Quality education is a must for a successful and a secure future. For most of us, quality education means studying either from a premium institution of India or from abroad. The fees of the premier institutions of India are at a hike. According to the studies, the cost of education is increasing at an average of 15% per annum. The tentative cost of pursuing MBA is up from Rs 2.5 lakh to Rs 20 lakh in 15 years. And studying from abroad is in itself expensive. It becomes difficult for some of the students, who are deserving, to afford the fees of such institutions. Thus, education loans are vitally important.
Education loans came into existence in 1995, started by the SBI Bank and after that many banks started offering education loan. The Indian banking sector began giving education loan from 2001 onwards. Education loan is thus, ‘funds offered by financial institutions to meritorious and/or deserving students so that the latter can pursue their basic/higher education, in India or abroad’. At present, almost all banks in India offer education loans.
Features and Benefits of Education Loan
- Anyone with a will to study can apply for an education loan
- Loan amounts are available for a maximum amount of 30 lakhs for education in India. And for education in abroad loans are available for a maximum amount of 30 lakhs.
- Education loans are provided to pursue all types of academic courses, in India and abroad. The courses include graduation/higher education, post-graduation, technical, professional, and management courses.
- The applicant’s annual family income and the course to be pursued are the main factors that determine the loan amount.
- Usually, some banks offer discounts and/or lower rates of interests for an education loan to female students
- Government sponsored subsidy schemes, such as ‘Central Sector Interest Subsidy Scheme, 2009’ help students from the economically backward sections of society avail the benefits of a loan for education. The applicant need not repay the borrowed amount immediately. Post the completion of the course, the repayment tenure can stretch up to 5-7 years.
- Indian citizen
- Applicant’s age can be minimum 16 years and maximum 26 years.
- Secured admission to the concerned institute in India or abroad through appropriate selection process and cleared the qualifying examination, if any
Courses covered in India
- Graduation / post-graduation / diploma courses from recognized universities
- Technical / professional / management courses
- PhD courses
Courses covered outside India
- Graduation / post-graduation degrees offered by recognized universities
- Certified degree courses conducted by CIMA, London, CPA, USA and other such institutes
- PhD courses
- Diploma courses abroad are not covered
Life Insurance is mandatory to get the education loan.
This is a brief list of expenses covered by the financial institutions, you can ask your financial institution for a comprehensive list of covered expenses.
- Fees payable to College/School/Hostel
- Examination/ Library/ Laboratory fees
- Purchase of Books/Equipments /Instruments
- Caution deposit / building fund/ refundable deposit supported by Institution bills/ receipts [not to exceed 10% of the tuition fees for the entire course].
- Travel expenses/expenses on exchange programme 1
- Purchase of computer/laptop 2
- Any other expenses related to education 3
- No voucher/ receipt required, purpose (end use) need to be self-certified.
- Expenditure not to exceed 25% of the loan amount (up to a lump sum amount of max Rs. 1 Lac).
- Expenditure beyond 25% cap permitted subject to production of voucher/ receipt.
Margin refers to the actual loan amount that you receive i.e. your share:
- For loans up to Rs. 4 lakhs, no margin is there
- For loans more than Rs. 4 lakhs, a margin is 5% for studies in India and 15% for studies in abroad.
- Scholarship/assistantship will be included in the margin
The security required is as mentioned below:
- The loan is to be repaid in 15 years after the commencement of the repayment period.
- Repayment period begins 1 year after the completion of the course
- In case the second loan is availed for higher studies later, to repay the combined loan amount in 15 years after completion of the second course
Repayment of an education loan is deductible under section 80E of the Income Tax Act. The yearly limit for deduction is Rs. 40,000 (for both the principal and the interest). Only loans taken for higher education – full-time studies in any graduate or post-graduate, professional, and pure and applied science courses – may claim a deduction. The deduction will be available for a maximum of eight years starting from the day you start repaying.