Good Education is important but it rarely comes cheap. This is why a large number of meritorious students in India take education loans. If you are planning to take one yourself, then this blog can serve as a comprehensive guide for you.

What does an education loan cover?

An education loan usually covers the tuition fee i.e. the course fee but it can also cover additional costs such as accommodation, books, etc.

Who can get an education loan?

Most lenders want to offer education loans to those students whose academic performance is excellent but aren’t able to pursue higher education due to financial limitations. However, there are many other conditions that a loan applicant should meet. Some of these are:

• The candidate must be a resident of India

• They should have secured a seat in the institution (based in India or abroad) they wish to pursue the education in.

• The institute itself should be affiliated from a recognized university under AICTE, UGC, etc. The same applies to an institute that’s located in a foreign country.

Role of Credit Score

Just like any other loan like personal loan, car loan, etc. an education loan can only be availed if the candidate has a good credit rating. However, a large number of students don’t have a credit history and hence no credit score, which is why the lenders usually ask them to get a co-applicant. This co-applicant is often the student’s mother or father who take the responsibility of the loan’s repayment. This step is especially important if the student is going to study at a foreign university. This is because a co-applicant i.e. a parent who stays in India is easily approachable to the lender in case things go south and the student’s name is added to the loan defaulter list.

Collateral Requirement

One important thing to remember when applying for a student loan is that you may not get 100% of the amount that you need. If you are studying in India, then around 5% of the amount you will have to pay from your own pocket. On the other hand, if you are studying overseas, then you can be expected to shell out as much as 15% to 20% of the loan amount.

Student loans up to Rs. 4 lakhs can be easily obtained in India. However, if the loan amount ranges between Rs. 4 lakhs to Rs. 7.5 lakhs, then you may have to provide a third-party guarantee. If the amount exceeds this limit, then you may even need to offer collateral such as real estate or gold.

Tax Benefits

Section 80E of the Income Tax Act allows you to deduct the interest paid for the student loan from your taxable income. However, there is no tax benefit for the principal amount and the benefit on the interest amount is also allowed for up to 8 years.

The benefit of Starting Repayment Earlier

In student loans, there is a concept of “moratorium period” which lasts for 6-12 months after you complete graduation. This is the time that your lender gives you to get employment so that you can start the repayment. However, during this period, your loan starts to attract interest which is then added to the principal amount after the period is over. You can reduce this financial burden by choosing to repay the loan interest during the moratorium period itself. You are usually offered a concession of up to 1% on the interest rate if choose this option. Since you have a lower overall debt when you actually start repaying the loan i.e. when you get a job, you can clear it sooner and also lower the risk of having your name added to a loan defaulter list.

Parting Words

Since you usually have a co-applicant in education loans, the stakes are even higher. That said, if you do your research, then you can find a loan that’s affordable and flexible. Good luck!

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