5 reasons indians are taking education loan - Personal Loan Blog - Tata Capital

5 Reasons Indians are Taking Education Loan - and Why You Should Too

Mar 01, 2017

Sandeep was jubilant when the mail arrived on Saturday. He received a mail from Berkeley University confirming his selection for their post-graduation course in journalism. But when he saw the fee structure, the enthusiasm drained from his face. He couldn't afford to pay such a huge amount. His father offered to sell some of their property to fund his education but Sandeep refused. He didn't want to put an additional burden on his parents. At that moment, his friend Vishnu suggested to take an educational loan. Sandeep hesitated initially but when he checked online, he was amazed. There were a lot of loan opportunities available for students from banks and Non-Banking Finance Companies (NBFCs). He immediately applied for a loan.

Now, he is successfully pursuing his journalism course. Just like Sandeep, lots of Indians are increasingly opting for education loans. Here's why you should consider it, too.

  1. It is quite easy to get education loans.
    Gone are the days when taking a loan was frowned upon. Today, there are a large number of banks and NBFCs that provide educational loans to students. In fact, some lending institutions offer to fund the total cost of education, including the student's living expenses. Lenders have simplified the application process a great deal too and made it easier to be eligible for a loan.
    Some factors that banks and NBFCs consider for eligibility include the student's past academic record and the ability to get a job after the completion of education. The quality and reputation of the institute is an important factor too. Lenders need to be assured that the student can repay the loan amount after education. If the chances of getting a job are poor, the student may not be considered for a loan. Provided that the student is eligible, some lenders even offer services at the student's doorstep for convenience, and very often, you can get one online.
  2. There is no need to provide collateral.
    Students can avail loans up to Rs 4 lakh without collateral security, as per RBI guidelines. Since most colleges have a tuition fee that falls within this range, it is a huge advantage for students. However, if the college fee exceeds this amount, the student needs to provide collateral and a third-party guarantee. Despite this guideline, sometimes top banks and other lenders extend this limit in case they find the student worthy.
  3. You get tax benefits under section 80E.
    Yes, it is true. Once you start repaying your education loan, you can avail a tax rebate. The tax benefits help in reducing the overall cost of the persona loan. Under section 80E, you can claim tax deduction for the repayment of interest on an education loan. This benefit is not limited to courses pursued in India alone. Students who take loans to pursue higher education in other countries can avail the tax rebate too.
  4. You can preserve family assets.
    Many affluent families opt for education loans for their children even though they can afford the cost. This is due to the fact that the family wouldn't need to sell off assets like land to finance the education.
    In most cases, students only need to start payment once the education is complete. Since the term of repayment can be anywhere between ten to fifteen years, it becomes easy for the student to repay once he starts working. Due to this, the student can ease the burden off his/her parents' shoulders. Further, educational loans are more economical in the long run.
    For instance, consider Sandeep's case where his journalism course costs him Rs 20 lakhs. If he takes an educational loan, he will need to repay the amount in 15 years. Once he gets a job, it can be quite affordable to pay the monthly instalments on his own. By the end of the loan term, he would have paid around Rs 38 lakhs to the personal loan provider. But the family will be more than compensated if they invest the original Rs 20 lakhs in an index mutual fund for this time period.
  5. You can build a good credit score.
    Who doesn't want a good credit score? Well, this is a good opportunity for all students to start building a good score from an early age. Most lenders start the loan repayment process only after the completion of the education tenure. Since students usually start working within a year of graduating, they can allot a specific amount of their salary towards loan repayment. Regular monthly payments build up your credit history and paves way for better loan options in the future.

Bottom line:

High tuition fees or cost of living should not hinder students from accessing quality education anymore. With a great number of options from banks and NBFCs, it's easier than ever to realise your or your child's dreams through affordable education loans.