Educational Loan – Complete Guide about features, interest rates and tax benefits

Educational-Loan-Complete-guide-with-features-and-tax-benefits2Educational Loan – Complete Guide about features, interest rates and tax benefits


These days college education or foreign degree costs very high. Sometimes parents may not afford such high educational costs. Here comes Educational Loans. Educational loan helps individuals to pursue higher education with fewer burdens from current financial condition. What are the features of educational loan?  Who is eligible to take Education Loan in India? In this article, I would provide complete guide about Educational Loan and tax benefits on educational loan.

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What is Educational Loan?


If you are familiar, skip this section.

The loan that is taken for the purpose of higher education like graduation or post graduation courses from the banks is known as education loan. They enable the students to pursue their higher education. It is available for studies in India and abroad too. At times, return ticket from the foreign country also may be included in the loan.

What are the features of education loan?


Here are the quick features of Educational Loan.

1) The education loan not only covers tuition fees but also other expenditures like equipment purchase, accommodation charges and other study related expenses.

2) Most of the students do not have any previous credit history, so they need their parents or guardian as the guarantor of loan.

3) The loan also demands the deposition of some collateral security like property documents, fixed deposit etc.

4) The repayment of loan starts after a certain period for the borrower. This period is known as holiday period or moratorium period. It generally starts after six months or one year from the successful completion of course. If you pay the interest during that period, you may receive additional discount on education loan.

5) For full-time courses, a co-applicant is required. He may be your parent, guardian or your spouse (if married). To improve the chances of getting your loan being approved, it is necessary that the co-applicant have a regular and good source of income together with good creditability.

6) The limit of loan depends on the bank form which you are applying. Usually, a loan of 10 to 15 lacs can be obtained for studies in India whereas the maximum limit for overseas studies is 20 to 30 lacs. In some cases, higher loan may be sanctioned provided bank-accepted collateral is provided.

7) The average tenure of education loan is between 5-7 years but it can be extended up to 15 years in case of higher loan amount.

8) The banks generally provide a 0.5% concession on the applicable interest rates for the female students pursuing higher education in India or abroad.

9) Eligibility criteria loan margins are quite relaxed for the schedule caste or schedule tribe students.

10) The lending bank directly pays the educational institution in the local currency as the bank is situated in India. The lender may charge an extra currency conversion fee as per RBI regulations.

11) The banks usually prefer that the students take a insurance policy at least equal to or higher to the amount of loan. This acts as security feature and as a collateral document for the bank.

Who is eligible to take Educational Loan?


All the banks put forward different eligibility criteria for the loan. So, the applicant must check the requirements with the concerned bank. Some of the general parameters have been penned down-

The applicant has to be of Indian nationality.

The confirmation documents of admission of applicant in a college or educational institution at the time of application of loan.

The age of applicant should fall between 16 to 35 years of age.

The applicant should have a co-borrower like parent or guardian who acts as a guarantor.

In case, the loan is higher than Rs. 4 lacs, a collateral security deposit would be required like property documents, fixed deposit etc.

Documents required for the application of Educational loan


1) Proof of age

2) Proof of residence

3) 2 passport size photographs

4) Bank account statements for the last six months (the applicant can be a joint owner with the parent)

5) Statement of assets and liabilities of the borrower

6) Admission Confirmation letter of the applicant along with the documents related to scholarship (if any)

7) Schedule of expenses related to the course like tuition fees, accommodation and other related expenses

8) Score sheet of qualifying test.

9) Copies of student visa and foreign exchange permit for overseas students.

10) Documents related to collateral security in case the loan is above Rs. 4 lacs.

What are the courses for which we can avail the Educational loan?


For Indian students, all the courses that are recognized by UGC are competent to obtain a educational loan and for overseas students, all the regular courses. Normally, every lending institution has its own list of courses and educational institutions that they would provide a loan for whether in India or abroad.

Which are the expenses covered by education loan?


Tuition fees, hostel expenses, caution money to be paid to the educational institute, cost of books, uniform and other essentials are all covered in the education loan. Apart from these expenses, return ticket of the overseas students may also be covered in it.

What are Income Tax benefits for Educational Loan?


The loan borrowers of education loan can avail the tax benefit on interest paid under Sec. 80E of the Income Tax Act. This benefit is available over and above the exemption of Rs. 1.5 Lakhs permitted under Sec. 80C. This benefit can be availed only when the borrower starts paying the interest. Further, the deduction is available until the borrower pays off the full interest amount on loan or a maximum period of 8 years whichever is earlier.

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Which are the interest rates of Educational Loan?


While most of the banks are offering educational loan, here are the top banks which are offering special schemes for students and providing educational loans.

SBI Educational Loan – Upto Rs 7.5 Lakhs, interest rates from 13.35% to 13.6%. Above Rs 7.5 Lakhs loan, they are offering at lower interest rates of 11.6%. Repayment tenure is upto 7 years.

Axis Bank Educational Loan – Upto Rs 7.5 Lakhs, interest rates from 16.95% to 17.95%. Above Rs 7.5 Lakhs loan, they are offering at lower interest rates of 15.95%. Repayment tenure is upto 7 years.

Punjab National Bank Educational Loan – Upto Rs 7.5 Lakhs, interest rates from 12% to 13%. Above Rs 7.5 Lakhs loan, they are offering at lower interest rates of 12.5%. Repayment tenure is upto 15 years depending on loan amount.

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Suresh

Educational Loan – Complete Guide about features, interest rates and tax benefits

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