With RBI’s initiative of widening tax breaks, it has become easier for students to not only get their tuition fees financed, but also get their other expenses like, library, hospital expenses, cost of purchasing books and equipments, uniforms, computer, travel expenses etc covered from their broad student loan category, making life easier for them.
Banks have called upon this approach since, unlike a home loan or car loan borrower, students seem to do well when it comes to repayment of their educational loans. Banks have also broadened the category of educational loans by not only providing finance for higher education or for an overseas program but also for vocational programs and job oriented courses as long as the student has completed the equivalent of senior secondary from any school/board/university recognised by the central or the state government or local authority or any other authority authorised by these entities to do so.
Education loans are being provided at an interest rate of 10-15.75%, where the student is entitled to tax breaks on the interest component and not on the principle amount, from the commencement of the repayment period which generally varies from 5-7 years, after six months of getting employed or one year after the completion of the course, whichever is earlier. If the loan has been taken by the parent/spouse, he/she can start repaying the loan soon after it is disbursed and claim exemptions accordingly.
Loans of up to Rs 4 lakh, banks do not ask for any security. Loans between Rs 4 lakh and Rs 7.5 lakh may call for collateral in the form of a third-party guarantee. For loans above Rs 7.5 lakh, banks could, as collateral, ask for a suitable tangible asset. like property, government securities, public sector bonds, national savings certificates, life insurance policy, gold, fixed deposits, shares and mutual fund units.