Education Loan in India: 7 Things you need to know

It is no secret that the cost of education in India and abroad is skyrocketing every year. According to a report by the National Sample Survey Office (NSSO) average private expenditure for general education has increased by 175% to over Rs. 6,788 per student. In Delhi itself, the cost of general education has increased threefold since 2009. In fact, the increase is not limited to parents seeking to admit their children into private schools, a few years ago Kendriya Vidyalaya increased fees three-fold from Rs. 4,500 to Rs 12,000.

The figures for higher education are likely to give you even more of a shock with an average MBA degree estimated to cost around Rs 50-60 lakhs by 2025 and an average engineering degree estimated around Rs 25-30 lakhs. The costs are even higher if you want to send your child abroad. In such a scenario it becomes almost necessary for parents to take out an educational loan to ensure that they don’t deplete their entire life savings in paying for their children’s education. If you are considering taking out an educational loan for your children’s future, here are some things you should know.

#1. The student is the main applicant for the loan.

It is important to note that the student pursuing the course or degree is the main applicant for the loan, and they will be responsible for repaying the loan. Parents, spouse or siblings can be co-applicants for the loan and are held responsible in case the student themselves is incapable of paying back the loan.

#2. The course you are planning to study and the University you are planning to attend will affect your eligibility for a loan.

Banks want to ensure that applicants have good employment prospects after they finish their degree so that they can repay the loan, hence, they pay special attention to the course you are planning to study and where you are planning to study the course. Not only should courses be accredited, but often banks want to ensure that they have high rates of job placement. Additionally, banks will also want to ensure the University or college where the applicant is planning to study is accredited and has a good reputation.

#3. You can take out educational loans for a variety of courses, including specialized courses.

It is important to remember that educational loans can be taken out for a variety of reasons, depending on the bank and lending institution you approach. While mostly all banks offer educational loans for undergraduate, postgraduate degrees and diplomas as well as for PhDs and Doctoral programs, some banks also offer educational loans for specialized courses. These could include, IT courses, nursing or teaching certificates, degrees or diplomas for aeronautics, pilot training, job-oriented diploma or certificate courses, amongst several others.

#4. For loans between Rs. 4 to Rs. 7.5 lakh, you will be required to have a third-party guarantor.

Educational loans in India can vary between Rs. 1 lakh to upwards of Rs. 30-50 lakh. For any loans up to Rs. 4 lakh you will not be required to provide any collateral or third-party guarantee. However, for loans above Rs. 4 lakhs, you will be required to provide a third-party guarantee. Almost all banks will ask for such a guarantor or a co-applicant for educational loans as if the candidate receiving the education is not able to repay the loan, someone else will be able to take care of it.

#5. Your repayment period may start as soon as your course ends.

Educational loans are typically repaid by the student, and the repayment period may start once the course ends. However, some banks and lending institutions may provide relief of 6 months after the student's course ends before starting the repayment process. The repayment period typically varies between 5-7 years but will depend on a range of factors, including the value of your loan, interest rate, EMI and so on.

#6. Make sure you look out for other charges such as processing, prepayment.

When you are taking out an educational loan, ensure that you take into account other bank charges such as processing charges, pre-payment charges, charges on the late payment of EMIs and so on. These costs can vary from bank to bank. While processing fees remain fixed in public banks, in a private bank the fee is usually a certain percentage of the total amount being sanctioned.

#7. You are eligible for benefits under the Income Tax Act.

Under Section 80E of the Income Tax Act, you are eligible for deductions on the interest you have paid on the repayment of the loan. One must note that this deduction is only valid for the individual paying the interest on the loan for themselves, spouse, children or legal guardian. The entire interest amount paid can be deducted from your taxable income, however, this is only allowed for a maximum of 8 years. You must note that the principal amount being repaid does not qualify for any form of tax deduction.

Please note that while not everyone is eligibile for an education loan, you can still go for a personal loan for higher studies. This loan is especially beneficial for salaried or self employed professionals who are looking at pursuing part time courses to upgrade their skills. However, the difference here is that to apply for a personal loan for higher studies, you need to satisfy the following criteria:

• You need to be a salaried or self employed individual.
• You need to have the required documents for a personal loan.

With SMFG India Credit’s personal loans for education, you can get loans upto INR 25 lakhs*