As per the Constitution of India, education is a fundamental right. A decent education from the right school or college ensures a bright future for an individual with the best career options. However, higher studies are getting pretty expensive in India and abroad with the rising inflation rate.
Acing GRE or GMAT, and filling up prestigious school or college application forms, in India or around the globe, is only one step towards your bright future. You have to plan for the tuition fees too. Most parents struggle with fund shortages and find it difficult to arrange for the exorbitant college fees and other expenses for their children’s education. So, for all this and more, an Education Loan comes in handy for most parents. It is considered the best way to fund higher studies. Education loan demand has steadily risen in the past two decades. And a cherry on the cake is it comes with additional benefits other than just paying for the fees.
What is an education loan?
Most government banks and private institutions offer education loans. An education loan provides financial support to parents or students to bear the college tuition fees and other expenses, including food, hostel, travel, books, etc. Many banks and financial institutions offer education loans with affordable terms and conditions for repaying them at competitive rates.
The type of education loan varies depending on the type of the education program – certificate or undergraduate or postgraduate, overseas or domestic – that you desire to pursue. There are three broad categories of education loans:
1. Based on location
· Domestic education loan: As the name suggests, these loans are granted for courses that can be taken up inside one’s own country geographically. The loan is granted to the applicant who has secured a seat within the country’s college or institution and meets all the lender’s requirements.
· Overseas education loan: Students apply for this type of loan for admission to any college or university which is geographically outside of one’s country. Similar to a domestic loan, a student has to secure a seat in the institution from the approved list of colleges and satisfy all of the lender’s eligibility criteria.
2. Based on the course
· Undergraduate loans: These loans are allotted to students who wish to apply for any undergraduate program of three- or four-year courses with different specializations.
· Postgraduate loans: This loan is offered to students who intend to continue further studies and earn an advanced degree or any professional course. To avail of this loan, an applicant must produce a completed under-graduation certificate.
· Career development loans: A number of individuals take a break from their professional career to pursue further studies that will help them boost their growth prospects over the long run. This loan is for training or advanced courses that will help these professionals with career development and make them eligible for better job opportunities.
3. Based on collateral
· Loan against property, deposit, or security: One can pledge immovable properties like flat/house/land, etc., and/or fixed/ recurring deposits or bonds, shares/debentures to secure an education loan.
· Third-party guarantee: One can be granted a loan if a guarantee certificate is given from an employee or home bank.
Several banks have simplified the application process for education loans. Nevertheless, choosing the right loan is tricky and needs careful consideration.
How do education loans work?
Education loans are offered to students or to their parents to secure monetary assistance for quality education in India or abroad and embark on successful career options. The loan amount, offered for a particular period of the course, doesn’t require to be paid immediately. The bank pays the amount directly to the institution at the beginning of the course and covers all expenses, including tuition fees, travel, books, hostel, etc.
The repayment tenure starts at the end of the course. A number of banks even provide a grace period of 6 months for repayment called a holiday period or moratorium period. This period starts after the student acquires a job, or even after a year of completion of the course, whichever is earlier.
Many banks offer competitive interest rates that vary from one another. Hence, one must thoroughly know the prevailing interest rates in the market and how they are calculated (whether compounded or simple interest) after completing the course. Many banks offer EMI as one of the options for repayments over a particular course of time. One can easily calculate the EMI amount with the help of an EMI calculator and plan accordingly.
Benefits of education loan
1. One of the biggest advantages of availing an education loan is tax saving under Section 80E of the Income Tax Act, 1961.
2. Banks can finance even 100% of the loan amount.
3. The loan amount covers expenses like travel, laptop, or book purchases.
4. Many banks offer flexible repayment options and defer until a student completes education, or sometimes even for 6 months after graduating or till one gets a job. This is known as the moratorium period.
5. Lower interest rates in comparison to a personal loan.
6. Education loans provide freedom from the liquidation of valuable assets.
7. And lastly, dependency on parents to repay the loan amount diminishes as education loans give flexible repayment options.
An education loan is an easy gateway for financing one’s educational needs and a good head start to embark on a successful career. It is pretty easy to secure an education loan from most banks and financial lending firms. However, one should take a decision only after prudently weighing all possibilities. One must carefully read all terms and conditions before grabbing the best deal available for an education loan.