Education Loan
A loan to help unlock your future dreams
Raksha Negi, 24, has secured admission into an MBA course at a premier institution but is unsure about the costs. The fees are pretty steep, and she doesn't want to burden her parents. She is considering an education loan but is worried about taking on debt. Will she need to provide collateral for the loan? What if she is unable to find a job immediately after completing her course? Will the bank permit her to delay repaying the loan till she gets a job and starts earning? Read on to know more if you, like Raksha, are planning to avail of an education loan.
At a glance
- Get up to Rs 40 lakh unsecured loan for pursuing higher studies in the educational institute of your choice, whether in India or abroad
- Get loan not just for tuition or college fees, but also for living expenses
- Enjoy a holiday from repayment till you finish your course and start earning
- Enjoy tax benefit on the actual amount of interest repaid on your loan for up to 8 years.
How is an education loan beneficial?
Continue your higher education without financial stress
A post-graduate degree from a premier institution can be a good foundation for a successful career and a comfortable life. Given the high costs and rising expenses, it may not be easy for everyone to self-fund higher studies. That is when an education loan can come in handy. Utilise it smartly to achieve your dream, without financial stress. Not just higher studies, an education loan is also available even for graduate-level studies
- Amount: You can borrow any amount as per your need. The maximum loan amount will vary depending on several factors such as the college, the course, collateral, etc. It will vary on a case-to-case basis. Axis Bank, for instance, offers up to Rs 40 lakh without any collateral security.
- Covers varied needs: Education loans cover both academic and non-academic fees such as tuition fees and living expenses.
- Cost-effective: Interest rates for education loans are usually lower than other types of loans. Axis Bank, for example, currently offers education loans starting from 8.99% onwards.
Get a loan easily
Usually, collateral is not required for a loan up to Rs 7.5 lakh. In some cases, if you get admission into a reputed institution, say one of the IIMs, banks may not ask for collateral even for loans of higher amounts. If the collateral is required, it can be in the form of property or a fixed deposit, among other options.
Lenders usually charge for the transaction processing and can take anywhere about two weeks to process the loan.
Depending on the fee structure and requirements, lenders may disburse the loan amount at once or in instalments, either to the borrower or to the institution directly, based on the nature of the expense.
Repay at your convenience
Like other loans, education loans are payable in monthly instalments with interest. The loan tenures are generally for 5-7 years. However, some lenders like Axis Bank can extend the loan for as much as 15 years.
The biggest advantage of an education loan is that, unlike other loans, the repayment does not start from the time the loan is disbursed. There is a moratorium, i.e. is a holiday from monthly instalments. The moratorium lasts the duration of the course plus an additional six months. This six-month period is to allow the borrower to get a job.
Enjoy tax benefits
You can get tax benefits under section 80E of the Income Tax Act on the interest paid towards repayment for the education loan. The maximum deduction period is eight years. There is no limit on the amount for which you can claim exemption. You can also check the effective ROI using the Tax Benefit Calculator.
Get a government subsidy if you need it
Students from Economically Weaker Sections (EWS)-can avail of the Education Loan Subsidy Scheme offered by the Central Government. Under this scheme, interest applicable during the moratorium period would be borne by the government. This scheme is available if the annual income of the student’s parents from all sources is up to Rs. 4.5 lakh, for pursuing a course in technical and professional streams, from recognized institutions in India.
Achieve your dream of studying abroad
If you are seeking admission to a foreign university, you probably are planning to take the GRE. GRE is the qualifying examination for students seeking admission for the MS STEM (Science Technology Engineering Mathematics) in USA and Canada. While the score is essential for admission to a foreign university, it can also help you when applying for an education loan. Here’s how:
- Use your GRE score for easy loan approval- You can also use this score for getting an unsecured loan. Axis Bank gives unsecured loan up to Rs. 30 lakh if your GRE score is between 300 and 315 and up to Rs. 40 lakh if your GRE score is 316 and above.
- Get loan sanctioned early with pre-admission letter – Once you receive your pre-admission letter, you can apply for the loan without waiting for the final admission letter. For this, Axis Bank takes into account your GRE score. The minimum eligible score is 300. A pre-admission sanction letter from Axis Bank can be used to apply for and receive an I-20 form. This form is issued by educational institutions in the US that are approved by the US government. It stands as proof of the student applicant being granted admission to its program in the US and that the student has sufficient funds to pay it. The I-20 Form lists the program start date, must be carried for your visa interview. A pre-admission sanction letter has the following advantages:
- It informs you of the exact loan amount you are qualified to, helping you shortlist your options.
- It increases the chances of securing admission into the university of your choice because the university knows that your funds are assured.
- It is a preferred way to declare 'Assured Funds to Universities'.
- It is a much better document than ‘Proof of Solvency’.
- It spares you any last-minute surprises during the visa and fee payment process.
[Also Read: How An Education Loan Can Empower You]
Lower tax on foreign remittances - With effect from October 1, 2020, all foreign outwards remittances exceeding Rs. 7 lakh attract a 5% tax. However, this tax rate drastically reduces to 0.5% if the remittance is funded by an education loan. So, by taking an education loan you can reduce the tax burden on outward remittances, which you would have incurred if you had paid for your course from your funds.
Helps build financial discipline
An education loan can help you build financial discipline since you will have to repay the monthly EMI once you start earning.
Timely and regular repayment of the loan is also a way of building a good credit score, which can help you get a better deal if you need to take any kind of formal credit later on in life, such as a credit card, auto loan, home loan, etc.
What do you need to be eligible for an education loan?
A standard for most loans is that the applicant should be a resident of India, and students pursuing full-time courses must have a co-applicant, both with good credit scores. Besides, some banks have criteria based on age, the field of study and type of institution.
Axis Bank offers a range of Education Loans for financing higher studies either in India or overseas. You can also check your likely EMI by using the Education Loan EMI calculator.
Disclaimer: The Source, a Mumbai-based content creation and curation firm, has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
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