Getting an education loan
At any stage of your life, you may plan higher studies for a rewarding career. The costs of higher education in top institutes have gone up by almost 15 % in the last decade. You may not have funds to finance your career-based program before you get a job. After completing your course and getting placed, paying off the loan will be then within your means. Education loan makes it possible for you to pursue career ambitions which may not have been otherwise possible.
What can make it easy for you to secure a student loan? If you meet the criteria for an education loan, getting a loan for higher studies can be a matter of just a day.
Get admission in accredited colleges
Most top institutes in India and overseas have a financial cell that assists students in getting education loans on easy terms. Top colleges have lucrative placement opportunities for all the selected students. Banks easily accede to advance loans to students of recognized colleges because of the payback guarantee.
Improve your credit scores
You can improve your credit scores by due servicing of loans and credit cards. This may be the first time you are availing of a loan, and your credit score does not yet exist. Start using a credit card as credit card repayments also account for individual credit scores.
Arrange for collateral or guarantor
Mostly if you are availing student loans up to Rs 4 lakhs, you may not need to backup with collateral or security. However, if you require higher amounts, then talk to your guardians for security and guarantor backup.
Become a working professional
You can even think of pursuing higher education while working or after getting a couple of years of work experience. Part time courses for working professionals are conducted in almost all top varsities. Many ranked higher education colleges in the country and overseas assigned weightage to work experience for several course programs.
Work experience not only provides funds for pursuing course programs but also improves eligibility for getting selected. By becoming a working professional, you can also increase your eligibility for getting a higher education loan.
Apply for education loan
You can apply for an education loan through the financial assistance cell of your college if your college offers loan assistance services. You may also apply for student loans online through an aggregator platform after comparing available loan offers. The following documents will be required at the time of education loan application
- College admission proof
- Identity proof
- Address proof
- Other documents as applicable
(Bank account statement, salary statement, guarantor signature, security backup)
Education Loan and Interest Rate
Education loan has many benefits and one is the interest loan starting at 11.99% p.a.
Features of education loan
- A concession is allowed for girls/women.
- Interest paid towards education loan can be claimed for tax exemption under Section 80(E).
- For meritorious students, there could be special schemes. Banks can provide loans at much lower rates of interest. Enquire with the bank on such schemes and check how to apply for these schemes with the relevant proofs.
- The study loan amount depends on the type of institution the student is joining. Banks can classify these colleges and universities under different categories. If a student has been selected to a preferred college/university, then the quantum of loan amount eligibility increases.
- Banks have a favourable interest in repayment policies. Until the completion of the course, only simple interest will be charged. Repayment tenure starts after the completion of the course and after a year to allow the student to look for a job. Upon the start of the repayment period, an EMI is fixed. Interest accumulated over the years is compounded, the number of EMIs fixed, and the tenure set.
Expenses covered in study abroad loans or education loans
Education loans cover all aspects of the educational requirements of a student who is joining an educational institution either in the same country or overseas. Apart from the tuition fee, the other expenses covered are books, equipment, lab material, uniform, educational travel, and so on. More the features, better the educational finance. Some study finance loan products also cover the expenses related to job search.
Minimum and maximum amount
- The average loan amount is Rs.4 lakhs. The maximum loan amount is around Rs. 20 lakhs. However, it could go higher in the case of secured study loans.
- Generally, parents or guardians of the students are required to be co-applicants, guarantors, or co-signers of the loan.
- If the loan amount crosses a threshold amount, collateral may be required. The threshold amount is dependent on the bank. In some banks, it is Rs. 7.5 lakhs. In some others it is Rs. 15 lakhs.
- Repayment tenures can go up to 5 years. The average repayment tenure is five years. For very high loan amounts crossing Rs15 lakhs, repayment tenures can go up to 5 years.
- There is no specific upper limit for an education loan. For those seeking very high education finance, good academic background of the student is necessary.
Education Loan and Tax Exemption:
Education loans can be exempt from tax. The relevant Income Tax sections are Section 80 and Section 80E.
Under Section 80C, the maximum deduction allowed is capped at Rs.1,50,000. This amount covers only the tuition fees component of the education loan. If the education finance obtained is Rs.5 lakhs, and the tuition fee paid to the university is Rs. 1,25,000, then this amount can be claimed for a tax deduction.
Under Section 80E, the interest component paid on the education study loan is covered. The interesting thing about this section is that there is no upper limit. If for an education loan of Rs.5 lakhs, Rs. 1.5 lakhs were paid as interest for a year; this amount can be claimed for tax deduction under this section.
Salient points on Section 80E
- Study abroad education loans can be taken for the individual, spouse, children, adopted kids, or by legal guardians of students on behalf of the latter.
- The loan must be taken from a bank, financial institution, or charitable institution. Higher education finance taken from third-parties, relatives or friends cannot be covered under tax exemption.
- Tax exemption can be availed for up to 8 years.
- Only higher education is eligible for tax exemption.
Salient points on Section 80C
- Only tuition fees are covered under this section.
- Up to Rs. 1.5 lakhs are covered.
- If the assesses is a parent, then only two children can be assessed per assessee.
- Only full-time courses are considered. Part-time vocational courses or distance courses are not covered.
- Tuition fees for schooling, under-graduation, graduation, and post-graduation courses are considered.
- The school, college, or university should be recognized institutions by the relevant local or national government authorities or regulatory bodies.
- Only tuition fees are covered. Expenses towards books, materials, private coaching, food, accommodation, uniform, etc. are not covered.
How to get an educational finance loan product
- Approach the bank. Generally, this will be the same bank that the individual has an account in.
- Approach the educational institution. Seek guidance from career counsellors. Most colleges, universities have an educational loan service/query helpdesk. Check with them.
- Get an estimate on the total loan amount that would be required. Carefully do the math on the expenses related to tuition, accommodation, food, travel, clothing, private coaching, etc. Always take extra loan amount when studying abroad to cover contingencies. This is a basic piece of advice that even embassies give. When studying abroad, extra money should be kept in handy in case of unforeseen circumstances.
EMI calculation for Education Loan
EMI is short for equated monthly instalments. It is that amount which paid monthly for entire loan tenure repays the loan. Student loan EMI starts after you complete your course. Before that, you have to pay simple interest on loan amount from the date of getting a loan till you clear the program. Some banks may extend EMI on education loan by six months after course completion. The six months extended time is allowed for a student to get placed.
Education loan EMI formula
EMI has two parts, the principal amount repayment part, and the interest payment part. We can write it as E=p+i.
A simple expression of the education loan repayment can be understood through an example. Suppose a student takes a loan of Rs 1, 20,000, at 10% annual interest rate for 5 years. Then what can be simple way of calculating EMI? Just divide 1, 20,000 by 60, and we get 2000 per month. This will be p. Now we have to get i; this can be got from simple interest formula. What will be per month interest on 1, 20,000 @ 10%=1,20,000×(1/12)×10/100=Rs 1000. Thus EMI will be Rs 2000+Rs 1000=Rs 3000 per month. But banks may apply a more complex formula.
Suppose loan amount is P, the rate of interest is R, and tenure is T. With every month, EMI repayment i decreases as P decreases as part of P gets paid every month and i=PTR/100. But in EMI calculations, p is increased, such that (p+i) remains the same for all the months. This way, EMI calculation is complex but truer and total EMI lesser as the loan amortizes a little earlier than five years.
Education loan EMI for unpaid interest
If the simple interest on the loan has been paid on the principal loan amount for the course duration, EMI is calculated on the principal amount. The simple interest installments unpaid keep compounding at the rate of interest and get added to the principal amount. So EMI is calculated in this case on principal loan amount plus compounded unpaid simple interest installment amount.
Education loan EMI calculator
EMI calculator for education loan is available online. You need to input the principal amount, the applicable rate of interest, and tenure, and the calculator will return in seconds the EMI amount. You may note that if you reduce tenure, EMI increases, and if you increase tenure, EMI decreases. Education loan tenure can be maximum 5 or 7 years, and interest rates can be 9.1% to 11.99% Keywords: Education loan EMI, Education loan EMI formula, Education loan EMI calculator, Education loan repayment, Education loan, Education loan tenure, Student loan EMI, EMI on education loan.