Education Loan (How, Where & When to get)
Education is the key to development of human resources of a country and over the years, the scope of overseas education has widened. However, there is a cost factor, which deters many interested and meritorious students from pursuing studies abroad.
Nonetheless, that was the past, Today this problem is tackled by availability of easily accessible educational loans being offered by various banks in India. The educational loan scheme aims at providing financial support to deserving students. This is really good news for students looking for financial assistance to meet their other education expenses.
Here is a look at the typical education loan scheme offered by public sectors bank:
The only criterion the Indian student needs to fulfill for availing education loan is to have secured admission to foreign university or institution.
The loan would cover fee payable to:
(However this may vary from bank to bank)
- Institution Fee
- Hostel Fee
- Examination Fee
- Library and Laboratory Fee
- Purchases of Books
- Equipment and Instruments
- Caution or Refundable Deposit
- Travel Expenses
Need-based finance subject to repaying capacity of the parents, guardians and students with maximum ceiling of Rupees 15 Lacs for studies abroad. (Which may vary among banks and depending upon the course.)
Margin money is that part of education expenses which the bank will not finance and has to be borne by the student himself. With public sector banks, there is usually no margin for loans up to Rs. 4 Lacs. For loans above Rs. 4 Lacs the margin is 15 percent for studying abroad.
- Interest rates are as per the RBI guidelines from time to time. No service charges are usually levied on educational loans.
- Disbursement is directly to Institution, Hostel or other concerned authority.
- The interest rate is 10.75% for loan up to Rupees 4 Lacs, and plus 1 per cent for loans above 4 Lacs.
- Please confirm the interest rate at the time of applying.
You are allowed a repayment holiday (or moratorium) during the course period plus, one year or six months after getting a job whichever is earlier. This provision should indeed provide students a much-needed breather. The loan has to be repaid in 5-7 years after commencement of repayment. The provision that during the moratorium period, interest will be calculated at simple (not compound) is a further sweetener. Students are also offered 0.5 percent concession of loan amount is paid every month towards part payment of interest. A one per cent concession can be offered during the moratorium period if full interest is paid during this period.
No security is asked for a loan up to Rs. 4 Lacs. However for loans above Rs. 4 Lacs the borrower has to offer collateral equal to 100 per cent of loan amount, or guarantee from a third person known to bank.
Processing fee is nil. Finally, there are no pre-payment charges. (Please check this as some banks do have processing charges and prepayment penalities.)
Claim Tax Deduction on Education Loans
Under the Income Tax Act, 1961, Section 80 E deals with a deduction that can be availed from total income on educational loans. Note that this is a deduction, which means that the amount available here will be subtracted from the income earned by an individual to arrive at the taxable income. However this deduction will not be taken into consideration for calculating the limit of gross total income under Section 88. A sum re-paid up to Rupees 40,000 per year on the loan can be deducted from the total income of the person.
However, several requirements have to be fulfilled for claiming the deduction. First, the deduction is available for an individual only. The loan that qualifies for the deduction has to be taken by assessee himself, which means that the person claiming the deduction has to have the loan in his name. Further, this loan has to be used for one's own education.
Moreover, the loan has to be for the purpose of full time studies for a graduate or post-graduate course. The second category includes the fields of medicine, engineering, management, applied sciences, which would cover mathematics and statistics. To qualify for tax benefits, the amount that is repaid has to be out of the income that is to be chargeable to tax for the year. The amount qualifying for the deduction would be both capital and interest that is paid back to the lending institution. There is, however, a limit of Rupees 40,000. Such deduction would be available for the period of eight year from the date of initial repayment of the loan, or till the entire loan along with the interest is paid off, whichever is earlier. Thus in case of a very long repayment period, the deduction benefit may be disallowed in the latter years.
Another positive point is that the loan can be from a bank, from a financial institution or even an approved charitable institution.
Thus, with adequate intention, education loans can be turned into an advantage on the tax front as well.
List of Banks providing Education loans
Oriental bank of Commerce
Punjab and Sind Bank
Punjab National Bank
Bank of India
Bank of Baroda
Indian Overseas Bank
There are many more banks offer loans for educational purposes. Private and foreign banks offer loans for educational purposes under personal loans