The only
advantage of self-financing the education is that one does not take on a
liability. Whereas, education loans are advantageous as they offer tax breaks,
fee payment in EMIs, back-up for any unforeseen increase in cost and even makes
one more responsible and independent.
|
A good
education helps open many doors for the child. However, education is very
expensive these days. A decent education in India alone costs anything between
Rs 10-12 lakh while a foreign education costs about Rs 25 lakh per year.
Thankfully, one can avail of education loans to provide the best education to
our kids.
Even if one
has assets or savings that can be liquidated for the purpose of funding the
education, experts believe it is better to opt for an education loan instead.
"Unless you have some 'extra money', one should opt for an education loan
as it has multiple benefits,'' says Neeraj Saxena, chief executive officer
(CEO), Avanse, which is a joint venture between DHFL and IFC Washington. Avanse
has a loan portfolio of over Rs 530 crore as of March 31, 2016.
Many parents
believe in self-financing the education needs of their children. "The only
advantage of self-financing a child's education is that you do not take on a
liability. However, the disadvantages outweigh the advantage," says Yogita
Dand, financial planner.
To raise the
resources for self-financing, most parents raise funds through personal or
friendly loans or they tend to dip into their retirement savings or sell off
their assets to finance their child's education. "There have been cases
where parents have even sold off their own houses to fund their child's
education,'' points out Dand.
Education
loans are advantageous as they offer tax breaks. "Interest paid on
repayment of the education loan is allowed as a deduction without any limit
under section 80E of the income tax act for 8 years,'' says Arnav Pandya,
financial planner.
"In
case of self-financing, fees are usually paid in lump-sum for the year/
semester. An education loan eases off that burden through the option of
repayment in easy EMIs which start post the course completion,'' says Ajay
Bohora, co-founder, MD & CEO of Credila, a subsidiary of HDFC Ltd. Credila
has disbursed over Rs 3,400 crore of education loans, as on March 31, 2016.
Although
most education loans come with a moratorium period (when one need not pay any
interest on the loan), Saxena advises parents to pay the simple interest on the
amounts disbursed right from day one.
"It is
not that the bank or financial institution is not charging you interest for
this period. Instead your interest gets capitalised and you end up paying EMIs
on a higher amount at the end of the moratorium period,'' points out Saxena.
The average
rate of interest for an education loan today is anywhere between 10.50% to 14%,
depending on multiple factors like the student's academic profile, course,
institute co-borrower's profile, etc.
"For
instance, for students going to the USA for degrees in fields related to STEM
(science, technology, engineering and maths) with a GRE score of over 300,
Avanse has a special product wherein the students do not need to provide any
collateral for loans up to Rs 25 lakh. Generally, for all applicants, we look
at collateral in the form of mortgage of property,'' says Saxena.
"An
education loan also helps you create a back-up for any unforeseen increase in
cost, including an increase in cost due to potential depreciation of the
currency,'' says Bohora.
An
intangible benefit of an education loan is that it actually helps the child to
learn the value of money. "Many parents, despite having the funds, still
opt for an educational loan,
just so that children become more responsible and independent,'' says Saxena.
Nowadays,
many students plan to study overseas but the living cost often is as much as
the tuition fee. Most people also worry if it is worthwhile to spend such a big
amount? Yes, an overseas education from a good institute does pay off in the
long run. HR professional Anukruti Khadilkar says, "A degree from a
foreign university is definitely a great advantage when compared to a degree
from smaller Indian institutions since employers prefer to hire candidates who
have completed a degree abroad with relevant academic scores over a student who
has completed the same degree and has similar work experience in India.
Besides, an international degree also offers a good head start in terms of a
better pay package.''
Nice Article ... to know more about Education loan Calculator India visit here
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteThank you for this informative Article ... I have applied for Study loan and looking for greater future ahead.
ReplyDeleteThank you for this informative Article.... As i am Preparing for further studies and Avanse guided me so well about the Education loan Procedure.
ReplyDeletevery nice article... to know more about Abroad Study Loan
ReplyDeletevisit here