8 Little Known Facts about Education Loan
By Anupama Deshpande | May 02, 2018

With growing cost of education, especially higher and professional education, it has become very difficult for the parents to arrange for so much of funds for letting their children to pursue the higher studies they want to go for.

In such case, an education loan will mostly probably be the best choice. For many courses run by recognized universities and educational institutions in India and abroad, banks offer education loans upto Rs 20 lakhs at very competitive interest rates. Banks even offer interest rate discount of upto 0.50% for female students.

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 Bank to Bank. Currently, the interest rate is in the range from 10% to 15%.

Interested to know Education Loan Vs Personal Loan

The person who is paying interest on education loan for himself, children, spouse, etc can claim income tax rebate under section 80E of the Income Tax Act. Further, there is no cap on such rebate. He can deduct entire interest amount from his total taxable income.

He can claim this deduction for maximum 8 years. It is to be noted that the principal repayment does not attract any income tax rebate.

It is not only an interest that is to be considered while taking education loan, there are many other charges too that are charged by the lending bank which include Administrative Charges, Processing Charges, Late Payment Charges, etc. Before applying for the loan, it is very essential to consider and take into account all such charges to come to know the actual cost of education loan.

Actual repayment of education loan starts after of course for which Education Loan has been applied for or after securing a job by the student. Banks also offer moratorium period which can be used by the borrower.

Moratorium Period of Education Loan includes the duration of the course plus an additional 6 months after getting employment up to a maximum of 1 year subsequent to course completion.

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Banks charge only a simple interest during the Course Period of Education Loan. No repayment of loan through EMI is required during such period. The repayment will start only after the course is completed. The students are also offered the benefit of moratorium period.

No Third Party Guarantee and Collateral is required for education loan amount not exceeding Rs 4 lakhs. However, for loans above Rs 4 lakhs up to Rs 7.5 lakhs, banks require a third-party guarantee suitable to the bank. A collateral is required by the bank for education loan exceeding Rs 7.5 lakhs.

Students from Economically Weaker Section (EWS) are eligible to get Education Loan Subsidy from Central Government, if their family's annual income is less that Rs. 4.5 lakhs. This interest subsidy is available only during moratorium period of the education loan. After moratorium period is over, the student needs to make repayment of principal and interest to the lending bank.

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As the repayment of the education loan is done by the student, education loan does not increase a financial burden of the parents. After completion of his/ her studies, he/ she can start repayment of loan.

Regular repayment of Education Loan will help improving your credit score. Paying back your education loan on time will positively impact your loan repayment history and your financial future.