December 20, 2018
“An investment in knowledge pays the best interest.” – Benjamin Franklin
In today’s time, education is only getting more expensive, especially if someone is aiming for a foreign degree or the best institutions. So, that you do not have to compromise on your dreams, education loan can be a big help.
As per Google AdWords Keyword Tool, over one lakh Indians search the keyword “Education Loan” or similar phrases.
The concept of Student Loan was introduced in 2004, in the Union Budget by Yashwant Sinha, then Finance Minister. Since then, student loan has grown more than ten times. It is now a part of the priority lending category, along with housing loans. The government also insists that no student be denied for
With time student loans have become cheaper and the primary reason is the push from the central government. Taking an education loan is easier now, however, paying it back requires careful planning. Below is the list of things you should be cautious of while seeking a higher education loan.
Why choose a Higher Education Loan?
Tax Deduction on Interest
Though there is no tax benefit on the principal amount, interest paid on the loan amount for eight years is exempted under Section 80E of the Income Tax Law.
Build Credit History
Paying the easy monthly instalments in time helps in building the student’s credit history. A good credit score helps in getting credit facility easily and at a lower interest rate.
People generally use their savings to fund their child’s education. Getting an education loan for higher studies helps in preserving your financial goal, which included retirement. It lets you protect your investment portfolio.
Future is unpredictable, and you never know when a crisis strikes you. Funding your child’s education with a Student Loan ensures that any unforeseen financial event will not affect his education schedule.
Once your child has completed his education, it is his responsibility to repay the loan. Knowing that after he has got the degree, he has to manage the repayments, will make him more responsible.
Moratorium on Repayments
Now the loans have become flexible. You have the liberty to choose how you would want to repay it and when accordingly interest rates are charged. Similarly, you can get the EMIs of your Higher Education Loan started 6-12 months after the completion of the course. Though the loan gives a sense of responsibility, repaying it is not that stressful.
With unsecured education loan portfolios not performing as envisaged, it has become difficult to get the loan approved. NBFCs and Banks are facing high felonies. So, be prepared for a thorough evaluation which can either result in downsizing, if not rejecting, of the loan. In that case, consider other loans like personal loan or loan against property. However, they have their pros and because, so choose carefully.
For a loan up to Rs. 4 lacs, at public sector banks, parents serve as co-applicants. Loan amount from Rs. 4 lacs to Rs 7.5 lacs, along with parents as co-applicant, a third-party guarantor is required. And for loan above Rs. 7.5 lacs, additional collateral is needed. If the loan is being applied for a female student, the applicant is entitled to a concession of 0.5% in the interest rate.
When to use your accumulated funds
Many of us save and invest for our child’s education, so use your funds unless you are anticipating any other major call on your money. You can also make a mix of loan and your funds, depending on the interest being charged and interest being earned, respectively. There is no one-size-fits-all solution. Evaluate your priorities and personal landscape, if required, that professional advice to make the final decision.