With the cost of education steadily rising and the coronavirus pandemic affecting the finances of every household, students are inclined to look for educational institutes that may fit into their budget. Instead of compromising on the quality of education, they should opt for an educational loan to fill the financial gap. A sound education is the bedrock of a just society as an enlightened human capital will lead to national development and also take care of the family as its principal mover.
Both public and private sector banks offer education loans for higher studies, including professional courses in engineering, medical, architecture, management, and law. After finishing their education at a top educational institute and entering the workforce with confidence, these youths will be in a position to easily repay the loan. An education loan typically covers the tuition fee and expenses on hostel accommodation, books, and in some cases even computers.
Here are the key things to know before you opt for an education loan:
Eligibility: Banks have their own set of terms. You must read the eligibility criteria, and all other conditions, before applying for a loan. For an education loan, you must be an Indian citizen and should have taken admission in a recognised college. If you are not earning, your parents or siblings can become the co-applicant. Usually, a loan of Rs 4 lakh is granted without collateral. For higher loans, banks may ask for collateral if the co-applicant's income is not sufficient.
Interest rate and repayment tenure: Evaluate all loan options available and compare the rate of interest offered by different banks as well as the time for repayment allowed for the particular course you have taken admission in. Most banks allow three years to repay a loan up to Rs 4 lakh at an interest rate of 10-15 per cent. Banks offer a lower interest rate and longer repayment period (usually 5-7 years) for higher amounts taken as an education loan. Banks may also ask for a guarantor, who may be the student's parents or a guardian.
Existing loan amount: Banks also consider whether there is an outstanding loan on the applicant or his/her co-applicant before sanctioning a fresh one. Also, it would be unwise to burden your parents with a new loan when they already are repaying an existing debt. This calls for an applicant to have a job that he/she can do while pursuing their higher studies. The employment will help you in availing and repaying the education loan on time.
EMI burden: Financial experts advise students to go for a longer-duration loan scheme to be able to reduce the future EMI burden when they start earning. At the beginning of their careers, people don't earn much, so a longer tenure of 10-12 years will help in not defaulting on repayment schedules.
Special schemes: Many banks, particularly those owned by the government, offer special schemes for education of the girl child. These schemes can range from a reduced interest rate or a subsidy programme. It is important to check with banks all the available schemes that could help you in repaying a loan.
Tax-saver: The interest paid on an education loan during a financial year is deductible under Section 80E of the Income Tax Act. No tax benefit is allowed on the repayment of the principal amount.