Education is expensive and Higher education is all the more expensive especially foreign education. Hence the need for education loan, which is a financial aid given to meritorious but needy students for meeting the expenses of their higher education in India or abroad. In this article we shall explain education loan, what it is, process of getting education loan, repayment, tax benefits under section 80E.
How expensive is higher education?
Education has become very expensive and Higher education is all the more expensive . Our article Rising Education costs ! covers survey which shows school education for a child in 2011 costed Rs. 94,000 annually for single child. Example of fees of higher education is given below .
What is education loan?
Educational loans are available for the purpose of higher education. Higher education means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so.
Most of the financial institutions and banks give out educational loans. As the Reserve Bank of India (RBI) has included education loans as part of the priority sector lending of banks, the public sector banks are at the forefront of such loans.
What is covered under the loan?
Education loans take care of all expenses incurred such as :
What is eligibility criteria for an educational loan ?
Eligibility criteria varies from bank to bank. Some common criteria are:
Under the education loan scheme, one can avail of a loan up to Rs 10 lakh for studies in India and Rs 20 lakh for studies abroad.
What is the interest applicable on Educational loans?
The interest rates vary from bank to bank and depends on the amount of the loan taken.
Education loans are usually on floating rates where the interest rates may change. Some banks such as Bank of Baroda, offer a fixed rate of interest, which is usually 2-2.5% above the bank’s base rate. Special concessions on interest rates of 0.5/1 percent are available for women students.Typically, interest rates on educational loans range between 9% to 14%. Rate may vary depending on the course, college/institute and university. Banks usually offer concessions to students who have secured admission to premier institutions. For instance, if someone joins an IIT or IIM, one’s loan might be cheaper by half a percentage point.
One can compare the rates at Deals4loans compare educational loans , RupeeTalk Education Loan. Verify it with the bank. (Note: We have no affiliation with any of the sites mentioned here, We are not recommending them. It is for informational purpose only)
Does one need to provide a guarantor or any other kind of security?
Every education loan requires co-applicant or joint borrowers such as parent, spouse, siblings, in-laws . For smaller amounts of loans (amounts upto Rs. 4 lakh) banks do not ask for any guarantor or security. However, most banks ask for either a guarantor or for some kind of security such government securities,gold, shares, fixed deposits, LIC policies and real estate other investments etc. At times banks ask for Third party guarantee . It means one’s uncle, father’s friend or any of the relatives can make this third party guarantee. (First being applicant, second being co-applicant). This is to ensure if the first/second guaranteed person is unable to to pay then 3rd party person have to bear the loan.
What are the documents required while applying for the loan?
The required list of documents may vary from bank to bank. The most common documents are:
How is the loan amount disbursed?
Disbursement of the educational loan is made directly to the institute or college to which the student has applied for admission. In the case of mess and hostel charges, the relevant amounts are given to the concerned authorities. Initially, while applying for a loan, the bank will verify the tenure of the course, and determine the cost of the entire course, as applicable at that point of time. Then, each year, the applicant is required to submit a form available from the bank that gives the details of the money required, and then the bank directly disburses the loan to the college/institute.
In the case of air fare, which is also available for studies overseas, the amount is given directly to the airlines. Some banks do give the students themselves a certain amount on a monthly or quarterly basis for purchasing books, equipments and other related material associated with the course. This, again, depends on the discretion of the bank.
However, if a student has already taken admission and incurred expenses, banks reimburse these if the original receipts are produced within one month for studies in India and six weeks if the applicant is going overseas.
When does the repayment of the loan starts?
Normally, the repayment begins after the loan is disbursed and the payments(Equated Monthly Installments (EMI)) have to be made each month. But for Education Loans Repayment usually starts six months after the course completion or the starting of a job, whichever is earlier. The period during which borrower is not required to make any repayment is called holiday period or moratorium period.
There are some banks that offer a concessional interest rate (of 1%) if one agrees to pay the interest portion of the loan during the moratorium period.
Are there any tax benefits for educational loans?
The tax benefit on education loan is available under the Income Tax Section 80E.
Source : http://www.bemoneyaware.com/blog/education-loans/.
How expensive is higher education?
Education has become very expensive and Higher education is all the more expensive . Our article Rising Education costs ! covers survey which shows school education for a child in 2011 costed Rs. 94,000 annually for single child. Example of fees of higher education is given below .
What is education loan?
Educational loans are available for the purpose of higher education. Higher education means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so.
- The course should necessarily be full time.
- It can be graduate or post-graduate course in technology, engineering, architecture, medicine, management and applied or pure sciences, including mathematics and statistics etc.
- It can be pursued in India or abroad.
- One gets tax deduction for education loan taken.
Most of the financial institutions and banks give out educational loans. As the Reserve Bank of India (RBI) has included education loans as part of the priority sector lending of banks, the public sector banks are at the forefront of such loans.
What is covered under the loan?
Education loans take care of all expenses incurred such as :
- Admission, tuition, examination and library fees
- Cost of purchasing books, computers and other equipment.
- Some banks like State Bank of India also offers loan for two-wheeler if hostel and college are far.
What is eligibility criteria for an educational loan ?
Eligibility criteria varies from bank to bank. Some common criteria are:
- The institution must be recognized
- Confirmed Admission Letter from college or institute
- Age of the student must be 16-26 (for some banks 16-35 years)
- Student should have good academic record
- Regular income of parent/co-applicant
Under the education loan scheme, one can avail of a loan up to Rs 10 lakh for studies in India and Rs 20 lakh for studies abroad.
What is the interest applicable on Educational loans?
The interest rates vary from bank to bank and depends on the amount of the loan taken.
Education loans are usually on floating rates where the interest rates may change. Some banks such as Bank of Baroda, offer a fixed rate of interest, which is usually 2-2.5% above the bank’s base rate. Special concessions on interest rates of 0.5/1 percent are available for women students.Typically, interest rates on educational loans range between 9% to 14%. Rate may vary depending on the course, college/institute and university. Banks usually offer concessions to students who have secured admission to premier institutions. For instance, if someone joins an IIT or IIM, one’s loan might be cheaper by half a percentage point.
One can compare the rates at Deals4loans compare educational loans , RupeeTalk Education Loan. Verify it with the bank. (Note: We have no affiliation with any of the sites mentioned here, We are not recommending them. It is for informational purpose only)
Does one need to provide a guarantor or any other kind of security?
Every education loan requires co-applicant or joint borrowers such as parent, spouse, siblings, in-laws . For smaller amounts of loans (amounts upto Rs. 4 lakh) banks do not ask for any guarantor or security. However, most banks ask for either a guarantor or for some kind of security such government securities,gold, shares, fixed deposits, LIC policies and real estate other investments etc. At times banks ask for Third party guarantee . It means one’s uncle, father’s friend or any of the relatives can make this third party guarantee. (First being applicant, second being co-applicant). This is to ensure if the first/second guaranteed person is unable to to pay then 3rd party person have to bear the loan.
- For a loan up to Rs 4 lakh, co-obligation of parents is required
- For loans above Rs 4 lakh and up to Rs 7.5 lakh, co-obligation of parents together with third party guarantee is required.
- For loans above Rs 7.5 lakh, co-obligation of parents together with tangible collateral security of suitable value.
What are the documents required while applying for the loan?
The required list of documents may vary from bank to bank. The most common documents are:
- Proof of admission . Educational loan cannot be applied without proof that admission has been secured in the selected institution,
- Schedule of fees from the institution
- Mark sheet of the last qualifying examination
- Photographs
- Bank account statement
- Income tax assessment order of last 2 years
- Proof of income
- Brief statement of assets/liabilities
How is the loan amount disbursed?
Disbursement of the educational loan is made directly to the institute or college to which the student has applied for admission. In the case of mess and hostel charges, the relevant amounts are given to the concerned authorities. Initially, while applying for a loan, the bank will verify the tenure of the course, and determine the cost of the entire course, as applicable at that point of time. Then, each year, the applicant is required to submit a form available from the bank that gives the details of the money required, and then the bank directly disburses the loan to the college/institute.
In the case of air fare, which is also available for studies overseas, the amount is given directly to the airlines. Some banks do give the students themselves a certain amount on a monthly or quarterly basis for purchasing books, equipments and other related material associated with the course. This, again, depends on the discretion of the bank.
However, if a student has already taken admission and incurred expenses, banks reimburse these if the original receipts are produced within one month for studies in India and six weeks if the applicant is going overseas.
When does the repayment of the loan starts?
Normally, the repayment begins after the loan is disbursed and the payments(Equated Monthly Installments (EMI)) have to be made each month. But for Education Loans Repayment usually starts six months after the course completion or the starting of a job, whichever is earlier. The period during which borrower is not required to make any repayment is called holiday period or moratorium period.
- Interest calculations start as and when amounts are disbursed and not on the entire loan amount at once.
- During the moratorium period, on an education loan the bank will calculate interest on your loan on simple interest basis. This interest will be accumulated until the end of the moratorium period.
There are some banks that offer a concessional interest rate (of 1%) if one agrees to pay the interest portion of the loan during the moratorium period.
Are there any tax benefits for educational loans?
The tax benefit on education loan is available under the Income Tax Section 80E.
- Deduction is only on the interest component. One can deduct the entire interest paid (without any limit)
- There is no deduction available for repayment of principal
- Anyone who has taken education loan for self, spouse or children, is eligible to claim tax deduction.
- The education loan should only be taken from approved charitable trust or a financial institution. In case you have taken loan from your relatives, friends or employer that amount would not qualify.
- The deduction is applicable for the year you start paying your interest called as the Initial Assessment year.
- The deduction is available in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest is paid in full, whichever is earlier.
- The deduction is available for individual only and not for other type of assessee such as Hindu Undivided Family .
Source : http://www.bemoneyaware.com/blog/education-loans/.