Education loans are financial loans given to students to pay for their education. The cost of education is increasing yearly, and there is a lot of pressure on the students and their parents to pay for it. Therefore, for a student to pursue higher education, they must take out an education loan. These loans can be taken from banks, financial institutions, and specialized credit agencies offering education loans.
The borrower can repay the money lent at once or in installments over a fixed period. Interest rates on these loans vary depending on factors such as the type and duration of the loan but are usually lower than those charged for personal loans because a student’s assets secure them.
Education loan fulfills the dream of every student to attain higher education.
What are the Different Types of Education Loans?
Government student loans are loans issued by a country’s state or central governments. These loans are usually available subject to criteria like family income level, type of higher education, age, etc.
Private student loans are loans issued by various private lending institutions rather than the government. These loans are typically more expensive and less flexible than government student loans.
Education Loan Amount
As per the guidelines issued by RBI, a need-based loan is provided to the students as per the following:
- Studies in India – Maximum up to Rs.10 lakhs.
- Studies Abroad – Maximum up to Rs.20 lakhs.
Margin Requirement for Education Loan
- No margin amount is required for education loans up to Rs 4 Lakhs
- Margin amount is needed for education loan above Rs 4 lakhs as per the following:
- 5% margin amount for studies in India.
- 15% margin amount for studies outside India.
Security Requirement for Education Loan
- Parents must be joint borrowers for education loans up to Rs 4 lakhs. No security is required.
- For education loans above Rs 4 lakhs and up to Rs 7.5 lakhs: Besides the parents executing the documents as joint borrowers, collateral security in the form of a suitable third-party guarantee would be required. The bank may, at its discretion, in exceptional cases, waive a third-party guarantee if satisfied with the net worth and means of parents executing the document as joint borrowers.
- Parents need to be joint borrowers for education loans above Rs.7.5 lakhs. Further, tangible collateral security of suitable value would be required by a bank, along with the assignment of future income of the student for payment of installments.
Salient Features of an Education Loan
- The tenure for loan repayment is up to 15 years.
- A bank or financial institution decides the interest for an education loan.
- Education loan covers not only the basic course fee but also the entire education expenses such as tuition and hostel fee, exam fee, library fee, lab fee, cost of books, uniform, other essentials, traveling expenses, and any refundable fees paid to the institution.
- Female students pursuing higher education may get some discount on education loan interest.
- Banks provide a loan moratorium from 6 months to 1 year after course completion.
Under Section 80E of the Income Tax act, the education loan interest is eligible for a tax deduction for eight years on the condition that the loan should be taken from a bank or financial institution as defined by the education loan guidelines of RBI and as per Income Tax Act.
What are the Best Ways to Repay Your Student Loans?
The best way to repay your student loans is to make sure you have a good-paying job that you enjoy. It’s not difficult to repay a student loan if you have the means to do so. If you can’t repay your college loans, find an employer willing to help with tuition assistance. The best way to repay your student loans is to find a job with a good salary and get the money you need.
If you can’t do this, it might not be easy to repay your student loans, but sometimes people need to talk with their Lender about repayment options or consider taking out another loan.
Conclusion: The Benefits of Getting an Education Loan
A lot of people are not able to afford a college education. They may want an education loan but don’t know how to go about it. There are a lot of factors that one should keep in mind before borrowing money for education. This article will discuss the benefits of getting a higher-education loan and how you can go about it.
An education loan is an excellent way to pursue higher studies and get your desired degree. In addition, it will help you achieve your goals and improve your life in the long run.