What is education loan?
Since the cost of inflation in education is much higher than the overall consumer price inflation, higher education is becoming costlier with each passing year. In such a scenario it is very difficult for parents to fund the education of their kids. So, many of them have to resort to education loan.
Education loan can be taken either by the parents or the student or the spouse to fund higher education in India or abroad. It covers the cost of studies and other related expenses. Higher education here means education after higher senior secondary education. The amount of loan and other terms differ from lender to lender.
What are the benefits of taking an education loan?
Education loan not only helps you fund your higher education but also provides various other benefits. Read further to know how you can benefit from taking education loan.
1- The assessee on whose name the education loan is taken can claim deduction for the entire interest part of the loan under Section 80E of Income Tax Act.
But if you want to avail the deduction, you have to fulfil the following two conditions–
- The loan must have been taken from a specified financial institution which includes banks and any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf. If you take educational loan from any other institution, you won’t be able to get any tax deduction.
- It can only be taken for higher education that is after passing senior secondary exam.
2- The education loan not only covers the cost of the course but almost the entire expense of education. Majority of the banks generally fund up to 90% of the cost of education. Following are the expenses that will be covered under the education loan-
- Tuition fees as well as hostel expenses
- Exam, library, and lab fees if applicable
- Any refundable fees paid to the institute
- Cost of uniforms, books and other essentials
- Travelling expenses
Generally banks offer 0.5% discount on the education loan interest rate to female students pursuing higher education.
You get a holiday period known as the moratorium period under which you don’t have to repay the loan. This means that the repayment does not start immediately after the completion of the course. There is a holiday period of generally 6 months to 1 year after which the EMI will start. However, you have the option of serving the interest cost of the loan during the moratorium period. If you do so, the bank may consider reducing your interest rate by 1 percent.
Eligibility Criteria for an Education Loan
Every bank has its own eligibility criteria for education loan but following are a few common parameters-
- The applicant should be an Indian National.
- At the time of application, the applicant should possess the documents confirming the admission
- Applicant should fall in the age bracket of 16-35 years.
What are the documentation requirements for education loan?
- Two passport size photograph
- Age proof
- Identity proof
- Residence proof
- Bank account statement for past 6 months
- Papers validating any scholarships the applicant has qualified for and admission confirmation letter
- Expense for the course
- Mark sheet of test
- Foreign exchange permit copy