October 2, 2021

Education Loans in India – Things to Consider in 2021 

Higher education is the zenith of a modern student’s growth. Now, availing higher education overseas is a dream come true for several. However, with ambitions come challenges. Going abroad and studying with an invitation is not always feasible. More regularly than not, the cost of living and fees discourage students from realizing their dream of studying abroad.

Many modern and innovative educational loans have been injected into the system to encourage students to combat the situation. A degree from a world-class establishment could be your passport to the big organizations. While holding that in mind, it is also essential to note that one must check a few boxes when picking the right sort of education loan.

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Let’s have a glance at some of the parameters for selecting your education loanso you can get the best out of it.

Picking your Path

It would be knowledgeable to thoughtfully consider the span of your studies, your dedication to the same, and whether or not it interests you in the long run. Finally, ask yourself if you see this as the career path for the rest of your life.

Checking Eligibility

You need to be Indian. In addition, you require to be at least 18 years of age. These loans also demand proof that you are committed to your studies in terms of overall academic background, as well as evidence that you did, in fact, secure admissions at the university you are seeking the loan for.

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Most public sector banks can provide you with up to 90 percent of the total expenses incorporated. Depending on the lender and level of education you strive for, you can get reasonable interest rates.

Setting up the Loan in the Long-term

The bank needs to know that you have someone who can pay back the loan for more significant amounts and have a stable job that will enable that. For loans higher than 7.5 lakhs, it is the most probable that collateral is needed. The bank will only grant the loan following the collateral being scrutinized and authorization provided.

Review Education Loan Interest Rates

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Ensure to check every possible alternative and bank for the ideal interest rate to suit your income means. Every bank will have varying interest rates on the loans, but they usually tend to be within 6 to 15 percent. Next, select a loan with a more expansive repayment scheme. Finally, ensure to choose a bank with an acceptable moratorium period so you can finish the course at an average pace while paying it off.

Government Schemes or Financial Institutions

Students choose between taking a loan from a bank and taking a loan from the Government under a scheme. The Government of India has even launched the Credit Guarantee Fund Scheme (CGFSEL) for education loans, below which students can avail credits up to Rs 7.5 lakh without co-applicants. In addition, there are also tax exemptions on interest paid under Section 80E of the Income Tax Act on an education loan. So, there are plenty of choices that are affordable for students.

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Avail a Government Subsidy if you require it.

Scholars from Economically Weaker Sections (EWS)-can avail of the Education Loan Subsidy Scheme administered by the Central Government. Under this scheme, interest applicable throughout the moratorium period would be owned by the Government. This scheme is possible if the annual income of the student’s parents from all origins is up to Rs. 4.5 lakh for seeking a course in technical and professional streams from verified institutions in India.

Education Loans

Education loans typically include the course fees/charges attributed to or associated with the education, including living expenses, study equipment, coursework material, travel, and other lifestyle expenses. The quantum of loans also considers the course fee and the total income of the student’s family.

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A student can get the loan with the parents or guardians exercised as co-applicants. The soon-to-be student is the primary borrower. A spouse, parent, or sibling can be treated as the co-applicant. Such loan is extended to students who want to study in India or seek higher education overseas. ​ The eligibility guidelines may differ from one bank to the other, but these are the conventional eligibility criteria needed to be supported for an education loan:

  • Indian Nationality
  • Age: Till 35 years for non-employed individuals and till 45 years for employed individuals
  • Proof of admission into the educational institution
  • Original educational certificates showing an excellent academic record (of higher than 50%)
  • Guarantor’s income verification or credit history
  • Passport/visa/i20 form in case of education abroad
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A pre-admission sanction of the education loan can be availed for applying to universities abroad.

Loan Repayment

The education loan has to be reimbursed by the student. Repayment typically starts a year after completing the course or within six months of capturing a job, whichever is earlier. During the course duration, the bank charges a simple rate of interest on the loan.

Margin Percentage

Margin money is a specific percentage of the total cost of education the borrower must fund on their own, basically out of their pocket. The bank then pays the remaining amount in the form of an education loan. It can differ among banks and the basis of the university, loan amount, etc. Check before committing.

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Guarantee or Collateral

Education loans are administered in both secured and unsecured alternatives. The bank may demand a third-party guarantee or collateral depending upon the value of the loan. Banks emphasize collateral for loans over Rs 7.5 lakh.

Tax Benefits and Concessions

Section 80E of the IT Act grants for a deduction on the interest paid on the repayment. However, the deduction is granted only for the individuals paying interest on the loan for themselves, their spouse, children, or the student for whom you’re a legal guardian. Further, in the case of female students, a concessional rate of interest can be availed or asked for. The description of the interest rate on educational loans depends on the bank. Some banks allow a fixed interest rate throughout the loan repayment tenure. Others have interest rates secured to the one-year Marginal Cost of Funds based on Lending Rate (MCLR), which can be reset at regular periods, influencing the interest rate of the educational loan.

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Factors to watch for while availing Education Loans

There are several factors to watch for when determining an education loan. These would be:

  • Courses for which the loan is applicable
  • Collateral required if any
  • Guarantor required
  • Margin amount
  • Interest rate
  • Loan amount
  • Repayment tenure

You can employ an online EMI calculator to proffer you a complete amortization table of the EMI. 

Wrap Up

All you must do is insert the loan amount required, prevailing interest rate, and the repayment tenure of choice into the given fields to get set going with your dreams. 

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