Everything You Need to Know About Education Loan
Education loans have made higher education dreams possible for many students over the years. The steep cost of quality education is seldom fulfilled by scholarships and family savings.
Besides being a reliable way to fund higher education, education loans offer numerous advantages, some of which are –
- Tax benefits under Section 80E of Income Tax Act of India, 1961
- Competitive rate of interest
- Up to 100% finance
- Pre-approval before admission confirmation
- Online application, and
- Doorstep service etc.
Education loans enable students to pay for higher studies both in India and overseas. Apart from the tuition fees, other aspects of expenses such as hostel charges, equipment purchases, and other course-related expenses may also be covered by the education loan. In case of overseas studies, many education loan providers cover a return ticket expenses under the education loan amount.
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As most of the students do not have a previous credit history, the parent or guardian has to co-sign for an education loan as a co-borrower or guarantor. Moreover, education loans also require collateral such as property documents, fixed deposits, etc. against education loans to minimize risks.
Most lenders have a maximum limit of Rs 10 Lakh for studies within India while the maximum limit on education loans for overseas studies is Rs 20 Lakh. Nowadays most of the NBFCs are offering loan up to the complete cost of education. Banks generally fund 75% to 90% of the educational expenses as a loan. NBFCs like HDFC Credila provide loans up to 100% of educational finance. In some cases, NBFCs may sanction a loan amount higher than the specified limit if certain conditions are met.
Tenure of education loan
The average tenure for an education loan is between 5-7 years in case of most banks. However, some NBFCs can offer a longer tenure of up to 12 years in case of higher loan amounts. Since the tax benefits on interest paid on the education loan can be availed for a total of 8 years from the beginning of repayment, you are advised to repay your loan in a period of 8 years to maximize tax benefit on your education loan.
Factors that influence the amount of loan an applicant is eligible for
The maximum amount of loan an applicant is eligible for is determined by a variety of factors. These factors include, among others:
Credit worthiness is a factor determined by evaluating a person’s credit history. Lenders check an individual’s credit worthiness to determine his/her ability to repay the loan on time. This is done to minimize the risks associated with an education loan. Individuals with a clean credit history tend to get higher loan amounts and quicker approvals.
Credit score plays a crucial role in determining your eligibility for loans, credit cards etc. Timely payment of credit card bills and EMIs on existing loans reflects positively on your credit score and help in improving your chances of getting an education loan.
Value of Collateral
Education loan lenders generally ask for collateral for loans exceeding Rs. 7.5 Lakh to minimize their risk. In case a borrower fails to pay the loan, the collateral is used to recover the loan amount. Applicants who offer collateral of good value stand a better chance of getting high amount education loans.
Academic History of Student
The academic track record of a student plays a very important role while sanctioning the education loan. Meritorious students with an exceptional academic background exhibit seriousness towards their education and career and hence, have a better chance of getting well-paying jobs in the future.
Despite the specified limit, you must carefully calculate your expected expenses and apply for an appropriate amount that covers all your needs without becoming a financial burden in future. While contemplating the education loan amount you must consider the salary you expect to draw after your completion of course since it will significantly impact your loan repayment capability.
Apply for an education loan through Shiksha Study Abroad partners
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About the Author
HDFC Credila, an HDFC Ltd. Company, is India's First Dedicated Education Loan Company. With specialized focus, in-depth understanding of the requirements of students who wish to pursue higher education, HDFC Credila offers Customized Education Loans Home Delivered! HDFC Credila has funded tens of thousands of students from India to over 2100+ unique educational institutes across 35+ countries!