Education Loans: Eligibility, Interest and Documenation for Meritorious Students
Quality education is absolutely necessary for a complete and successful life. Nowadays, the cost of education is going up rapidly. So, getting education in reputed institutions poses a financial challenge. Arranging funds for the higher education of children is a herculean task.
What is the solution? An education loan, therefore, plays a vital role to narrow the gap between the lack of money and the amount required for continuing the study.
What does education loan cover?
As per a recent study, the cost of education is going up at an average of 15% per annum. To meet the shortfall, education loan can be taken for studies in India, or pursuing higher education overseas. For studies in India, it covers courses conducted by UGC/ AICTE approved colleges/ universities, courses by institutes like IIT/ IIMs, and courses like aeronautical engineering, pilot training and/or shipping approved by government authorities like DGCA.
Education loan covers the basic fees and other expenses such as college hostel charge, exam fee and other miscellaneous charges. The amounts offered for pursuing studies in India and abroad are different and depend on the policies of the bank. For students headed abroad, the education loan can be taken for technical/ professional graduate and postgraduate courses. MCA, MBA, MS, Certified Public Accountant (CPA) or CIMA (Chartered Institute of Management Accountants) are some examples.
For getting the loan, the student should be an Indian citizen. S/he must have got admission into a recognized course in India or abroad. NRI applicants should be valid Indian passport holders. The applicant must have cleared his/her higher secondary level schooling, and secured admission in an institution of higher learning which meets the criteria given above.
Usually, lenders do not require security or margin money for smaller loan amounts up to Rs 4 lakhs. For higher loan amounts, applicants must finance 5% and 15% respectively of the required margin money for studying in India or abroad. If the loan exceeds Rs 4 lakhs and is up to Rs 7.5 lakhs, then a third-party guarantee or a parent/ guardian as co-borrower is mandatory. A collateral is additionally required if the loan exceeds Rs 7.5 lakhs. The moment the loan application is approved, then the bank pays the money directly to the college/university according to the given fees structure.
Some banks (such as SBI) offer amounts up to Rs 40 lakhs for students who have secured admission in premier institutions like IIT, NIT, IIM or AIIMS. Likewise, an amount of Rs 150 lakhs may be available for studying at a premier university abroad.
All banks demand identity proof like PAN, Passport, Voter Card etc., along with proof of residence. Additional documents like admission letter of the institution, fee structure, mark sheets of class X, XII and graduation (if applicable), entrance exam result like JEE, NEET, NATA, CET, GRE, SAT, TOEFL are also required. Identity proof and income documents like the salary slip or Income-tax returns (ITR) are required to be shown of the co-applicants (usually parents/ guardians) too. A statement of cost or schedule of expenses for each year of higher study is also required, which should include tuition cost, examination fees, books/ library expenses, hostel/ living expenses etc. A copy of Passport is to be submitted by those intending to study overseas.
The repayment period has been mentioned as between 5 to 7 years, but it may be extended. Normally a repayment period up to 15 years is available after the completion of the course for repayment of the loan. This coincides with the earning period of the student, and so does not pose a burden for parents. Some banks like SBI even offer a 6 to 12-month relaxation before the repayment commences.
Interest on education loan which is taken on behalf of spouse, children, adopted children, or any student for whom the taxpayer is the legal guardian, is eligible for deduction under section 80E.
Section 80E of the I-T Act permits deduction on the interest part of the EMI for a period of up to 8 years (or earlier during which the loan repayment is done). There is no upper limit on this amount. However, a certificate of interest amount paid on the loan is required from the bank every year. This deduction is permitted only for the individual who is paying interest on the loan (for self, spouse, children or the student to whom they are a legal guardian).
Education loans shrink
Market of India’s education loan has gone down 25% in the last four years. In March 2015, 3.34 lakh students were able to secure loans. As on March 31, 2019 only 2.5 lakh students could secure loans. However, disbursement of loan amount has increased 34%. It has touched Rs 22,550 crore in FY19 from Rs 16,800 crore in FY16.
Moreover, number of active loan/students fell from 34 lakh to 27.8 lakh in the last four years. In the light of growing NPA’s, many banks and other PSUs have raised their hands not to sanction loans below Rs 4 lakhs without collateral.
Vidya Laxmi Loan Portal
Vidya Laxmi is a portal for those students who are seeking an education loan. This portal has been developed under the guidance of Department of Financial Services, (Ministry of Finance), Department of Higher Education (Ministry of Human Resource Development) and Indian Banks Association (IBA). The portal has been developed and is being maintained by NSDL e-Governance Infrastructure Limited. With the help of this portal, students can view, apply and track the loan application. Applicants can also easily apply for educational loans to banks anytime from anywhere with the help of this portal. However, under this scheme 35 banks are registered with Vidya Lakshmi Education Loan Scheme and 95 loan schemes are offered.
An education loan is a boon for the meritorious students who don’t have enough money to study at home or abroad. The process of taking loans from banks is not complicated, though it requires proper documentation. Additionally, the IT deduction u/s 80 E also makes the education loan attractive, as students can set off the interest against their income in earning years.