Introduction : Education Loan
An education loan is a sum of money borrowed to finance post-secondary education or higher education-related expenses. Education loans are intended to cover the cost of tuition, books and supplies, and living expenses while the borrower is in the process of pursuing a degree.
Quality education is of prime importance to any individual, and students go the extra mile to achieve that. However, the cost of education is on the rise lately and opting for an education loan seems to be the single best solution.
An education loan is a loan that students apply to meet the financial requirements to complete their course. Many banks and NBFCs in India offer education loans at competitive rates to help educate the upcoming innovators and leaders.
Types of Education Loan
Based on Location
- Domestic Education Loan
Students who would like to pursue education in India can apply for this loan type. The loan will get approved only if the applicant is admitted to an Indian educational institution and meets all other lender criteria. - Overseas Education Loan
Such loans help students realise their dream of pursuing the course of their desire in a foreign institution. The loan covers the airfare, accommodation, and tuition fee for students who wish to study abroad only if they satisfy the eligibility criteria.
Based on Course
- Undergraduate Loans
This type of education loan is provided for students to give financial aid to students so they can complete their undergraduate degrees. An undergraduate degree will usually be a 3 to the 4-year long course under various specialisations. Having an undergraduate degree helps individuals to land a decent job and start earning. - Postgraduate Loans
Many undergraduates would like to continue their education with a postgraduate course, usually a 2-year long course in India. An advanced degree is desired to get more profound knowledge in the area of interest. - Career Development Loans
Many professionals who work for a few years in corporate jobs prefer to pause their career and take up professional courses and training to improve their employment prospects. Such individuals would strive hard to get into reputed business and technical schools to polish their skills and reach greater heights in their career.
Based on Collateral
- Loan Against Property, Deposits, and Securities
You can pledge immovable assets, such as agricultural land, residential land, flat, house, and others, fixed deposit certificates, recurring deposits, gold deposits, bonds, debentures, and equity shares to get the necessary financing to pursue education. - Third-Party Guarantee
A guarantee letter from an employee of the bank or a home bank can help the student get an education loan.
Features and Benefits
- The loan amount can go up to Rs.1 crore for international students and up to Rs.50 lakh for domestic students.
- 100% financing available for certain conditions.
- The financing covers other expenses, such as student exchange travel expenses and laptop.
- Preferential forex rates may be available for international disbursements.
- Loan repayment tenure can go up to 12 years after six months from completing the course.
- Parents should be joint borrowers for the education loan.
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List of Expenses Covered under Education Loan
- Fees payable to educational institutes.
- Examination/library/laboratory fee.
- Travel expenses/passage money for studies abroad.
- Insurance premium for student borrowers, if applicable.
- Caution deposit, building fund/refundable deposit supported by institution bills/receipts (total expense should not exceed 10% of total loan).
- Purchase of books/equipment/instruments/uniforms (total expense should not exceed 20% of total loan).
- Purchase of computer at a reasonable cost, if required to complete the course (total expense should not exceed 20% of total loan).
- Any other expense required to complete the course, such as study tours, project work, thesis, etc. (total expense should not exceed 20% of total loan).
- While computing loan required, scholarships, fee waiver, etc., if any available to the student borrower.
Education Loan Eligibility
- Indian nationals only.
- Secured admission/invite from university in approved university/college in degree/diploma course.
- Education: Should have completed 10+2 (12th standard) for an undergraduate course and degree for a postgraduate course.
- Approved courses leading to graduate/post-graduate degree and PG diplomas were conducted by recognised colleges/universities recognised by UGC/Govt./AICTE/AIBMS/CMR.
- Courses like ICWA, CA, CFA etc.
- Courses conducted by IIMs, IITs, IISc, XLRI, NIFT, and NID.
- Regular degree/diploma courses, such as aeronautical, pilot training, shipping
- Degree/diploma in nursing or any other discipline approved by Director General of Civil Aviation/Shipping/Indian Nursing Council or any other regulatory body as the case may be if the course is pursued in India.
The above course list is indicative, not exhaustive.
Documents Required
- KYC documents
- Mark sheets of 10th, 12th, graduation and entrance exams
- Admission letter
- Fee structure
- Co-applicant KYC and income proof in some cases
Additional documents may be requested in some cases.
Tax Benefits on Education Loan
When you start repaying the education loan, the interest segment you pay towards the loan every month can be used to claim income tax deduction under Section 80E. However, the deduction cannot be claimed on the principal repayments.
Also, there is no limit on the amount you can claim for interest repayment on an education loan. As proof of this, you need to obtain a certificate from the bank. The facility is available only for eight years from the year you start repaying the loan or until the interest is fully repaid, whichever comes first.
Education Loan EMI Calculator
The education loan EMI calculator is a smart tool that calculates your monthly EMI amount payable to the lender. It’s a slider where you enter the values, Principal amount (P), Time duration (N), and Rate of interest ®, to find out your EMI and figure out your finances in advance.
How to Apply
You can either go to the bank of your choice and enquire about the loan process, or you can apply online. Once the loan application is submitted, the bank will initiate the process by verifying your documents, evaluating the course of study for which you wish to take the loan, and collateral you can provide. The bank will, then, keep you notified.
Study Loan Repayment System
Some lenders provide a 6-month grace period after completing the course to land a suitable job and start the repayment process. This grace period may vary with the lender. Once you land a job within this period, you may start the repayment process in the form of EMIs.
You can get in touch with the bank officials, and based on your monthly income, the bank officials will suggest a certain EMI. If you agree with this suggestion, you can start making the monthly repayments. Otherwise, you may negotiate with the amount. In any case, the maximum repayment tenure allowed is eight years in general.
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