Reasons Responsible for Making Education Loan More Preferable to Personal Loan
By Anupama Deshpande | Oct 30, 2018

Education Loan provides financial assistance to fulfil the dream of higher education of deserving and meritorious students. Interest charged on Education Loan may vary from lender to lender. Banks offer education loans upto Rs 20 lakhs at very competitive interest rates. Currently, the interest rate on education loan is in the range from 10% to 15%.

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You can finance the education of your children by taking personal loans also. But before availing any of these loans, it is important to understand following reasons responsible for making education loan more preferable to personal loan which will help you come to the best decision:

Interest rate is most vital factor in deciding which type of loan, you should go for. Education Loans are offered at cheaper interest rates than those of Personal Loan.

Banks offer the loans at a lower interest rate, when the student is admitted in a premier institution such as IITs and IIMs. Banks even offer interest rate discount of upto 0.50% for female students.

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Government of India has introduced Education Loan Subsidy Scheme for bright students belonging to Economically Weaker Sections (EWS) so that they can also attain higher education.

The main objective of Education Loan Subsidy Scheme is to provide full Interest Subsidy for the period of moratorium on Educational Loans taken by students from Economically Weaker Sections from scheduled banks under the Educational Loan Scheme of the IBA to pursue Technical/ Professional Education studies in lndia.

Students belonging to Economically Weaker Sections (EWS) are eligible for getting this subsidy only for studies in recognised Technical/ Professional Courses in India. Students belonging to Economically Weaker Sections (EWS) are the students from an annual gross parental/ family income not exceeding Rs. 4.5 lakhs per year from all sources.

Lenders offer Education Loan for much longer tenure than That of Personal Loan. Education Loan tenure is offered for 10 years and may extend upto 15 years. For higher loan amounts like loan amount exceeding Rs.7.5 lakhs, repayment tenure can go up to 15 years. In case of personal loan, maximum period of loan tenure is 5 years only.

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Interest on education loan is tax deductible under Section 80E of the Income Tax Act for up to the period of 8 years or until the interest is fully repaid, whichever is earlier. . However, in order to claim deduction, the loan should be taken from a bank or a qualified institution for self, spouse or children or the student for whom you are a legal guardian.

The best part is that there is no cap on the maximum amount that can be claimed as deduction under this section.

Moratorium Period is a Unique Feature of Education Loan. A moratorium period is a time period during the loan term when the borrower is not asked for by the lender to make any repayment in the form of EMI. It can be under stood as a waiting period before starting of EMIs.

In case of Education Loan, the borrower has the option not to pay the EMI out of following 2 alternatives, whichever is earlier:

1. Up to 12 months after the course ends
2. 6 months after the student gets the job

During the moratorium period, the lender calculates the interest on simple interest basis instead of compounded.

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Education Loan is an insecured loan which is offered for a specific purpose i.e. for education purpose only while personal loan is offered for any purpose. Availing an education loan helps you not only get required funds for desired education but it is also helpful in building a good credit score as this is the first loan in a person's life. If you do not make any default in its repayment then you will have a decent credit score which will make easier for you to get other loans such as home loan, personal loan, car loan, business loan, etc., in future.