Education Loan Disbursement Process in Indian Banks

Table of Contents

1. What is Loan Disbursement?
2. How Does the Student Loan Disbursement Process Work?
3. Understanding the process for different lenders
4. Documents needed for the disbursement
5. What is an education loan disbursement letter?
6. Disbursement letter format with sample
7. Loan Sanction vs Disbursement Letter
8. Tips for a Smooth Disbursement
9. Frequently Asked Questions

Congratulations on securing your education loan for studying abroad! Now comes the exciting part – receiving the funds (loan disbursement). This final step of getting the disbursement letter to the bank unlocks the resources you need to kickstart your academic adventure.

This blog provides a comprehensive explanation of the education loan disbursement processes employed by financial entities.

What is Loan Disbursement?

The term ‘Disbursement’ suggests the transfer of the education loan from the lender to the borrower. Loan disbursement is the process in which the bank transfers the accredited loan amount to the borrower. Typically, banks disburse loans directly to the university funds. Once the college semester commences, the bank will pay the fees to your college fund.

In India, the disbursement process varies depending on the policies of prominent loan lenders, namely Government Banks and NBFCs.

Once you receive the loan, you can use it for various expenses related to your studies abroad, such as:

• Visa application fees
• Tuition fees
• Flight tickets
• Accommodation
• Living expenses
• Textbooks and other academic materials

How Does the Student Loan Disbursement Process Work?

The INR student loan disbursement process involves two key phases: pre-disbursement and post-disbursement. As an applicant, it’s essential to grasp both phases to fulfill your responsibilities during the education loan disbursement process. Here’s an overview of how the student loan disbursement typically unfolds:

Before Disbursement:

Application and Approval:

Complete the loan application, submitting necessary documents such as proof of admission, identity, and income. After verification and credit assessment, the lender issues a sanction letter upon approval.

Disbursement Amount and Method:

Determine the amount needed for the first disbursement, factoring in tuition fees and living expenses. Choose the disbursal method – directly to your university, your domestic personal account, or through forex transfer for international transactions.

Loan Agreement:

The lender prepares a final loan agreement based on your chosen disbursement details. Sign the agreement, along with co-applicants and guarantors, if applicable.

Disbursement:

• Disbursement Request: Upon confirmation of your university’s fee payment schedule, submit a formal disbursement request to the lender, specifying the amount and recipient.
• Verification and Documentation: The lender verifies your enrollment status and academic standing, requiring additional documents as necessary.
• Fund Transfer: After verification, the approved amount is disbursed within a few days, often 24-48 hours, through various methods.
• Direct Credit to University: Funds go directly to your university account for tuition and fees.
• Direct Deposit to Student Account: Living expenses are deposited into your designated bank account.
• Forex Transfer: For international studies, funds are transferred through a partner forex service.

Post Disbursement:

• Multiple Disbursements: Loans are typically disbursed in stages throughout the academic year, aligning with your school’s fee payment schedule.
• Disbursement Dates: Dates are pre-set and communicated by the lender or school.
• Variations: Processes may vary slightly based on the loan type, lender, and school.

Additional info:

When does disbursement happen?	Disbursement usually occurs after the right-to-cancel period for your loan has expired. This period allows you to review the loan terms and cancel without penalty if needed.
How are the funds received?	The loan amount may be disbursed in one lump sum or divided into installments, often one per semester. This depends on your loan agreement and chosen disbursement method.
When do repayments begin?	Your monthly loan repayments typically start the month after your funds are disbursed. This aligns with the repayment schedule you selected when applying for the loan.

Understanding the process for different lenders

It’s important to note that the INR student loan disbursement process can vary depending on the lender you choose. Here in India, the two main types of education loan lenders have different approaches:

Public Sector Banks (PSBs)	Private Lenders and NBFCs (Non-Banking Financial Companies)
These banks may have a more traditional and document-heavy process. You might need to submit additional documents or visit the bank in person for approval.	These lenders often offer a more streamlined and digital process. You might be able to complete most steps online and receive the funds faster.

Documents needed for the disbursement of an Education Loan in India

• Submit the payment slip for the semester fees to the bank to facilitate the disbursal process.
• Additional documents required during the loan application process remain unchanged.

What is an education loan disbursement letter?

After your education loan is approved, submit a disbursement request form or letter to instruct the bank to release the loan amount to the specified person or organization. Each bank may have its own form, so provide the required details as per their instructions.

After signing the loan agreement, the student writes a letter to the bank manager requesting the education loan disbursement. This letter serves as an official request to disburse the loan on a chosen date through the preferred payment method. Once the education loan disbursement letter is received, the lender understands the student’s readiness to receive the funds.

Typically, loan disbursement takes place within 4 – 6 days of receiving the letter, as per the student’s request. It is advisable to retain the letter for future banking and legal purposes.

Education loan disbursement letter format with sample

Here is the education loan disbursement letter sample. If your bank doesn’t have any application for the loan disbursement, then write this letter and submit it to the bank manager.

 Disbursement letter request form

To,
Date: 
Place: 
The Manager 
Bank Ltd. 

Dear Sir, 
Sub: Request for Disbursement of my Education Loan a/c number 

_______________________ I/We have been sanctioned an Education loan by your bank for pursuing the Education course. I/We request you to kindly disburse the amount as per below details. 

Education Loan details
 
Sanctioned amount: Rs._______________________
Course Name: _______________________
College & University Name: _______________________

I/We request you to kindly disburse the amount of Rs. _______________________
I /We request you to kindly issue the DD or Transfer the funds favoring _______________________(payable in _______________________ currency).

I /We request you to kindly deduct EMI / Pre-EMI ( as applicable ) on the 5th of every month. 

Yours faithfully, 
(Applicant/Co-applicant) _______________________

Loan Sanction vs Disbursement Letter

There is often confusion between the loan sanction letter and the disbursement letter for those securing funding for their studies abroad. While both might seem similar, they serve distinct purposes. Here’s a breakdown to avoid any confusion:

Key Differences	Loan Sanction Letter	Loan Disbursement Letter
Purpose	Initial assurance of eligibility for an education loan	Issued upon finalizing the bank as your lender, initiating the disbursement process
Flexibility	Allows changes in university or lender after issuance	Generally not advisable to make changes as the bank is prepared to transfer the loan amount
Risk of Rejection	Even after receiving the sanction letter, there may be a chance of rejection for valid reasons.	Rejection is less likely after the issuance of a loan disbursement letter.

Tips for a Smooth Disbursement

• Stay organized: Keep all your documents related to your loan application and university enrollment readily available.
• Communicate clearly: Maintain good communication with your loan provider and address any questions or concerns promptly.
• Get professional assistance: The education loan process can be overwhelming, so consider seeking professional assistance from Nomad Credit for a smoother study abroad journey. Nomad Credit offers a range of education loan options and provides support at every step, including disbursement.
• Understand the timelines: Be aware of the estimated timeframe for disbursement and plan your expenses accordingly.

Frequently Asked Questions

Can I apply for an education loan if my course has already commenced?

Yes, you can apply for an education loan from NBFC even if your course has already started. However, please note that the loan approval and disbursement process may take longer than usual, and additional documents may be required.

Can I request disbursement of the education loan for expenses not initially included in the loan agreement?

Normally, the loan agreement covers academic and personal expenses. The education loan will be disbursed based on the expenses specified in the initial agreement. If you have additional categories of expenses, you can request the lender to update the loan agreement accordingly.

How do I draft an application for loan disbursement?

To follow for loan disbursement, college students can draft an application specifying the loan’s reason and including personal info like address and name.

Can I change my university after receiving the disbursement letter?

If you make a decision to change your university after receiving the loan disbursement letter, you can do so. However, be aware that this could initiate a new process for the education loan, and a few banks can also require a processing fee for such changes.