A college loan covers
cost of tuition, living costs and insurance, flight costs, and other
incidentals. Given the wide variety of choices available today, by putting in
some effort, it is possible to find the best deal for your needs. Taking an
education loan is also a smart move as you don’t need to break your savings and
you get hefty tax benefits.
Who
should take a loan and why
All students pursuing
higher education should take a loan for funding their education. This includes
people who already have sufficient funds, i.e. those who have either saved
substantially or have considerable backing from family or guardians because,
Indian taxation laws allow for a favorable benefit of tax deduction for the
repayment of the loans. A total of up to Rs 40,000 is allowed as annual deduction
from taxable income under Sec 80E of the IT Act.
Eligibility
Students pursuing full
time higher education, in graduate, or post graduate studies, professional
education, pure and applied science courses are allowed to claim this
deduction. This includes students pursuing overseas education. Most lenders
require that students show proof of admission to the graduate or PG program;
however, there are some institutions.who allow you to secure a loan before
securing admission. There are no minimum or maximum age restrictions, although
students are usually above 16 years of age or have completed at least the 10th
or 12th grade.
How
much loan can you get & when and how do you repay?
Students going abroad
can get a loan for up to Rs 20 lakhs from banks and Rs 25-30 lakhs from
financial institutions. There are slight variations in regard to application
process, documentation, interest rates, guarantees etc. Loan repayments begin
one year after the end of your course or six months after you secure your first
job, whichever is earlier. Most lenders also allow for additional time for
course completion in case the student is not able to finish the course on
schedule. Loan repayments are spread over 5-7 years, and include options for
closing early.
Interest,
margin money, guarantors & collateral
·
As with all loans, borrowers need to
repay the principal (actual amount borrowed) with interest, which is a price
you pay for usage of the loan facility. This is a floating percentage, which
may be revised as per RBI guidelines and at the lender’s own discretion. For
educational loans, the interest rates are in the range of 11-14% for most
Nationalised banks and financial institutions. Girls generally get a 0.5%
concession. Click here, to see a quick summary.
·
There is also the all important factor
of “margin money”! What this means is that most lenders will not loan you the
entire cost of education – they also expect you to pay part of it. In other
words if, for example, your education costs are Rs. 10 lakh in all, and there
is a margin of 15%, then, the bank will lend you Rs. 8.5 lakh, and you will
have to put up the remaining Rs 1.5 lakhs. The idea is to ensure that the loan
seeker has the ability to bring money in and demonstrates responsibility in doing
so. This gives some assurance that the borrower will make sure that it is used
wisely. Not all lending institutions insist on the margin money
·
A guarantor is a third party (different
from the applicant), who agrees to undertake responsibility for the repayment
of the loan in case the original borrower is unable to repay it. Besides this
undertaking, lenders generally also ask for collateral in the form of fixed
deposit receipts, residential or other property deeds, or other security, which
is then kept in the lender’s possession until the loan is repaid. This is done
to safeguard the bank or lender against a bad debt. The lender may waive the guarantee
if the borrower’s previous repayment track record or financial history is very
sound. Typically, loans up to Rs 4 lakh need neither collaterals nor margin
money. Besides, students securing a scholarship could have the margin waived on
account of the scholarship grant.
·
If payments are defaulted on i.e. not
made on time or, there are provisions for penalties/late payment fees in the
loan contract. Besides, defaulters also stand the risk of being ‘black listed’
which severely limits their future credit options. However, most bankers or
institutions are receptive to negotiation and, in case there are genuine
difficulties, do allow for extensions on payment tenure, or reduction of EMI’s.
So, look around and see
what your options are – A Education Loan in India
good loan deal can be a big asset in helping you achieve your dream.
Source
:
http://www.dilipoakacademy.com/blog/2013/04/04/ms-in-the-us-what-you-need-to-know-about-educational-loans/
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