instance, HDFC Credila needs the borrowers to provide an ECS mandate and this must be duly signed and stamped by the borrower’s bank.
Step 5: Get the Disbursement Details
Borrowers are required to give clear instructions on how the disbursed amount is to be transferred. This includes stating the mode of payment for instance bank wire transfer, demand draft, etc This information is normally highlighted in the admission pack of the university or college.
Step 6: Document Confirmation
Upon the submission of the documents, the bank may ask for other documents such as fee payment slips or confirmation letters from the university. These documents are useful to ensure that the purpose for the disbursement and the sum required are legitimate.
Step 7: Disbursement Request
The borrowers are required to complete a formal request on the disbursement of the funds to a specified amount to a specified recipient. This request should be consistent with the university’s fee payment calendar to enhance the payment of tuition as well as other fees.
Step 8: Final Verification
The bank also performs the final check on the borrower’s enrollment status, academic performance, and any other paperwork. This step makes it possible for the borrower to be qualified for the loan disbursement.
Step 9: Fund Transfer
Upon successful verification, the bank disburses the approved amount. The transfer is usually completed within a few days (often 24 - 48 hours). The funds are transferred directly to the university/college bank account for tuition fees or to the borrower’s account for living expenses and other personal costs.
Step 10: Collect Final Loan Agreement Documents
Borrowers are required to physically go to the lender's office to sign the final documents of the loan agreement. This step comprises uploading the original KYC documents of the student, borrowers, and guarantors (if any) like PAN card, Passport, etc. Also, two sets of the signed and stamped ECS mandate forms need to be submitted when the loan is availed from the borrower’s bank.
Step 11: Submit the Electronic Clearance System (ECS) Mandate
For lenders such as HDFC Credila, there are additional documents that are required to be produced by the borrower, an ECS mandate from the borrower’s bank. This mandate enables monthly deductions of the loan and it requires the signature and stamping of the bank manager. Both the lender and the borrower should keep one original copy of the ECS form each, as a record.
Step 12: Getting Your Education Loan Funds
The last process is the actual payment of the funds into either the student’s or the university’s bank account. It is an instruction to the lender to credit the amount of the education loan to the university/college account through RTGS or issue a demand draft. This is the final stage of the loan funding from private sources of funds it is the beginning of the credit funding from formal sources.
Key Considerations for Education Loan Disbursement:
Understanding these key points can ensure a smooth and stress-free disbursement process::
1. Disbursal Date Selection: The disbursal of the funds can be done at any time that you wish depending on the needs of the university or your needs when it comes to fee payment.
2. Disbursal Amount Breakup: Inform your bank on how the disbursal amount will be partitioned and the plan on how it will be done. Indicate how much is required for self-use and how much is to be used to cater for university charges.
3. Providing Disbursal Account Details: Make sure that you give the bank the right and updated disbursal account details. This means your routing number as well as any other information that may be necessary from you by the lender.
4. Cancellation Option: Remember that many banks provide you with a cancellation period when you can cancel the deal if necessary. Learn more about the cancellation policies of the bank as well as the time when you can cancel the services.
5. Review the Loan Agreement Carefully: Before spending the borrowed amount, it is advisable to read the loan contract and be acquainted with all the interest rates, payment periods, fees for delayed payment, and penalties for early payment.
Challenges Faced by Students in the Education Loan Disbursement Process:
There are several issues that students face during the disbursement of funds, Here’s a detailed look at these challenges:
1. Financial Obligations for Student Visas:
Surprisingly, most bank officials do not know the financial requirements that international students have to fulfill before they can be issued their student visas. Many countries such as Canada, Germany, New Zealand, and Australia expect the student to provide adequate funds for their living expenses as a criterion for the visa grant. The students must ensure that the respective officials in the banks realize these monetary needs to prevent such a hold-up.
2. Early Disbursement Requests:
Students who approach the bank for early cash release of their education loans to satisfy visa formalities are met with some noncooperation from officials. This challenge can be solved by giving correct reasons for early disbursement when applying for an advance.
3. Tuition Fee Payment to Third-Party Services:
It is noteworthy that many government banks permit tuition fee payment to third-party service providers such as Flywire or Globalpay occasionally, students may find rejection of such requests from the bank officials. To overcome this challenge, it is necessary to inform and explain the bank’s policies on these payments.
4. Communication and Documentation:
It is therefore advisable to engage the bank officials in clear communication and make sure that all the required documents are submitted as early as possible to avert any misunderstandings on the side of the bank officers and hence unnecessary delays in releasing the cash.
Contact WeMakeScholars today and let us handle all of your pre and post-disbursement issues free of cost
FAQs
- What is education loan disbursement?
Loan disbursement in the context of education loans implies the actual release of the granted amount to the borrower. This may be effected in one sum or several installments depending on the conditions that the borrower and the lender agree to. The disbursement is normally done to cater for numerous other costs of education including tuition fees, accommodation, and other costs. - What is the disbursed amount in a loan?
The disbursed amount in a loan is the portion of the approved loan that has been released by the lender to the borrower. This amount can vary depending on the terms of the loan agreement and the specific needs of the borrower. It may be released all at once or in several parts as needed. - What are the different types of disbursement in education loans?
The different types of disbursement in education loans include:
1. Lump Sum Disbursement: The whole lot of the amount borrowed is disbursed at one time.
2. Installment Disbursement: The money is disbursed in portions, usually at the start of a term or a year depending on the academic institution.
3. Direct Disbursement: Money is wired into the account of the educational institution to cater for the tuition fees and other related charges. - Can education loans be directly disbursed to students?
Yes, education loans can be directly paid to the students, particularly for meeting living expenses, books, and other personal expenses. Yet, in the case of tuition and institutional fees, the payment is usually made directly to the institution to guarantee the money’s proper use. - What is the disbursement process for education loans?
The disbursement process for education loans typically involves the following steps:
1. Sanctioning of the Loan: After evaluating the loan amount the lender passes the loan amount and sends a sanction letter to the borrower.
2. Submission of Required Documents: Documents that are required and produced by the borrower include; proof of admission, and fee structure among others.
3. Verification: The lender reviews the documents that were provided to him.
4. Agreement Signing: The borrower puts his/her signature on the loan agreement.
5. Disbursement: This is funded to the borrower according to the agreed schedule, whether it is for the total amount or periodic payments. - What is a loan sanction letter?
A loan sanction letter is the official document given by the lender to the borrower, which shows that the application for the loan has been approved. It specifies the amount of the loan given, the rate charged on the loan, the period and other terms of repayment, and any other features of the loan. - What is an education loan disbursement letter?
An education loan disbursement letter is a legal notice that is provided by the financier to the borrower confirming the disbursement of the loan amount. It contains the details of the disbursed amount, the date of disbursement, and the purpose for which the amount was disbursed, for instance, tuition fees, and other living expenses. - How are tuition fees disbursed?
Tuition fee is normally paid directly to the institution of learning. The lender sends the agreed amount electronically into the institution’s account to meet the fees in accordance and without delay. - How are living expenses disbursed?
The funds for living expenses are normally transferred directly to the student’s bank account or the university’s bank account. The student can therefore utilize these funds to cater for expenses such as accommodation, meals, transport, and other sundry expenses.
Kindly login to comment and ask your questions about Scholarships & Education Loans