Education is the movement from darkness to light – a famous and equally true statement. Granted, it will cost big money. But that’s what education loans are for – to finance your education and help you make that big jump. Whether you are planning your education in India or abroad, an education loan will go a long way to finance your education with minimal hurdles.
The biggest benefit of an education loan is the funds that are readily available to you. Some other benefits that will incline you to submit your loan application faster are mentioned below.
What are the benefits of an education loan?
There are multiple benefits of an education loan that students and parents often miss or overlook.
1. Personal savings remain intact
Higher education, whether in India or abroad, will definitely make you reach for your savings. While it sounds better than starting your life with debt, it restricts you financially and dips your savings considerably. Firstly, if you use your savings to finance your education, you will be confined to the amount you have. A dream college or dream destination could be well beyond your reach. Secondly, your hard-earned savings are not like the bottomless chips and coke offered at a diner. Your savings will exhaust eventually, leading to unnecessary panic and tension in case of an emergency.
Education loan covers 100% of the expenses incurred, thus keeping your savings intact. The education loan products are designed in a way to give the student complete financial support.
2. Double tax savings on education loans
Tax exemptions on education loans are another plus. There are two parts to this – TCS (Tax collected at source) and Tax exemption while filing your Income Tax return.
On 1st October 2020, the TCS rules on foreign exchange remittances were amended. Under the RBI guidelines earlier, the Liberalized Remittance Scheme (LRS) allowed an individual to remit up to USD 250,000 every year for various purposes, including foreign education. Budget 2020 introduced the TCS at 5% on all remittances above INR 7 lakhs under the LRS of the RBI. In simple terms, if you are paying to a foreign university a tuition fee above INR 7 lakhs in a financial year, 5% tax will be collected at the source. The same tax will be 10% if PAN and Aadhar cards are not furnished at the time of application.
However, students who take an education loan are eligible for a concession and a lower 0.5% TCS. The education loan should be applied from a financial institution. It means that you will be subjected to a higher TCS of 5% if you arrange the funds for your education through anyone other than the authorized financial lenders. It is another reason to not dip into your savings and apply for an education loan. You can read a more detailed explanation in this blog – How the New TCS Rules Made Abroad Education Loans More Rewarding?
Another aspect is the tax exemption on the interest paid towards an education loan. Under the Chapter VI-A of Section 80E of the Income Tax Act of India, the interest payments made for an education loan will fall under ‘Deductions’. Read more about the tax exemption and income tax benefits in this blog – Tax Benefits Under Chapter VI-A of Section 80E For Educational Loans.
These tax benefits on education loans should alone drive students to take one.
3. Choose from customized loan products
The education loan market has grown over the few years. With this growth, lenders have recognized the demands for loan products that cater to students pursuing education from a particular course, college, or country. Financial institutions like public sector banks, private banks, and Non-Banking Finance Companies (NBFCs) now have specific and customizable loan products to study in India and abroad. Whether you are going for an executive MBA program or a vocational course, you will find a product that suits your needs.
Examining through each loan product will be time-consuming and cumbersome. So, it’s prudent to go through channels like GyanDhan, who will study your profile and suggest to you the lender and loan product that will suit your requirements.
4. Repay after your education
The repayment for the student loans begins after the end of the study duration. Lenders also give additional six months to find a job so that students can take responsibility for the repayment. It ensures that the burden doesn’t fall on the parent or the student during the study period.
5. Instills financially prudent habits
Education loans are an excellent opportunity for students to learn how to handle their finances. The repayment of the loan starts after graduation giving students ample time to figure out a repayment plan. They can decide the amount they want to spend, save, and repay towards their education loan. It makes them financially prudent while also building their credit history. Students can use GyanDhan’s EMI Calculator to plan their repayment and decide on an EMI that suits them financially.
Students and parents most times apply for a personal loan instead of an education loan. This decision stems from a lack of knowledge about education loans and the misconception that personal loans are cheaper than education loans. So, let’s see why education loans are a better option than personal loans –
- Loan amount – Students can get the desired loan amount from the lender. In an education loan, the maximum amount can be as high as INR 1.5 crore with collateral. Even without collateral, students can borrow up to INR 40 lakhs. On the other hand, there is a limit of INR 25 lakhs on personal loans.
- Rate of interest – The interest of interest offered on education loans is significantly lower than the interest rate offered on personal loans. For secured education loans, the interest rate starts at 7.85% for women and 8.35% for men. The interest rate for unsecured education loans starts at 11.25%. For comparison, the interest rate offered on personal loans starts at 10.05% and can go up to 24%.
- Moratorium period – The moratorium period is the period where the applicant does not have to repay any loan amount. For secured education loans, the study period plus six months after graduation is offered as a moratorium period. In the case of an unsecured education loan, simple interest is payable during the study period. But in personal loans, EMI starts from the next month of disbursement, meaning the co-applicant will have to start repaying the interest, as well as the principal amount.
- Loan tenure – The loan tenure of a personal loan is 5 years, whereas, for an education loan, the loan tenure can be 7, 10, 15, or 20 years.
Therefore, taking an education loan is a prudent decision. And GyanDhan will help make your decision hassle-free and swift. We have partnered with every type of lender to help you get an education loan easily. A dedicated Education Loan Counselor will discuss available loan options and help you apply. In the case any hurdle or problem arises, they will solve it quickly by contacting the right bank official. To know the right lender for you, check your loan eligibility here.
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