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          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. 

Keeping this in mind, parents, who want to provide their children with the best possible education, invest their money in mutual funds (MFs), fixed deposits (FDs), unit-linked insurance plans (ULIPs), etc., for the long term. 

 

But despite all this, one may still encounter 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, exam 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, documents required 

To apply for the loan, one must be an Indian citizen, having secured an admission into a college/university recognized by a competent authority in India or abroad. The applicant must have completed his higher secondary level schooling. 
Some banks offer the loan even before one has secured admission into the university. 

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

The banks require additional documents such as admission letter of the institution, fee structure, Class X, XII and graduation (if applicable) mark sheets. 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 loan 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 loan 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 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 simple interest rate on the loan. The payment of simple interest during the course period lessens the equated monthly installment (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 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. 

 

 

 

 

Conclusion                                

Taking an education loan helps you in building a good credit score as this is the first loan in a person's life. If you repay the loan on time without any defaults then it also makes easier for you to get home loan, car loan, etc., in future. 


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

Bank Name

Education Loan for India Courses

Education Loan for Abroad Courses

Interest  Rate

Axis Bank

Upto 10 Lakh

Upto 20 Lakh

17.25% - 16.25%

Allahabad Bank

Upto 10 Lakh

No Any

17.25% - 13.5%

Andhra Bank

Upto 7.5 lakh

No Any

Not Specified

Bank of Baroda

Upto 10 Lakh

Upto 20 Lakh

12.75% Upto 4 Lakh & 12% Above 4 lakhs

Bank of India

Upto 10 Lakh

Upto 20 Lakh

13.25% loan upto 7.50 Lakh & 12.75% Above 7.50 Lakhs

Canara Bank

Upto 10 Lakh

Upto 20 Lakh

Not Specified

Corporation Bank

Upto 10 Lakh

Upto 20 Lakh

Not Specified

Central Bank of India

Upto 10 Lakh

Upto 20 Lakh

12.25% 11.75%

Credila Financial Services

More Than 20 Lakh

More Than 20 Lakh

Not Specified

Dena Bank

Upto 10 Lakh

Upto 10 Lakh

10.25%

HDFC Bank

Upto 15 Lakh

Upto 15 Lakh

Not Specified

IDBI Bank

Upto 10 Lakh

Upto 20 Lakh

11.25%- 12.25%

Indian Bank

Upto 10 Lakh

Upto 20 Lakh

12.50%

Indian Overseas Bank

Upto 10 Lakh

Upto 20 Lakh

Not Specified

Oriental Bank of Commerce

Upto 7.5 Lakh

No Any

10.25%- 14.25%

Punjab National Bank

Upto 10 Lakh

Upto 20 Lakh

12.75%- 13.75%

State Bank of India

Upto 10 Lakh

Upto 20 Lakh

11.75%- 13.75%

Syndicate Bank

Upto 10 Lakh

Upto 20 Lakh

11.75%- 12.25%

Union Bank of India

Upto 10 Lakh

Upto 20 Lakh

12.25%- 12.50%

United Bank of India

Upto 10 Lakh

Upto 20 Lakh

12.25%- 13.0%

Vijaya Bank

Upto 10 Lakh

Upto 20 Lakh

Not Specified

Uco Bank

Upto 10 Lakh

Upto 20 Lakh

12.45%- 12.70%

 

Note  -  The List is not comprehensive, The interest rate may vary by Market Stability .

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