All you need to know about education loans

Are you planning to go for higher studies this year? Maybe you’re finally applying for that MBBS, Mass Communication course, B.Tech, B.Pharm, film studies, or that foreign university you’ve been eyeing? Are you hesitating because you’re not sure of your parents’ finances? Don’t worry. You can fund your own education, you know? Just apply for an education loan! We will tell you everything you need to know about education loans in India.

What is education loan?

Education loan is a loan given to people wishing to continue higher studies – after class 12 (or PUC), while working or after taking a break from employment – but do not have the means to pay for their academics. Education loans, sometimes known as student loans, help people from economically weaker sections of society, or those who don’t have enough savings, to complete their education without any hindrance. Students can take the loan on their parents’ or spouse’s guarantee and repay it to the bank after they secure a job. You can search for Educational Loans by Banks and compare their interest rates when you think you should take a loan for higher study. 

Eligibility criteria

Education loans are available to persons between the age of 16 and 35 – and not necessarily a teenager as is popularly believed. You can apply for a loan after you have applied for a course and have been accepted by the college, university or institution. However, you need to first check whether the course or college chosen by you is part of the eligible list of course and colleges approved by the bank. Generally, the following courses get loans easily: 

• Medicine
• Engineering
• Management
• Computer science
• Architecture
• Agriculture
• Hospitality industry
• Fine arts and design
• Pure sciences
• Vocational training and technical training courses

The amount you can get as loan depends on the income of your guarantor. If you have a pledge-able asset, you can check with the bank if it can be used to increase the amount of loan. Banks usually give up to Rs.10 lakh as loan for courses in India. If you choose a course overseas, you could get up to Rs.20 lakhs as loan. 

Note: Here you can Check your Education Loan Eligibility

How does education loan work?

Education loan is a purpose-bound loan. You cannot take an education loan and use it for something else, like personal loans. You need to first find the course and college you want to enroll into. Then you need to begin steps to get admission into that course/college. You can apply for an education loan only after the admission is confirmed and the college issues an acceptance letter. The bank will verify your admission, the status of the college, and the course that you are taking. The loan amount you ask for can include the tuition fees and other college fees, hostel and other accommodation fees, and sometimes, other related educational expenses such as books, equipment and travel expenses. 

For certain courses, the bank will give you 100% of the fees and expenses, while for some, the bank will only sanction 85% to 95% of the amount. The rest 5% to 15% of the expenses have to be borne by you or your parents. The amount that is part of fees will not be disbursed to your bank account, but to the account of the college or institution that you have joined, either through bank-to-bank transfer or through cheque. If any part of the amount is for other miscellaneous educational expenses, you can request the bank to credit it to your account. 

Education loan interest rate and repayment

The interest rate on education loans is usually lower than many other loans because of its higher purpose. The current education loan rates are between 10% and 15.5%. The rates vary, depending on the MCLR of the bank that you are applying to. Some banks offer a lower interest rate – lower by 0.25% to 0.5% - for girls to encourage female education. Public sector banks are likely to have a lower interest rate than private banks. 

In education loans, you get a moratorium period of up to 1 year after completion of the course, while you wait to get a job. The condition is that you should start repaying your loan in Equated Monthly Installments (EMI) as soon as you get a job and start earning a salary, or within 6 months of getting a job. If you become employed as soon as you graduate, you need to start paying monthly repayment installments immediately. This condition is applicable only to repayment of the principal amount – your parents or you will have to pay the interest component even during the moratorium period. The repayment period is generally between 5 to 7 years, including the moratorium period.

Note: Find Top Education Loan Providers in India

Tax benefits on education loan

One of the advantages of an education loan is that you can claim tax benefits under section 80E of the Income Tax Act. The tax deduction is available only for the interest paid and not for the principal amount. 

Education loans are one of the most useful funding methods – it is actually an investment towards your better future. Ensure that you choose the right bank after proper research on interest rates.