It is no secret that both domestically and internationally, school costs are rising. The average private expenditure for general education has climbed by 178% over Rs. 6,788 per student, according to National Sample Survey Office (NSSO) data. Since 2009, the price of general education has tripled in Delhi alone. The hike is not just for parents who want to enrol their kids in private schools; a few years ago, Kendriya Vidyalaya tripled its tuition from Rs. 4,500 to Rs. 12,000 to reflect inflation.
The costs associated with further education are likely to come as even more of a shock to you, with an average MBA degree by 2025 expected to cost between Rs 50 and 60 lakhs and an average engineering degree expected to cost between Rs 25 and 30 lakhs. The expenditures are significantly greater if you wish to send your child overseas. To avoid spending their whole life resources on their children’s education, it practically becomes obligatory for parents in such a situation to take out an educational loan. Here are some things you should be aware of if you’re considering getting a student loan for your kids’ future or yourself if you are a student.
What is Education Loan?
A financial loan to cover higher or postsecondary costs is an education loan. Education loans are designed to pay for living expenses while the borrower is pursuing a degree, as well as tuition, books, and supplies. Payments are frequently postponed while students are enrolled in school and, depending on the lender, for an additional six months following graduation. A “grace period” is another name for this postponement period.
1. An education loan is money borrowed to pay for higher or postsecondary education expenditures.
2. Loans for education are designed to pay for tuition, books, supplies, and living costs while the borrower is pursuing a degree.
3. Payments are frequently postponed while students are enrolled in school, and depending on the lender, they may occasionally be postponed for an additional six months after receiving a degree.
4. Despite the wide range of educational loans available, they may be broadly divided into three categories: based on location, Course, and collateral.
Types of Education Loans
Based on Location
1. Overseas Education Loan
These loans assist students in realising their ambition of attending a foreign college to pursue their chosen course of study. Students who want to study abroad can apply for a loan that will pay for their flights, lodging, and tuition as long as they meet the requirements.
2. Domestic Education Loan
Students can apply for this loan form if they want to study in India. Only if the borrower is accepted into an Indian educational institution and satisfies all other lending requirements, then the loan application be approved.
Based on Collateral
1. Loan Against Property, Deposits, and Securities
To get the necessary finance for education, you can mortgage immovable assets such as agricultural land, residential land, flats, home, and others, fixed deposit certificates, recurring deposits, gold deposits, bonds, debentures, and equity shares.
2. Third-Party Guarantee
A guarantee letter from a bank employee or a home bank might assist the student in obtaining an education loan.
Based on Course
1. Undergraduate Loans
This education loan is available to students to provide financial assistance to complete their undergraduate degrees. An undergraduate degree is often a three or four-year study with numerous specialisations. An undergraduate degree can help people get a good career and start earning money.
2. Postgraduate Loans
Many students continue their studies with a postgraduate programme, typically a two-year term in India. An advanced degree is necessary to acquire in-depth information in the field of interest.
3. Career Development Loans
Many professionals who have worked in corporate roles for a few years decide to take a break and pursue professional courses and training to boost their employment chances. Such people would work hard to gain admission to prestigious business and technical colleges to develop their talents and advance their careers.
Features of Education Loan
1. International students can borrow up to Rs.1 crore, while local students can borrow up to Rs.50 lakh.
2. Under some situations, 100% financing is possible.
3. The funding covers other expenditures, such as student exchange travel and a laptop.
4. Preferential foreign exchange rates may be provided for overseas payments.
5. After six months, the loan payback period might be extended to 12 years.
6. Both parents should co-sign the education loan.
Eligibility for Education Loan
1. Only Indian nationals are eligible.
2. Accepted university admission/invitation to a degree/diploma programme at a recognised university/college.
3. Education: For an undergraduate programme, you must have finished 10+2 (12th standard) and a degree for postgraduate study.
4. Colleges/universities recognised by the UGC/Govt./AICTE/AIBMS/CMR offered courses, at least leading to graduate/postgraduate degrees and postgraduate certifications.
5. Courses such as ICWA, CA, CFA, and so forth.
6. IIMs, IITs, IISc, XLRI, NIFT, and NID-sponsored courses.
7. Regular degree/diploma programmes include aviation, pilot training, and shipping.
8. If the course is taken in India, a degree/diploma in nursing or any other subject authorised by the Director General of Civil Aviation/Shipping/Indian Nursing Council or any other regulatory agency is required.
The preceding course listing is illustrative and not complete.
Things you should know
1. The student is the primary borrower of the loan
It is vital to highlight that the main applicant for the loan is the student pursuing the course or degree, and they will be responsible for repaying the loan. Co-applicants for the loan might be parents, spouses, or siblings, and they will be held liable if the student cannot repay the debt.
2. Your loan eligibility will be affected by the course you intend to study and the university you intend to attend
Banks want to ensure that applicants have strong job prospects after finishing their degree so they can return the loan. Therefore, they pay close attention to the course. You think about what you want to study and where you want to study it. Not only should courses be recognised, but banks frequently want to guarantee that they have good job placement rates. Furthermore, banks will want to confirm that the university or college where the applicant intends to study is accredited and has a solid reputation.
3. A third-party guarantee is required for loans ranging from Rs. 4 to Rs. 7.5 lakh
In India, educational loans can range from Rs. 1 lakh to Rs. 30-50 lakh. You would not be required to submit any collateral or third-party guarantee for loans up to Rs. 4 lakhs. However, you must submit a third-party guarantee for loans over Rs. 4 lakhs. Almost all banks will need such a guarantor or co-applicant for educational loans so that if the candidate obtaining the education cannot repay the debt, someone else can.
4. You are qualified for Income Tax Act benefits
Section 80 of the Income Tax Act allows you to deduct the interest you paid on the loan repayment. It should be noted that this deduction is only available to the person paying the loan interest for themselves, their spouse, children, or legal guardian. The total interest paid can be deducted from your taxable income for only 8 years. It is important to understand that the main amount being returned is not tax deductible.
5. Keep an eye out for additional fees, such as processing and prepayment
When applying for an educational loan, remember to factor in other bank fees such as processing, pre-payment, and late payment penalties for EMls. These fees differ from one bank to the next. While processing costs in state banks are set, fees in private banks are normally a percentage of the amount sanctioned.
Because this is a person’s first loan, taking out an education loan helps them create a solid credit score. If you return the loan on time and without defaults, obtaining a house loan, auto loan, and so on will be simpler. Also, double-check all of your loan information and details. Before taking out loans, talk to your lender about the repayment conditions and interest rates.