A Guide to Education Loans in India
Are you an aspiring student in India aiming for higher education but facing financial constraints? You're not alone. With the rising cost of education, many students are turning to education loans as a viable solution. This blog offers an in-depth look at education loans in India, discussing various loan schemes, interest rates, and tax benefits to help you make informed decisions and invest in your future.
Why is it important ?
Education loans are essential in India due to rising education costs and more students pursuing higher studies abroad. Census data shows nearly 33 lakh migrants moved for education With undergraduate courses costing up to ₹15 lakhs and postgraduate up to ₹30 lakhs, plus over 15 lakh Indian students studying abroad annually at around Rs. 29 lakhs per year, loans offer vital financial support. They enable students to access opportunities abroad without financial constraints hindering their potential. As quality foreign education becomes more sought after, education loans remain a crucial investment in students futures.
Interest Rates
Interest rates play a significant role in determining the overall cost of your education loan. They vary greatly between government and private banks, making it crucial for you to choose a loan with a competitive interest rate.
Leading Private Bank education loan interest rate
| Banks | Interest Rates | Processing Fees |
|---|---|---|
| HDFC Bank | 9.50% p.a. onwards | As per the criteria of the bank |
| ICICI Bank | 9.50% p.a. onwards | Up to 2% plus GST |
| Axis Bank | 13.70%p.a. onwards | Contact the bank |
| Kotak Mahindra Bank | 11.50% p.a. onwards | Contact the bank |
Leading Public sector Bank Education loan rates
| Banks | Interest Rates |
|---|---|
| Punjab National Bank | 10.45% |
| State Bank of India | 10.25% |
| Indian Overseas Bank | 6.90% p.a. onwards |
Interest Calculation
In India, you pay interest only on the money you borrow, not the total loan amount approved. For instance, if your loan is sanctioned for ₹10 lakhs, but you only withdraw ₹8 lakhs, you'll pay interest on the ₹8 lakhs borrowed.
Repaying Your Loan
Loan repayment generally starts after completing your course or securing employment, whichever comes first. You have 15 to 18 years to repay the loan, depending on the loan amount and lender. Here are some tips to ensure a smooth repayment journey
- Pay more than the minimum amount due to reduce your overall interest expense.
- Make the most of your moratorium period by focusing on your studies and honing employable skills.
- Consider internships or part-time jobs during your course to start saving for loan repayment.
- Set up automatic payments to ensure timely and regular loan repayments.
Tax Benefits
Tax Benefits of Education Loans Under Section 80E of the Income Tax Act Education loans in India offer tax advantages under Section 80E of the Income Tax Act. There is no upper limit on the deduction, allowing you to claim the actual interest paid on your education loan for a maximum period of 8 years. By taking advantage of this tax deduction on your loan's interest, you can lower your taxable income and save money, making education loans a financially wise choice for students pursuing higher education.
Government Support
The Indian government recognizes the importance of education and offers several initiatives to support students. One such initiative is the Central Scheme of Interest Subsidy for Education Loans, which helps by covering a portion of the interest for eligible students during their study period.
Loan Schemes
- Central Scheme of Interest Subsidy (CSIS): Provides full interest subsidy for eligible students during the moratorium period (course period plus one year).
- Credit Guarantee Fund Scheme (CGFSEL)Guarantees education loans without needing collateral or third-party guarantees. It helps students from economically weaker sections.
- Padho Pardesh SchemeOffers interest subsidies for minority students studying abroad.
- Dr. Ambedkar Central Sector SchemeProvides interest subsidies for students from economically weaker sections of OBCs and EBCs studying abroad
Other Schemes
Several public sector banks have also introduced specialized education loan schemes for reputed institutions in India. Some notable examples include:
- SBI Scholars Loan (State Bank of India)Offers loans exclusively for students attending prestigious institutions within India, with no collateral security required and preferential interest rates.
- Vidya Loan Scheme (Bank of India)Provides loans for specific reputed institutions in India without any collateral security and at favorable interest rates.
- Pratibha Loan Scheme (Punjab National Bank)Offers loans to students who got admission into premier institutes of the country without collateral and at favorable interest rates.
- Baroda Education Loan to Students of Premier InstitutionsOffers collateral free loans upto 40 Lakhs to students admitted into premier educational institutes in India at favorable interest rates starting from 8.15% p.a.
Other public sector banks may have similar schemes available, so be sure to explore your options when considering an education loan.
Education loans are a vital investment in your future, and making informed choices can help you maximize their benefits. Understanding the various loan schemes, interest rates, and tax benefits can empower you to make the right decisions for your educational journey. Choose wisely, plan diligently, and take a confident step towards a brighter future.
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