Get an Education Loan

All about Education Loans

The single biggest source of advantage is a world class education. And the size of your family's current assets should not get in the way of you going to the best university that admits you. After all, once you earn a world class degree, the global economy will be keen to put your skills to use and compensate you handsomely. Hence, an education loan makes so much sense. Also known as a "study loan" or "study finance", here are some factors to keep in mind before you apply for an "education loan":

1 Collateral vs. Interest rates

If you/ your family can afford to pledge an asset (financial asset/ immovable property) you will be able to borrow at a much lower interest rate. Doing so would mean that you would be able to repay your loan a lot earlier and start saving for your future. To avail this, you would need the collateral documents to pledge (e.g. property documents/ fixed deposit certificates) and proof of income of a co-borrower (typically your parent).

On the other hand, if you cannot pledge an asset, you could also opt for an education loan without any collateral. Typically, one of your parents would need to sign up as a co-borrower/ guarantor and provide proof of income (e.g. Income Tax Return/ Bank Statement/ Payroll slip)

2 Repayment schedule

Many education loans provide the flexibility of repayment over a period of time. Loans of upto 15 years (including the years of study) are not uncommon. Moreover, some education loan providers offer pre-payment without charging any prepayment fees. Select your education loan wisely.

3 Loan amount

In addition to tuition fees, do budget for living expenses such as residence rentals, food, clothing & lifestyle and textbooks. Some banks offer loans that cover all these costs. A few even offer to cover three months living expenses till you find your first job.

4 Non interest fees and charges

Processing fees of about 2% are not uncommon. In addition, be aware of late payment charges, ECS/ Cheque bounce charges and document handling charges. Many providers also charge a fee in case of prepayment.

5 Tax benefits

Under section 80E of the Income Tax Act, the interest component of your education loan EMI is allowed as a deduction from Total Income. Either the student or his/her parents or spouse can claim this deduction.