Education Loans

Education is the key to the development of a country’s economy and over the years the scope of overseas education has widened. However, there is a huge cost factor which deters many interested and meritorious students from pursuing an education abroad.

Here is a look at the typical education loan scheme offered by public sector banks
 

Eligibility

The only criteria a student needs to fulfill to apply for a education loan is to have secured admission to a UK university or institution.

Salient Features

The loan would cover;

Institution Fee

Hostel Fee

Examination Fee

Library and Laboratory Fee

Purchases of Books

Equipment and Instruments

Caution or Refundable Deposit

Travel Expenses

Loan Amount

Need-based finance subject to repaying capacity of the parents, guardians, students with maximum ceiling of Rupees 15 Lakhs for studies abroad which may vary within the banks and depending upon the course.

Margin

Margin money is that part of education expenses which the bank will not finance and has to be borne by the student. With public sector banks, there is usually no margin for a loan of up to Rupees 4 Lakhs. For loans above Rupees 4 Lakh the margin is 15 percent for studying abroad. 
 

Interest Rate

Interest rates are as per the RBI guidelines. No service charges are usually levied on educational loans.

Disbursement is directly to Institution, Hostel or other concern authority.

The interest rate is equal to MTLR (Medium Term Lending Rate) for loan up to Rupees 4 Lakh, and MTLR plus 1 per cent for loans above 4 Lakh.

Please confirm the interest rate at the time of applying.
 

Repayment Term

You are allowed a repayment holiday (or moratorium) during the course period plus, one year or six months after getting a job whichever is earlier. This provision should indeed provide students a much-needed breather. The loan has to be repaid in 5-7 years after commencement of repayment. The provision that during the moratorium period, interest will be calculated at simple (not compound) is a further sweetener. Students are also offered 0.5 percent concession of loan amount is paid every month towards part payment of interest. A one per cent concession can be offered during the moratorium period if full interest is paid during this period.
 

Security

No security is asked for a loan up to Rupees 4 Lakh. Above Rupees 4 Lakh the borrower has to offer collateral equal to 100 per cent of loan amount, or guarantee from a third person known to the bank.
 

Processing Fee

Processing fee is nil and there are no pre-payment charges.
 

Claim Tax Deduction on Education Loans

Under the Income Tax Act 1961 Section 80 E deals with a deduction that can be availed from total income on educational loans. Note that this is a deduction, which means that the amount available here will be subtracted from the income earned by an individual to arrive at the taxable income. However this deduction will not be taken into consideration for calculating the limit of gross total income under Section 88. A sum re-paid up to Rupees 40,000 per year on the loan can be deducted from the total income of the person.

However, several requirements have to be fulfilled for claiming the deduction. First, the deduction is available for an individual only. The loan that qualifies for the deduction has to be taken by the student themselves, which means that the person claiming the deduction has to have the loan in their name. This loan has to be used for ones own education, this is important because usually one of the parents takes loan on behalf of the child. The loan also has to be  for the purpose of full time studies for a graduate or post-graduate course. The second category includes the fields of medicine, engineering, management, applied sciences or purse sciences, which would cover mathematics and statistics. To qualify for the tax benefits, the amount that is repaid has to be out of the income that is to be chargeable to tax for the year. The amount qualifying for the deduction would be both capital and interest that is paid back to the lending institution. There is however a limit of Rupees 40,000.

Such deduction would be available for a period of eight years from the date of initial repayment of the loan, or till the entire loan along with the interest is paid off, whichever is earlier. Thus in case of a very long repayment period, the deduction benefit may be disallowed in the latter years. Another positive point is that the loan can be from a bank, from a financial institution or even an approved charitable institution. Thus, with adequate intention, education loans can be turned into an advantage on the tax front as well.
 

List of Banks providing Education loans

Vysya Bank

www.vysbank.com

Oriental bank of Commerce

www.obcindia.co.in

Punjab and Sind Bank

www.psbindia.com

Punjab National Bank

www.pnbindia.com

Bank of India

http://www.bankofindia.com/bank_credit_schemes.html#educationalloans

Canara Bank

http://www.canbankindia.com/services.html

Corporation Bank

http://www.corpbank.com/personal_loans.html

Bank of Baroda

www.bankofbaroda.compersonal/bob-scholar.asp

Indian Overseas Bank

 

Private and foreign banks offer loans for educational purposes under personal loans.