What is an education loan?
Education has always been one of the top priorities of our country. We all know India has the second largest population in the world. Recently released statistics says that the number of students in our country is a startling 315 million. It is every parent’s dream to give their children quality education, some parents can afford it, however parents from the low and middle income background cannot afford to give such hefty fees to the colleges or schools, in such case education loan comes into the picture.
Important points before taking an education loan
- Any person from 16 to 35 year of age is eligible for taking education loan.
- If you are taking an education loan, ensure that your admission in confirmed in that college or university.
- One can get an education loan for graduate/post graduate course and for vocational training courses such as pilot and air hostess training.
- If you are taking an education loan, availability of co-applicant is very important, co-applicant can be your parents, spouse or parents-in-law. Co-applicant is a form of security to the bank because there might be a chance that a student might not get placement, in such case bank tells the co-applicant to repay the loan.
Here’s what education loan covers:
- 100% college tuition fees
- Accommodation charges including mess fee
- Exam and library fees
- Books and equipment
- Travelling expenses
Loan amount and collateral:
You can avail a loan up to 15 Lakh Rs for studying in India and a loan up to 75 Lakhs from a private bank if you are studying abroad. You can get a loan for a period of 3 -10 years; some banks offer loans for a period of 15 years as well. Banks do not ask for a collateral if you take a loan up to 4 lakh Rs but for amounts higher than that they usually ask for a collateral in form of property, Fixed deposit, life insurance etc.
Interest rate on education loan:
Interest rates on education loan differs from bank to bank and depends on the course or college you apply for. They are generally in the range of 8-12%. There are banks which gives different concessions for a girl applicant, or any candidate having work experience of more than 2 years, borrower offering high collateral as compared to the loan amount etc. Apart from banks there are many governments authorized education loan scheme which gives loan for the students. One of the best government authorized education loan portal is Vidyalaxmi. It is one of the best education loan portal in India authorized by the Government of India and managed by the NSDL E-governance infrastructure. This portal is linked with scheduled banks. The Portal is a gateway to the Banks through which the student can proceed further. The portal has the facility of tracking the Education Loan right from the inception of loan application to the sanction of loan or otherwise.
Disbursement of loan is directly made to the college/institute the student has applied for. In case of hostel charges, the amount is directly given to the concerned authority. In case of air fare as well, the amount is given directly to the airlines. Some banks may give students some amount monthly or quarterly for purchasing books or other material.
What are the tax benefits?
The interest paid under education loan is allowed as a deduction under section 80E. The loan should be taken for higher education of self, spouse or children. Deductions can only be availed for 8 years; you cannot claim deductions beyond 8 years. This means if loan repayment is done in 6 years, then tax deduction will only be allowed for 6 years and not 8 years.
Do proper research on the college/university and the course you have applied for. Check if there is any placement guarantee from the university as you may land in problem if there is no placement guarantee and the loan amount is huge. Some institutes also have a loan tie-up with a bank, so make sure you inquire about the same so you can get loan at a cheaper rate. If you are studying abroad, you can avail loan from there. Ask institutes about it as loans abroad are quite cheap and can be as low as 3-5%. Always remember try to pay off your loan as early as possible, because if you take more time in paying off your loan your interest will also keep on increasing and that might be a huge burden in future. In case you are not getting an educational loan there are many other secured loan options like loan against property, loans against Fixed deposit, gold loan etc