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What is an education loan?

    IndianMoney.com Research Team | Wednesday, December 08,2010, 05:06 PM
 

Education is the most important investment one makes in life. But how many people have got higher education in our country…..??? Not even 20%. Why this is happening…..??? Do you think it is because of lack of talents or lack of brilliance…..??? The answer is a BIG NO…..!!! Education is one of the most expensive things in the country. Considering the present scenario getting good education is a very difficult task for a common man.

Now the question is how can you continue your education without disturbing the financial stability of your family…..??? Is it possible…..??? Yes…..!!! It is very much possible.

Are you looking for a way to finance your education….??? Education Loan is the best way to finance your education. Higher studies and specialization in certain fields invites additional financial support. Cost of higher education such as MBA may not be affordable for middle class families. In such situation people tend to think about the Education Loans.

Applications for Student loans are simpler than any other kind of loans. The qualifications for such loans are also usually more merciful. However, leading banks in India are more than willing to be a part of your dream.

Education loan is provided for the further studies of students. These loans are very much important for the people because these loans give height to the advancements of education. Education is very important for the people, because without education one could not be civilized. For the civilization one needs to be educated properly. Education is not only important to be civilized but it is also important because of the following things :

  • For Getting Well Worth Jobs
  • Career Advancements
  • Personal Grooming
  • Civilization
  • For Getting Proper Promotions

Eligibility criteria for education loan

  • Student should be an Indian.
  • Should have completed previous qualifying examination.
  • Secured admission to professional/ technical courses in India or Abroad through Entrance Test/Merit Based Selection process.
  • Person already in gainful employment are not eligible for loan under the scheme except for pursuing evening course.
  • Secured admission to professional/ technical courses in India or Abroad through Entrance Test/ Merit Based Selection process

Courses eligible

Studies in India
  • Graduation courses: BA, B.Com, B.Sc., etc.
  • Post Graduation courses: Masters & PhD
  • Professional courses: Engineering, Medical, Agriculture, Veterinary, Law, Dental, Management, Computer etc.
  • Computer certificate courses of reputed institutes accredited to Dept. of Electronics or institutes affiliated to university.
  • Courses like ICWA, CA, CFA etc.
  • Courses conducted by IIM, IIT, IISC, XLRI. NIFT etc.
  • Regular Degree/Diploma courses like Aeronautical, pilot training, shipping etc., approved by Director General of Civil Aviation/Shipping, if the course is pursued in India. In case the course is pursued abroad, the Institute should be recognized by the competent local aviation/shipping authority
  • Courses offered in India by reputed foreign universities.
  • Evening courses of approved institutes.
  • Other courses leading to diploma/ degree etc. conducted by colleges/ universities approved by UGC/ Govt./ AICTE/ AIBMS/ ICMR etc
  • Courses offered by National Institutes and other reputed private institutions. Banks may have the system of appraising other institution courses depending on future prospects/ recognition by user institutions.
  • Courses, which are not covered under the criteria mentioned above, individual banks may take a view to consider extending
  • Education loan under the scheme taking into account the future prospects/recognition by user institution.
Studies abroad
  • Graduation: For job oriented professional/ technical
  • Courses offered by reputed universities.
  • Post graduation: MCA, MBA, MS, etc.
  • Courses conducted by CIMA- London, CPA in USA etc.

Expenses considered for loan

  • Fee payable to college/ school/ hostel
  • Examination/ Library/ Laboratory fee
  • Purchase of books/ equipments/ instruments/ uniforms.
  • Caution deposit, Building fund/refundable deposit supported by Institution bills/receipts, subject to the condition that the amount does not exceed 10% of the total tuition fees for the entire course.
  • Travel expenses/ passage money for studies abroad.
  • Purchase of computers - essential for completion of the course.
  • Insurance premium for student borrower
  • Any other expense required to complete the course - like study tours, project work, thesis, etc.

Education Loan means the loan taken for pursuing higher education. The term "higher education" would mean graduate or postgraduate course in engineering, medicine, management or postgraduate course in applied sciences or pure sciences, including mathematics and statistics.

Tax Benefits under Education Loan

The educational loan must have been taken from a financial institution or any approved charitable institution for the purpose of pursuing higher education, so that it will be eligible for tax benefit under prevailed tax laws.

You will get the tax benefit on an education loan only if the loan is in your name and is taken for the purpose of higher education of yourself, your spouse or your children.

Loan taken for the higher education of siblings (brother or sister) are not covered in this regard.

You can claim tax benefit under section 80E of Income Tax Act of 1961. The Finance Act, 2005 has substituted Section 80-E, whereby only the interest on loan taken for higher education is eligible for deduction as against the earlier provision which allowed deduction in respect of repayment of loan.

The tax benefit can be availed only on the interest paid not on the principal. Earlier, the lesser of the two amounts were eligible for tax deduction: total amount (includes principal repaid and interest paid) paid during the year or Rs 40,000. But now it has been changed and you can claim only the entire interest paid on educational loan from your taxable income without any limit. These deductions are available only for a period of eight years starting from the year in which you start paying the interest.

Conditions where tax deduction is not Available

Do remember that you cannot claim tax deductions under the following conditions;

If you have taken loan from your;

  • Employer
  • Family
  • Friends

You can get tax benefits only if the loan is from a financial institution, bank or approved charitable institution. Do remember, repayments on your education loan are NOT covered under Section 80C. As mentioned above, they are covered under Section 80E of the Income Tax Act.

You can make use of the benefit of tax exemption under this Act to the maximum, if your Financial Planning is effective.

Nowadays all the banks are lined up to provide education loan to the deserving aspirant. The innovative products offered by these banks have simple terms and provide the much-needed financial assistance in a very short period of time. With all these banks competing to provide an educational loan for your choice of course, what all things should you keep in mind while applying for an educational loan from banks in India? This article provides information on few important things you must consider know applying for an educational loan.

Security for your Loan

This depends on your Loan amount, if your loan amount is less than Rs.4,00,000/- you don’t need to provide a security. If the loan amount is more then you need to provide security for availing the education loan. Security means surrendering some form of assets or investment to the bank for availing the loan. Some form of investments and assets that are accepted as security deposit by banks are :

  • Government securities,
  • Shares
  • Bank deposits,
  • National Saving Certificates
  • House property
  • Land Property
  • Shop etc.

In case you are not able to pay back the education loan, the bank will have rights to sell these assets so as to recover the loan amount from you.

Guarantor for your loan

In cases when loan amount is not too big, but still higher than 4,00,000/- then the bank may ask for a third party to act as a guarantor for your loan instead of asking for security deposit. In case you are not able to pay the loan, the guarantor of your loan will be legally bound to pay the loan.

Repayment of Loan

Until you are pursuing the course for which you have availed the education loan you don’t need to worry about its repayment. The repayment of your loan may start at

  • Some banks ask for repayment to start after 6 months of completion of course
  • While some other banks ask for repayment to start after a year of completion of course

There is also option to start the repayment once you have secured a job. (but this doesn’t mean that you can delay repayment of loan substantially, after a certain period of time you are obliged to start the repayment of your loan irrespective of the fact whether you have secured a job or not.

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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