An education loan plays a vital role in getting a great education at a young age. You enjoy a bright career and earn a handsome salary across life. Banks, NBFCs sanction education loans at low to moderate education loan interest rates. You are covered for the basic course fees, college accommodation, tuition and exam fees and miscellaneous expenses. You (student) are the main borrower. Parents or spouse may be co-applicants.
You get an education loan for studies abroad. These loans are of longer tenure. There’s a different quantum of education loan sanctioned for studies in India and abroad. (Higher Amount for Studies Abroad).
Education loan covers full-time and part-time vocational courses and higher studies overseas. NBFCs sanction education loan for students to study dance, sports studies and so on.
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You need to be an Indian resident between 16 to 35 years of age. Co-applicant is mandatory for education loan. This could be parent/spouse/guardian. You must secure admission in a reputed institution either in India or Abroad.
Banks check your academic track record and if it’s good, education loans are sanctioned at lower interest rates. The college must be recognized by UGC/AICTE and so on. You must secure education in a professional, technical or job-oriented course.
See Also: Education Loan Procedure
You can avail secured or unsecured education loan. For education loan up to Rs 4 Lakhs there’s no collateral. The Credit Guarantee Fund for Education Loan or the CGFEL Scheme offers education loan guarantee on bank loans under Model Education Loan Scheme of Indian Banks' Association (IBA). You can get collateral-free education loan up to Rs 7.5 Lakhs without third-party guarantee. You must pledge collateral like a life insurance plan, FD or property/apartment for education loans above Rs 7.5 Lakhs.
Compare interest rates across banks and NBFCs before opting for education loan. NBFCs charge higher interest rates than banks. Banks charge education loan rates of 10-11% a year.
Let’s calculate education loan EMIs with education loan calculator. You have availed an education loan of Rs 5 Lakhs. The repayment tenure is 6 years. The interest rate is 11%. What would be education loan EMIs? Well, your education loan EMIs will be around Rs 9,500. This is quite manageable with a salary of Rs 25,000 a month after you get a job.
See Also: Education Loan Eligibility
You have a moratorium period for education loan. This is an EMI holiday or a waiting period before education loan EMI commences. Education loan repayment starts either 6 months or a year after completion of the course. You have to repay education loan through EMIs after completion of the moratorium period. It would be wise if parent pays simple interest during the education loan moratorium period. This reduces education loan interest burden on your child when he/she repays the education loan.
The parent/guardian serves as the guarantor of the education loan and he/she must have a good credit score. A credit score of 750+ is a good credit score. The education loan will be easily sanctioned if the parent has a stable job, good income and high credit score.
Note: You enjoy a tax benefit under Section 80E on education loan repayment without an upper limit. The deduction can be availed only for 8 years.
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