By Dheeraj Agrawal, Communication Professional
The rising cost of higher education has made education loans a necessity. If you are planning to pursue higher education in educational institutions like IIM, IIT or ISB, or get a degree from foreign institutes like Oxford or Harvard, then a hefty amount is required. And, you can get this huge amount as an education loan. But it is important to take care of some things before taking an loan.
Who can get education loan?
Education loans can be given to every student who has qualified for higher education to enroll in a reputed educational institution in the country and abroad. The bank also asks to show the intimation letter of the educational institution before sanctioning the loan. Banks transfer the amount of education loan not to the student’s account, but directly to the account of the educational institution. Most banks also ask for a bailable or guarantor for a large loan. Usually, the parents of the student become the guarantor or co-applicant of the loan, and it is the responsibility of the guarantor or co-applicant to repay the loan if the student is unable to do so.
What are the expenses that an education loan covers?
Education loans usually include tuition fees for your course, hostel charge, examination fees, laptop costs and travel costs. But rules may differ from bank to bank. Most banks give 70 – 95% of the cost of education as education loan. In India, you can get a loan of a maximum of Rs 75 lakh, which has a maximum repayment period of 15 years. Also, remember that banks charge up to 2% of the loan amount as a processing fee.
Who will give you an education loan & all about interest rate
You will get a loan from most banks and non-banking finance companies of the country. But the loan terms of every bank or financial institution like interest rate, processing charge and documentation can be different. Interest rates on education loans can range from 6.90- 15 % annually. It is usually cheaper to take education loans from government banks.
Rate of Interest on Education Loan
|
State Bank Of India |
6.90 – 9.30% |
|
Indian Bank |
8.60 – 10.60% |
|
Canara Bank |
7.85 – 9.85% |
|
Punjab National Bank |
7.30 – 9.80% |
The interest rates on education loans are dependent upon various factors – whether the loan is secured or unsecured, how is the reputation of the educational institution, tenure of the loan. For example, the interest rate on loan for IITs will be lower, while for NITs, the interest rate on loan of the same amount will be slightly higher. Many banks and financial institutions give additional rebates in interest on loans to girl students and women. Also, many times banks have tie-ups with specific educational institutions, and students who enroll in them get additional discounts on education loans from those banks.
Whether the candidate has to provide collateral security for education loan will be based on the loan amount. Like SBI offers a loan of up to Rs 7.5 lakh with no collateral security but parent/guardian have to be co-borrower in this. If the loan crosses Rs 7.5 lakh then collateral security is required.
The government has created a website named Vidya Lakshmi to help the students trying to get an education loan. Vidya Lakshmi is a one-stop solution to check the interest rates of various banks; you can even apply to banks for the loan. A total of 38 banks are registered with Vidya Lakshmi portal, and 127 loan schemes are being offered. Students can apply to 3 banks for an education loan through a single loan application form.
3 Things to keep in mind regarding the repayment of an education loan
-The interest of education Loan is exempted under section 80 E of Income Tax Act. The best part is there is no limit on the amount of interest, that is, the entire amount of interest you have paid is deducted from your taxable income. However, this rebate is available for a maximum period of 8 years, so students should try to repay the loan in this period only.
-Every education loan comes with a moratorium period which means that every loan has a relief time window wherein the applicant doesn’t have to pay the EMI of the loan. Rules may differ from bank to bank and usually, a period of up to 12 months after the completion of the course or up to 6 months after the employment is given. But this period is not interest-free, and interest keeps getting accumulated on your loan. That is why its advisable to start the repayment as soon as the course gets over and try to keep the moratorium relief as short as possible to lessen the burden of interest.
-EMI of an education loan should not be more than 30% of the expected future salary. For this, it is necessary to find out the average placement salary of the students of the institution where you are going to study. This will help you to decide what should be the duration of your education loan. And even if you have to take an education loan for more than 8 years, do not hesitate. Considering a salary increase, you will be able to prepay this loan within 8 years.
