Every parent wishes their children to receive the best education and will never compromise on it. The high fee for professional courses and overseas higher education are often, beyond the financial capacity of many families. Thanks to education loans, many are taking advantage of this facility. However, there are certain things to be kept in mind, before taking an education loan. Let us have a look at it.
Eligibility: Any Indian citizen between the age group of 16 to 35 years of age and willing to pursue higher education is eligible for an education loan. The applicant needs to have a secured admission in any of the approved courses or universities designated by the bank. Usually most government institutions as well as private institutes which are recognized by the relevant competent government body are approved by the bank concerned. The education loan covers fee for all years till the duration of the course. The fee is normally disbursed to the college or institute directly by the bank. The loan also covers most of the boarding and lodging expenses.
Interest Rates: Interest rate on education loan is the most important parameter that must be considered before finalizing. Interest rates are charged as a percentage over the base rate of the bank. Banks sometimes fix the final interest rate depending on the amount of loan. Education loans can be availed under either fixed rate of interest or floating rate. Fixed rate loans like most others come with a slightly higher interest rate compared to floating rate. If you believe the interest rates are likely to come down in the near future or the interest rate gap between fixed and floating rate is marginal, floating rate education loans may be a smarter choice.
Education Loans and Tax Benefits: Education loans offer the option of claiming a deduction of tax on the interest paid in the financial year under section 80 E of the income tax act. But only one person can claim tax deduction benefit. The deduction of interest paid is available only for a maximum period of 8 years starting from the time one initiates the repayment process.
Know your Waiver Period: Banks providing education loans generally don’t expect the student to start repayment immediately. The banks have a waiting period known as moratorium period or waiver period ranges between 6 months to one year depending on the bank and the loan amount. It is essential to know your waiver period before finalizing the loan. Most banks start charging the interest immediately after the disbursal of the loan.
Prepayment of Education Loan: Prepayment of education loan is allowed and usually permissible without any prepayment penalty. Each bank has designated education loan plans with a dedicated prepayment penalty clause. It is essential to check with your bank about the prepayment clause before finalizing. Another thing to note is that prepayment is generally charged if not done from your own resources.
Second Education Loan: Second time Education Loan can be availed by the same student borrower for completion of next higher course at the discretion of the bank. For example, a student who has taken the loan for a Bachelors Degree can apply for another loan for the completion of Master’s Degree. The second education loan is granted based on the same conditions as the first, including collateral and third party guarantor requirements but with easier documentation procedures and turnaround time.
Education Loan Comparison:
|Bank||Interest Rate||Interest rate Concession||Loan Processing Charges||Prepayment Charges||Late Payment Charges|
|SBI||For loans up to Rs.4 lacs: 3.50% above Base Rate, currently 13.50% p.a.Above Rs.4 lacs and upto Rs.7.50 lacs: 3.75% above Base Rate, currently 13.75% p.a.
Above Rs.7.50 lacs: 1.75% above Base Rate, currently 11.75% p.a.
|Axis Bank||Up to Rs. 4 lacs: Base rate (10.25%) + 7.00%Loans greater than Rs. 4 lacs and up to Rs. 7.5 lac: (10.25%) + 8.00%
Loans greater than 7.5 lacs: (10.25%) + 6.00%
|0.5% for women beneficiaries||Nil||Nil||Rs 500 + taxes per cheque bounce and a penal interest @24% per annum i.e. @ 2% per month on the overdue installment/s|
|PNB||Loan up to Rs.4 lac: BR (10.25%) +3.00%Loan over Rs.4 lac to up to 7.50 Lacs: BR (10.25%) +4.00%
Loan over Rs. 7.50 lac: BR (10.25%) +3.50%
|1% if interest is serviced during the study period, 0.5% for women beneficiaries||Rs. 450+tax for documentation||Nil||Nil|
|Bank of Baroda||Loans up to Rs.4.00 lacs: Base Rate (10.25%) + 2.50%Loans above Rs.4.00 lacs and up to Rs 7.50 lacs: Base Rate (10.25%) + 2.50%
Loans above Rs.7.50 lacs: Base Rate + 1.75%
|1% if interest is serviced during the study period, 1% for women beneficiaries||Study in India — NILStudy Abroad — 1.00% (Refundable on availment of loan)||Nil||Nil|
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