With increasing competition and growing cost of education, applying for education loans has become commonplace these days. A computer engineering degree from IIT Bombay, it will cost you about Rs. 5.5 lakhs. At Symbiosis, a private university, a degree in design costs about Rs. 10 lakhs and one in law around Rs.11 lakhs. Higher studies, thankfully, are made easy by education loans. Their biggest advantage is that your EMIs will start only after you start working! But here are some lesser-known benefits of education loans:
1. Loans can cover your travel expenses, book costs, even college deposits!
It is a common misconception that student loans cover only tuition fees. Before you can apply for the loan, you have to be accepted by the college of your choice. This acceptance letter is a crucial document for your loan application, and accordingly the amount will be approved. Hostel fees, cost of buying books, refundable deposit and even travel costs can be claimed as a part of this amount.
2. Those without sufficient annual income, can receive subsidized loans!
If your family’s annual income is less that Rs. 4.5 lakhs, the central government will provide a subsidy on your loan. The moment the borrower begins to pay off the EMIs, the interest will be paid by the government on their behalf. Effectively, only the principal amount of the loan needs to be paid off in this case. Remember:
- This is not an interest free loan; the government pays the interest but the bank earns the same amount of money, and
- This subsidy is applicable only for students studying in India
3. Loans get cheaper when you start working abroad!
If you have taken a loan for international studies, there is a good chance you will get a job abroad that will pay in foreign currency (dollars or euros). In that case, the depreciating value of rupee will work in your favor. If you borrowed at the rate of Rs.65 = 1$ and you repay at Rs.70 = 1$, that means by paying the same amount of money (1$) you can repay Rs.5 extra of your loans.
4. Your parents can claim tax benefits on your loan!
Education loans come with tax benefits. According to Section 80E of the Indian Constitution, you can claim tax deduction for a sum equal to your interest amount. This allows the borrower (whether you or your parents, or your guardian or your spouse) to lighten the load without any extra cost. Keep in mind that this rebate can be used to pay off only the interest, and not the actual amount.
5. You are not charged loan pre-payment penalty!
Any payment made before the scheduled date is called prepayment, and with education loans, most banks do not levy a penalty on early closure of loan account. However, this is applicable only when the borrower has continued the loan for after a stipulated interval (6 months, for example).
So, now that you know the benefits associated with education loans, here’s what you need to keep in mind before applying for one:
- Know your loan amount eligibility
- Look for loan options with zero margin
- Compare the interest rate offered by banks and other non-banking financial institutions (NBFCs)
- Look for courses and colleges that are approved by banks and NBFCs
- Assess your repayment based on future earning capacity