Get the details right
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Study the terms carefully before opting for the type of education loan you want
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Tempting: What is on offer for students
LOANS COME easy nowadays for students seeking higher education. The amount sought depends upon the course selected and the place of study. The minimum amount is $ 1000 and the maximum $ 45,000 or the cost of education as determined by the school. Repayment terms vary between 10 and 25 years, depending on the cumulative amount borrowed; minimum monthly payment allowed is $ 50. There are no penalties for early repayment. For more information, log on to http://www.ieli.org/
Interest rate
The interest rate is usually tied to the prime-lending rate (PLR). Again, this rate is applicable for certain amounts of loans. If it is higher than this amount, you may be required to pay one per cent more or less. Allahabad Bank has a revised interest rate exclusively for students of IIMs/IITs and other professional, regular management and technology courses where the rate is two per cent less than the PLR.
Interest is usually debited monthly on simple basis during the repayment holiday/moratorium period. Penal interest can be charged for the overdue amount and overdue period. Some banks also offer interest concession if the interest is serviced during the study period and the repayment holiday specified for interest/repayment under the scheme.
Usually for loans upto Rs. 4 lakhs, no collateral security is required. For loans ranging from Rs. 4 lakhs to Rs. 7.50 lakhs, collateral in the form of a satisfactory third party guarantee is required. For loans above Rs. 7.50 lakhs, collateral security of suitable value or co-obligation of parents/guardian/third party guarantee along with the assignment of future income of the student for the payment of instalments may be obtained. Some of these may be waived if the bank is satisfied about the net worth of the parents.
Security can be in the form of land/building/Government Securities/public sector bonds/units of UTI, NSC, KVP, LIC policy, gold, shares/debentures, bank deposit in the name of the student, parent/guardian or any other third party with suitable margin.
The document should be executed by both the student and the parent/guardian. The margin for studies in India upto Rs. 4 lakhs is nil and above Rs. 4 lakhs is five per cent. For studies abroad, the margin is 15 per cent.
Loans from private banks
Some banks such as HDFC provide a personal loan for education purposes. The features of this loan include speedy approval and flexibility to borrow from Rs. 25,000 to Rs. 10 lakhs depending on your needs.
The repayment options range from 12 to 48 months and no guarantor/security/collateral is required. If you are an HDFC Bank account holder, the bank offers special rates. ICICI bank also offers personal loans for salaried and self-employed individuals. Loans are available from Rs. 20,000 to Rs. 15 lakhs with repayment tenure from 12 to 60 months. All loan repayments are done via Equated Monthly Instalments (EMI). A balance transfer facility is available for those who want to retire any higher debt.
You can start repaying the loan once you finish your studies and start earning. Repayment holiday/moratorium is for the course period +1 year or six months after getting job, whichever is earlier. The loan together with accrued interest will be repaid in maximum 84 EMI. However, you can choose to pay more than the EMI, and without any pre-payment penalty. The outstanding interest for the moratorium period will be added to the loan amount at the time of commencement of the repayment.
The EMI will be determined on this amount at the time the repayment is to commence. The repayment of the loan can also be done in graded instalments. As and when salary of the loanee increases, the loan instalment can also be increased accordingly. Accrued interest during the repayment holiday period is added to the principle and repayment EMI is fixed.
Income Tax deduction
If you take an education loan, you can claim deduction under Section 80E of the Income Tax Act. This is available when you start repaying the loan. These deductions are available upto eight years totally. You cannot claim the deduction for more years than that. Hence, you must try and repay your loan within this time frame. Also, you need to pay the loan out of your earned taxable income to be eligible.
Post this year's Budget, any amount of interest paid by you will be deducted from your income, thus reducing your tax. But the principal amount is no longer eligible for deduction, only the interest amount is. There is no limit to this amount. If you take a loan from your employer, you cannot claim tax deduction.
Make sure you go through all the terms and conditions from the bank before you opt for your education loan.
Bindu Gopal Rao
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