Education Loan

Quality education is a must for a complete and successful life. For many, it is equivalent to graduating from a top institution. The cost of education is, however, increasing rapidly. In fact, the cost of studying at reputed institutions is already quite high. But despite all this, one may still encounter a shortage of funds. An education loan, therefore, plays a vital role in such a scenario by helping to bridge the gap between the shortfall and the required amount.

What does an education loan cover? 

It covers the basic course fee and other related expenses such as (college) accommodation, exams and other miscellaneous charges. 

Who can apply for the loan? 

A student is the main borrower. A parent, spouse or sibling can be the co-applicant. 

Whom is the loan offered to? 

It is offered to students who want to study in India or pursue higher education overseas. The maximum amount offered for studies in India and overseas are different and varies from one bank to another. 

Types of courses covered under the Loan 

It can be taken for a full-time, part-time or vocational course and graduation or post-graduation in the fields of engineering, management, medical, hotel management, architecture, etc. 

Eligibility Required 

1. To apply for the loan, one must be an Indian citizen, having secured admission into a college/university recognized by a competent authority in India or abroad.

2. The applicant must have completed his higher secondary level schooling. 

3. Some banks offer loans even before one has secured admission into the university. 

4. As per the Reserve Bank of India (RBI) guidelines, there are no restrictions on the upper age limit, but some banks may have it. 

5. The banks require additional documents such as the admission letter of the institution, fee structure, Class X, XII and graduation (if applicable) mark sheets.

6. Also required are the income documents such as salary slips or income-tax returns (ITR) of the co-applicant.

Loan financing, collateral requirement 

The banks can finance up to 100% of the loan depending on the amount. Currently, for loans up to Rs 4 lakh, there is no margin money required. For studies in India, 5% of the required money has to be financed by the applicant. On the other hand, for studies overseas, the required margin money increases to 15%. 

The banks also ask for collateral for loans above Rs 7.5 lakh. Presently, the banks do not ask for any collateral or third-party guarantee for loans up to Rs 4 lakh. For loans above Rs 4 lakh up to Rs 7.5 lakh, a third-party guarantee is required. Collateral is asked for a loan exceeding Rs 7.5 lakh.  Once the loan application is accepted, the banks disburse the amount directly to the college/university as per the given fees structure. 

Repayment 

The loan is repaid by the student. Generally, the repayment starts when the course is completed. Some banks even provide a relaxation period of 6 months after securing a job or a year after the completion of studies for repayment.

The repayment period is generally between 5 and 7 years but can be extended beyond that as well. 

During the course period, the bank charges a simple interest rate on the loan. The payment of simple interest during the course period lessens the equated monthly instalment (EMI) burden on the student for future repayments. 

Precautions

While applying for a loan, one should also look out for bank charges such as those related to processing, pre-payment, late payment of EMIs, etc. Most lenders charge processing fee of around 0.15 percent of the loan amount. 

Benefits under Income-Tax Act 

Section 80E of the I-T Act allows for a deduction on the interest paid on the repayment. This deduction is allowed only for the individuals paying interest on the loan for himself, spouse or children or for the student to whom you're a legal guardian. You can deduct the entire interest amount paid from your taxable income. This deduction is allowed for a maximum of 8 years. The principal amount does not qualify for any tax deduction.

The following table shows the list of banks and their current interest rates with loan Amounts.