Am I eligible? Can I apply?
Any Indian between 16 and 35 years who has secured admission to an eligible course and institution can apply for an education loan.
For full-time courses, you will likely need a co-applicant. This could be your parents, spouse, sibling or even a relative. Your loan eligibility is calculated on the basis of your co-applicant’s income. Though you don’t need a co-applicant for part-time courses, you can improve your loan eligibility by including one. Again, some banks don’t require a co-applicant but may ask for a guarantor.
What amount can I get?
The amount of the loan depends on whether your course is in India or abroad. For courses in India, the maximum limit is typically up to Rs10 lakh, whereas for courses abroad the upper limit is typically Rs20 lakh. The amount is disbursed to your chosen institution directly. For some courses, you can get up to 100% of the entire cost. However, many lenders will expect you to fund a part of your education cost. This could range from 5-15%, depending on whether the course is in the country or abroad. As of mid-2009, you can get education loans starting at interest rates of approximately 11-11.50%. Girl students may avail of slightly cheaper rates—by up to 0.50%. The rates can vary depending upon prevailing market rates of interest. Check with your bank for the latest rates. In any case, do not take a personal loan from the bank for your education. Personal loans are given at a much higher rate of interest than education loans. Currently, personal loans are at least 3-5% more expensive than education loans.
For loans above Rs4 lakh, you may be expected to put up some tangible security as collateral.
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When do I have to repay the loan?
Each lender has its own fixed rules, but the industry standard is a repayment period of between five and seven years. Usually, you will get a year’s time from the completion of the course, or six months after being employed—whichever is earlier—after which you are expected to start repaying your loan. This period is known as the moratorium period. During this time you are not expected to pay back the principal amount on the loan. However, you will be expected to pay the interest component. The maximum tenure of the loan is seven years, and this includes the moratorium period. Many banks offer education loans but you are likely to get the best rates at pubic sector undertaking (PSU) banks. Foreign banks do not usually offer education loans.
What courses am I eligible to take a loan for?
Your banker will exercise some discretion on courses and institutions. Usually, the decision-making criteria is contingent on its view of your earnings and income potential after the course. Your chosen course can be full-time or part-time, undergraduate or postgraduate, degree or diploma, at a government or private institution within India or abroad. It is best to check with your bank to get a good idea of what courses are included in the loan. The following courses are typically accepted:
• Computer science
• Hotels and hospitality
• Fine arts and design
• Pure science/BA/MA/B.Com/ M.Com
• Some vocational training and technical training courses such as aviation and air-hostess training are sometimes included too.
What expenses are covered?
All reasonable expenses associated with the completion of the course, such as those listed below, are covered. In case of doubt, check with your lender.
• Admission and tuition fees payable to the educational institution or hostel
• Fees for facilities such as library and laboratory
• Purchase of books, equipment, instruments, uniform
• Caution deposit or refundable deposit required by the institution
• Travel expenses for studies abroad
• Purchase of computer/ laptop.
What documents do I require?
The documents required depend on whether your course is in India or abroad. You will require some documentation related to your course and from your chosen institution. Check with your lender in advance so that the loan approval process or disbursement is not delayed because of delays in providing documents. Typically, the following documents will be necessary:
• Completed loan application form and photographs
• Letter of admission from an educational institution
• Mark sheets from the relevant examinations
• Detailed break-up of the costs of the course
• KYC (know your customer) documents of the applicant and co-applicant
• Income and asset details of the co-applicant
Additionally, the following documents are required for courses abroad.
• Student visa documents
• I-20 document if studying in the US
• Travel documents
• Standardized admissions test scores (GMAT, GRE, SAT, etc.).
Keep in mind that sometimes the embassy granting you the student visa might require proof of funds before you get the visa. In this case, talk to your lender about waiving its requirement for student visa documents, which in itself could be contingent upon funding approval. In addition, you may be required to sign a declaration that no other education loan has been taken from another lender.
Can I get tax benefits on the loan?
You can claim a tax deduction under section 80E on the interest paid on loans taken for your higher education or that of your spouse and children. There is no limit on the amount of deduction you can claim. The only thing to keep in mind is that the course for which the loan is taken should be a graduate or postgraduate programme in engineering, medicine or management, or a postgraduate course in the pure or applied sciences. Please check with your accountant about your eligibility.
If you are looking for an education loan, keep these tips in mind:
• Ask your chosen educational institution if it has a preferred lender with whom it has negotiated rates or has a pre-approved loan process.
• If you are going abroad, ask the institution if you can get a loan on campus after you register for the course. You might be able to get better interest rates abroad. For instance, the general level of interest rates is lower in the US and UK than in India right now.
• If you or your family are regulars at your local bank branch, you can use this to your advantage. Sometimes your branch manager can help bring better loan terms your way.
For knowledge sake
In the past week, different housing finance companies have cut their interest rates on home loans to as little as 8.5%. However, keep in mind that this cut is only for a limited period of the term of the loan, usually the first two-three years. After this period, the rate goes up for the remaining life of the loan. When calculating your EMI affordability, do factor in what you might end up paying after the rate is reset. Ask your lender to show you a calculation of what your EMI payments will look like when the rate readjusts to a higher level.
Pre-paid FX card — always safer than carrying hard cash
If you are travelling abroad, try the option of a pre-paid FX card for all your foreign currency needs. Because you will pay in local currency, there are no fees, compared with the currency conversion fees you will be charged if you convert your rupees into the local currency. The fees charged will probably also be lower than those charged for travellers cheques. Your card will be more secure than carrying cash around. You can easily track your spending because you can request a regular statement from the issuing bank. Upon your return, if there is money left in the bank, it can be refunded to you in Indian rupees.
Planning to invest in tax-related products? Always check its lock-in period
Did you know that some tax-related investments you make lock up your money? For instance, ELSS (equity-linked savings schemes) mutual funds have a minimum lock-in period of three years. Similarly, tax-saving fixed deposits (FDs) lock up your money for a minimum of five years.
If you are considering investing in tax-related products, always check the lock-in period. Additionally, visualize whether you will need access to this money before the expiry of the lock-in. If you do, then it’s probably not practical to make that investment.
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