What Should be Kept in mind Before Taking an Education Loan?
Quality education is very important for a person’s complete and successful life. For some people, it may be a graduation from a top institute. At a time when the cost of studies is constantly increasing, the cost of studying in the top institutes of the country and abroad is quite high. Keeping this in mind, parents invest in mutual funds, some fixed deposits and some resort to ULIPs.
Even after all this, the amount may be less for your studies. In the form of education loan, you get a lot of help in such situations. In the form of education loan, you get a lot of help in such situations. This loan fills the gap between your need and the money available.
According to a study, the cost of studying is increasing at the rate of 15 percent annually. At this time, if the cost of studies is Rs 2.5 lakh, then after 15 years, it will cost 20 lakh rupees to do MBA. If a parent invests Rs 2000 every month for 15 years from now and assuming an average return of 12 per cent, then it will add only Rs 9.5 lakh.
What does an education loan cover?
In this, the basic fees of the course and other expenses of the college (stay, exam and others) are covered.
Who can apply for a loan?
A student studying is a main borrower. His parents, or siblings, may be borrowers.
Who can get a loan?
Students going abroad for studies or higher education in India can take a loan. For both places, the loan amount may be different for studies and it also depends on the bank.
What types of courses come under loan?
Full time, part time or vocational courses can be done by taking loans. Apart from this, loans can be taken for studies of graduation or post graduation in Engineering, Management, Medical, Hotel Management and Architecture etc.
Qualifications and documents needed
A person applying for a loan must be an Indian citizen. With this, admission has been decided in a college or university recognized by a legitimate institution in India or abroad. Applicant must have passed class XII examination.
Some banks, however, give loans even before the admission is decided. According to the Reserve Bank, there is no maximum age limit for education loans, but some banks have set limits.
Banks can however ask the applicant for admission letter, fee structure, 10th, 12th and graduation marksheet from the applicant. Apart from this, a copy of the salary slip or income tax return (ITR) of the applicant can be sought.
Financing of loans, need of mortgage
Banks can finance up to 100 percent according to the loan requirement. Currently, no margin money is required for loans up to four lakh rupees. To study in India, margin money is is required for five percent of the loan amount and 15 percent for studying abroad.
For loans above Rs 7.5 lakh, banks can ask for some mortgage. Once the loan application is accepted, banks pay the college / university directly according to the fee structure.
Banks currently charge interest on the loan according to the MCLR and the additional spread. Additional spreads can range from 1.35 percent to three percent at this time.
The student pays the repayment loan. Usually, repayment starts six months after the end of the course, sometimes banks give six months of deferment. This delay can also be six months after getting the job or one year after the completion of the course.
This loan has to be repaid in five to seven years, many times banks can extend it further. The interest on the loan is normal during the duration of the course and this interest has to be paid in the form of EMI, so that the student is not burdened much after the completion of the course.
While applying for a loan, check about its processing, prepayment, late payment fees etc. Most banks charge a processing fee of 0.15 per cent of the loan amount.
Income tax exemption
Under Section 80E of the Income Tax Act, the amount paid in the form of loan interest is exempt. This rebate is available to a person on interest paid on loans taken by himself, children or legal parents for the education of the child.
You can deduct the total interest of the loan from your taxable income. This rebate can be availed for a maximum period of eight years.
Education loan as an initial loan can prove to be helpful in improving your credit rating. For this it is necessary that you repay it at the right time. This will give you an opportunity to get a home, car or other loan easily in future.