Education Loan

Food, clothing and shelter are always considered to be the basic necessities of life. These are the bare minimum means that every human is expected to have in order to survive.

However, in today’s competitive world, one of the most important means for survival that is added to the list is “Education”.

Higher education these days is no longer a luxury but a necessity.

If you want your children to do well in life and provide a basic standard of living to their family, you need to get them educated.

It is a known fact, that the struggles of an uneducated person are far worse than the struggles of an educated person.

Hence, every parent wants their children to study to their full capacity and go to the best of universities that exist however, the rising inflation in the education sector and high cost involved in enrolling for various professional courses has made this necessity a dream for many parents.

“EDUCATION LOAN” is one such product that can help many parents turn this dream into a reality.

Let us know more about how an EDUCATION LOAN works.

 

WHAT IS AN EDUCATION LOAN?

“EDUCATION LOAN” is a loan facility extended to all aspiring students to help them complete their higher education without worrying about the payment of fees at that moment.

Besides tuition fees, it also covers the student’s living cost if the course is being taken in a city or a country other than the place of their residence.

It also includes other related costs that are required to be incurred for completing the education. For example, buying books and periodicals, equipments, laptop etc.

Not just that. Students need not worry about repaying the loan until they complete their education and start earning.

This not only helps the ambitious and bright students achieve their dreams especially when they are facing financial challenges but can also reduce the financial and emotional burden on their parents to a larger extent.

 

 

WHAT KIND OF COURSES DO EDUCATION LOANS COVER?

There is a common misconception that EDUCATION LOAN is only good for taking education overseas.

Anyone taking higher education in India can also apply for an EDUCATION LOAN, provided the institution offering those courses is approved by the particular bank from where the loan is availed.

It also covers part-time as well as full-time courses.

The following are some of the most common types of courses that EDUCATION LOAN provides for:

• Graduation or post-graduation courses.
• Vocational courses like electrical expert, accounting professional, filmmaking, photography etc.
• Diploma in various skill based courses like computer engineering etc.
• Professional courses like MBA, engineering medical etc.

 

 

WHAT ARE THE TYPES OF EDUCATION LOANS?

“EDUCATION LOANS” are of 2 types:

1. Secured loan – A loan supported by collateral is called a secured loan.

​Banks primarily accept 2 types of collateral.

• Fixed deposit – In this case, an applicant needs to book a “fixed deposit” with the bank for a specific period against which the loan will be sanctioned for up to 90% of the value of the deposit.

• Immovable property – An applicant can also offer a residential property as collateral. The bank does the valuation of the property and can offer a loan of up to 90% of the total valuation.

 

2. Unsecured loan – When an applicant does not have any collateral or security to offer then he can avail an unsecured loan.

In the normal course, a loan up to Rs. 35,00,000/- can be availed without any security or collateral.

Since the bank, in this case, undertakes a higher risk, the rate of interest being charged is usually higher in case of an unsecured loan.

 

 

WHAT KIND OF EXPENSES DO EDUCATION LOANS PROVIDE FOR?

EDUCATION LOAN not only covers the tuition fee but also various other expenses related to projects students may have to work on and basic living expenses that the students are likely to incur during the course of their stay. Some of the most common expenses being covered under education loan are as follows:

• Food.
• Accommodation (Basic hostel fees).
• Library and laboratory fees.
• Books and periodicals and other study materials.
• Computers and other equipments required to complete the course.
• Travelling from hostel to university.
• Other expenses as per the cost details provided by the concerned university.

 

 

HOW TO SELECT THE BEST EDUCATION LOAN DEAL?

The following are some of the parameters that should be considered while taking an EDUCATION LOAN.

1. Interest rates – Having a competitive interest rate is one of the primary comparables that the applicant must look at. The rate of interest and tenure determines the amount of interest you will end up paying until the loan is paid off.

One should note that differ from one institution to another hence, one should check the details with various institutions before closing the deal.

 

2. Processing charges – “Processing charges” is another applicable upfront cost. It needs to be factored in the total cost of availing the loan facility and should be compared across banks.

 

3. Maximum tenure – 15 years is the maximum tenure available to EDUCATION LOAN borrowers.

 

4. Flexibility – Banks should be a little flexible in accommodating certain requirements of their customers that deviate from their regular practices but still comes within the bounds of their policy framework.

Many times, the due date for the payment of fees may be changed by the university or the student may change preferences the way the money should be remitted to manage their living expenses etc.

So these terms should be discussed beforehand with the bank while signing up for the loan. The one who is more accommodating should be preferred.

 

5. Scope of coverage – Besides rates and processing charges, another critical aspect that one should look at is the list of expenses that the bank is ready to cover.

Besides tuition fees, there are a lot of other expenses that the students are likely to incur during their stay which can work out to be a sizeable amount. The scope of coverage differs from bank to bank.

 

6. List of institutes – The number of universities being approved by various banks is not standard and may differ from bank to bank.

Hence, it is important to find out a list of banks that have approved the university you want to study in. The shortlisted banks should be preferred as they tend to be more responsive and prompt in sanctioning loans and servicing it too.

 

 

ELIGIBILITY CRITERIA FOR EDUCATION LOAN

The following are some of the common eligibility criteria basis which the most EDUCATION LOANS are sanctioned.

1. Loan to Value Ratio – If the loan is taken against the house property or a fixed deposit then the loan value can be the maximum of 90% of the total property valuation.

 

2. Citizenship – A resident, as well as non-resident Indian citizen, is eligible to apply for an EDUCATION LOAN in India.

 

3. CIBIL Score and repayment history – CIBIL records of all applicants should be clean and not reflect default in any of the past loan repayments. Also, the minimum CIBIL score should be 700 to comfortably secure a loan.

 

4. Financial and Job Stability – Changing jobs too frequently, filing 2 years ITR in the same year especially just before applying for a loan, delay in salary payments, the gap in employment, salary being paid in cash, etc. display irregularities and may pose complications in approval of your loan.

If any such irregularities are found with any of the co-applicants then banks may insist on having a “”.

 

 

HOW DOES THE EDUCATION LOAN WORK?

“EDUCATION LOAN” being a loan product has some similarities with other loans however; it works little differently.

Other loans like home loans, personal loans, loans against property etc., triggers EMI as soon as the loan is disbursed and the EMI starts from the month following the month of disbursement.

However, in the case of EDUCATION LOANS, the EMI does not start immediately.

Once the loan is approved, banks disburse the loan directly to the concerned educational institution and give enough time to students to complete their course, find a good job and then start making EMI payments from their salary without burdening their parents.

Once a student completes the course, the bank gives them a relaxation of 12 months from the course completion date or 6 months from the day of getting the 1^st job whichever is earlier. This period is known as “Moratorium Period”. After the moratorium period expires, the EMI starts.

The system is so creatively planned that has brought relief to a large number of families who live hand to mouth and cannot afford to make EMI payments towards their children’s education.

This ensures that the aspiring and bright students are not deprived of high-class education that they deserve but cannot avail due to their circumstances.

They carry their own burden without being dependant on anybody. The only support they may need from their parents is to stand for them as a guarantor for the loan and arrange for collateral, if required.

This also creates a sense of responsibility among children as they understand the value of every rupee earned right from their first paycheck.

However, one should bear in mind that not having to pay EMI until the course completion date and until the job is secured does not mean there is no cost involved.

Though interest payment is not compulsory during the moratorium period, it is still advisable to service interest as it makes more financial sense.

The interest meter starts right from the day your loan is disbursed. It then keeps accruing and keeps adding up to your loan amount until you start paying the EMI.

Hence, if possible, service the interest portion every month so that it does not keep accumulating to increase the repayment burden in the later years.

The principal repayment however can be started later.

 

 

IMPORTANT POINTS TO NOTE ABOUT EDUCATION LOAN

The following are some of the important points of EDUCATION LOANS that all applicants must make note of.

1. Know your eligibility – Every borrower must get their loan eligibility checked before applying for courses and paying the margin money to secure their admission.

Loan approval is subject to many conditions and processes and involves the possibility of rejection as well.

 

2. Applicants – The student is always the primary applicant on the loan and one of the parents or a legal guardian has to be a co-applicant.

 

3. Check the schedule of charges and other terms of the loan – It is every borrower’s responsibility to verify the comparables and the cost involved before signing the application form and issuing processing fee cheques.

Also, at the time of signing the loan agreement post-sanction and before the disbursement, the terms of the loan like rate of offered, etc. should be verified. To understand these terms, read the fine prints of the loan contract.

 

4. Always cover a loan with basic term insurance – If your house property is being used as collateral then it is of utmost importance to get your loan insured with a basic term life insurance.

Imagine being in a situation where all of a sudden something happens to you and your family are left with nothing but 2 choices.

Either make arrangements to repay the loan or lose the house.

Nobody would want their families to be in this situation whatsoever. Hence, always get your loan covered with the basic .

 

5. Take experts opinion – Dealing with banks directly can be misguiding many times due to a narrow approach. The bank employee you are dealing with may not be an expert in this subject.

Also, it can get very confusing for a loan applicant to decide as every banker will talk about the products and benefits that their bank offers.

Hence, one should always look for fair advice and suggestions from the aggregators or agents who deal with multiple banks and have good knowledge about the domain.

They are the experts in this field and are in a much better position to share insights that can help you make an informed decision.

 

6. Moratorium Period – “Moratorium period” is a relaxation period to help students find jobs after completing their education. As long as moratorium is in force, EMI does not start.

Usually, banks offer a of the maximum of 12 months from the date of course completing date or 6 months of getting a job whichever is earlier.

 

7. Scholarships – There are various subsidies and scholarships available for underprivileged and bright students to help them can get further assistance in pursuing higher education. Sometimes, without an EDUCATION LOAN at all.

 

 

SUBSIDIES

Central sector interest subsidy

Dr. Ambedkar central scheme of interest subsidy

Padho Pradesh

 

 

TAX BENEFITS AVAILABLE FOR EDUCATION LOANS

EDUCATION LOAN borrowers are eligible for tax benefits under section 80E to the extent of total interest paid during the financial year.

There is no benefit available for the principal repayment of the loan as section 80E covers only the interest component.

However, for interest payment there is no upper limit on the tax benefit and the 100% interest paid during the year can be set off against the income from any other heads.

The borrower needs to fulfill the following conditions to qualify for tax benefits.

• The tax benefit is available to the main borrower only who is servicing the interest on the loan taken for the education of self, spouse, children or anyone to whom he is a legal guardian. So, if the student wants to avail of the tax benefits in the future then the interest should be paid by them and not the parents or a spouse.

• The tax benefit is available only for the education of self, spouse, children or anyone for whom the borrower is the legal guardian. A loan taken by any other party as a guarantor is not eligible for tax benefit.

• The maximum duration up to which one can avail the benefit is only up to 8 years from the EMI start date. E.g. if you repay the loan in 10 years then the tax benefit will be available for the first 8 years and in the remaining 2 years, no deduction can be claimed.