scorecardresearch

Applying for an education loan? Here’s what you must know first

If you are thinking about applying for an education loan, here’s what you must know first.

Applying for an education loan? Here’s what you must know first
Borrowers can avail of tax-deduction benefits under Section 80E on the interest component of their education loan.

Providing the best education is what most parents want for their children. However, quality education is usually an expensive affair and one that requires adequate financial planning. Education loans have been the preferred option for funding academic costs for courses and degrees not just at universities abroad, but also in India.

If you are thinking about applying for an education loan, here’s what you must know first.

Eligibility criteria

For education loans, lenders usually have set eligibility criteria for prospective applicants. One of the most important terms in this criteria is that the institution the borrower wishes to enrol at, should either be a premier institute, such as an IIT or IIM, or be affiliated or approved by the UGC/ AICTE/ Govt., etc.

Banks/lending institutions typically set upper limits on education loans for regular courses with fees ranging from Rs 25 lakh to Rs 50 lakh. However, the loan amount approved may vary based on the institute and the type of course for which the loan is being taken. For loans over Rs 4 lakh for studies being undertaken in India, the bank may request a margin amount which is typically 5% of the total fund requirement. However, the bank may relax one or more of the loan terms and costs based on the type of course, category of institute and credit score of the borrower.

Also Read: Using a credit card? Not following these 5 disciplines will prove costly for you

Adhil Shetty, CEO, Bankbazaar.com, explains, “The lender may require parents or guardians to become the co-borrower in a loan for up to Rs 7.5 lakh. If the loan amount exceeds Rs.7.5 lakh, they may also ask for tangible collateral security. The maximum repayment tenure allowed by the banks for education loans in India is up to 15 years after completion of the course and the applicable moratorium period.”

Expenses covered under an education loan

Education loans typically cover a range of course-related costs such as tuition, hostel accommodation, uniforms, library/laboratory access, course material (books, laptop), refundable deposits, transport, and more.

“Bills should support all expenses per the terms and conditions of your loan agreement. Banks often consider other essential expenses under the purview of education loans if the borrower requests a valid reason and supporting documents/bills’’ adds Shetty.

What to do if your loan request is rejected

It is important to know why your education loan has been rejected to course correct your financial profile. Reasons for loan refusals can vary, such as a low credit score, loan requirements exceeding eligibility, non-availability of a co-borrower, and educational institutes not affiliated to UGC/AICTE/Government.

In case of any of the aforementioned reasons, approaching an NBFC for an education loan may be your next-best option. Several NBFCs offer education loans with relaxed eligibility norms compared to bigger banks. However, these loans usually come with a higher interest rate and processing fee.

Interest Rates & Charges on Education Loan

Note: Lowest interest rate offered on Education Loan for selective banks and FIs considered for data compilation; Data collected from respective bank’s websites on 29 Jul 2022. *Shows only HDFC Credila’s CBLR, in actual condition the effective interest rate includes (CBLR + applicable Spread) and interest is calculated based of simple interest rate; Data is non-exhaustive and meant only for illustrative purposes.

Also Read: How much TDS should be deducted on purchase of property from NRI

Tax benefits on education loans

Borrowers can avail of tax-deduction benefits under Section 80E on the interest component of their education loan. However, this benefit may be availed only if the loan has been granted by an approved lending institution.

Before finalising your education loan application, ensure to do due diligence on the college/university, employment opportunities post course completion, repayment plans and other important factors.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.