A Guide to Education Loan



It is a dream for many students in India to pursue their education to the highest level in their desired field without any economic hurdles. Also, it is well-noted that the cost of education in India and abroad is increasing day by day.
Even an average MBA or Engineering degree can cost a hefty amount. So, if you are a student or a parent planning to secure the future of your child’s education, the education loan will be the ideal choice to make.

Education loan schemes are offered to students who want to complete their education in financial shortage. It is a type of unsecured loan provided by banks and NBFCs to cover all expenses related to educational purposes. These loans can be used to pay tuition fees, buy books and materials, pay examination fees, and bear students' living costs when studying in a different location.
Education loan schemes can be classified into two main categories based on location: domestic education loans and study abroad loans. Both of them can be provided in secured or unsecured methods. These loans are usually offered for various courses like higher education, diploma studies, and professional courses.
There are various benefits of taking an educational loan. Let us look at some of the significant benefits that educational loans offer.
Financial support
Opting for an education loan will help you remove the financial burden off you. You do not have to liquidate funds or mutual deposits to cover your educational expenses.
Tax benefits: When you opt for an education loan for your child, you can avail of tax benefits under section 80E of the Income Tax Act 1961. The interest paid towards the loan amount is entirely deductible by this rule. So, you will have to pay only 0.5% of the collected tax to the source.

Lower interests: Education loans demand a lesser interest compared to all other forms of loans. A typical bank will offer these loans at an interest rate of 6.60% per annum. However, you can also negotiate with the lender to lower the interest in some cases.
Extended moratorium period: 
The loan repayment time only starts after the end of the course. Some banks can extend the moratorium period after the end of the course till 6 months to 1 year. Hence, it can help you maintain proper financial stability.
No need for collateral: 
Much like personal loans, education loans do not require the applicant to submit any collateral for obtaining them. Some banks offer education loans of Rs. 4 lakhs to Rs. 7.5 lakhs without any collateral, but it can be obtained by a third-party guarantee signature.
Provision for vast educational needs: 
The education loan amount can be used to cover all students' expenses, including the costs of tuition fees, travel, living, stationery, electronics, and academic materials.
Key points to remember while opting for an education loan:
There are several key points to remember while selecting a bank or NBFC to apply for an education loan. Let us look at it one by one.

To opt for an education loan, you must meet the requirements. A student is the main applicant for an education loan, as they will primarily repay the loan after course completion. However, before loan sanctioning, the financial organization will consider the type of your course study and confirm whether you can repay the loan after pursuing it.
Interest rate:
Banks and NBFCs usually ask for lower interest in the case of education loans. Banks like SBI offer an interest rate of 6.90% per annum, while lenders like Tata Capital have a rate of 10.99%.

Disbursement methods:
The money disbursement mechanisms for governmental banks and private lenders are entirely different. Therefore, if you opt for a study abroad loan scheme from a government bank, the formalities for your approval are higher than in other places.

Moratorium period and repayment span:
Banks usually extend the moratorium period beyond your course completion to help you acquire financial stability. However, the loan tenure can vary according to the banks. For example, SBI offers a loan tenure of 3-15 years. On the contrary, Axis bank has a maximum tenure limit of 15 years for education loans.

Opting for an education loan will be beneficial if you pursue higher studies in domestic or abroad institutes. So, when looking for an education loan, make sure to apply in the bank, which offers you the best scheme with minimum interest and maximum amount possible to be paid under a given period.