Category: Financial Planning

Education Loans In India

The cost of education has been rising steadily at an average rate of 15% per annum.
Therefore, an education loan is vital to bridge the gap between what the student can afford and the the tution they might have to pay.
An education loan covers the following;
1) Basic Course fees
2) Related expenses such as accommodation, exam charges etc

In an education loan, the student is the main borrower and the parent is the guarantor for the loan, or they can also be the co-applicant

The student should be an Indian citizen, having completed his/her higher secondary schooling and must have secured an admission into a recognized university, either in India or abroad.

Documentation required
Admission letter of the institution,
Fee structure
Class X, XII and graduation marksheets
Income documents such as salary slips or income-tax returns (ITR) of the co-applicant.

Bank Charges
The banks can finance upto 100% of the loan depending on the amount.
The margin varies based on where the admission has been secured.
If studies are to be in India – 5% has to be funded by the student
If studies are abroad – margin to be paid by student rises to 15%
In case the loan amount exceeds Rs 7.5 Lakh, the applicant has to also submit collateral such as either an LIC policy or immovable property documents

Bank charges also include the following;
processing charges
prepayment or late repayment charges

Interest rates
The banks use the Marginal Cost of Funds based Lending Rate (MCLR), plus an additional spread to set an interest rate
The current spread is 1.3 – 3% based on bank.
The loan is a floating rate loan
Table of interest rates offered by various banks is below:

Bank Interest Rates Special Note Processing Charges Prepayment Penalties Late payment penalites Tax Benefits
  4 Lakh and below 4 -7.5 Lakh Above 7.5 Lakh 20 lakh to 1 crore          
SBI 9.95% 9.95% 10.70% 10.45% a) SBI offers conessionary rates for students with admission to prestigious institutes like IIM or NIT – interest rate ranges between 8.3% to 9.95%
b)1% concession for full tenure of loans, if interest is serviced during the moratorium period, including course duration.
c) 0.5% concession for girls and for students availing insurance policies
0.00% 0.00%   U/S 80E
Vijaya Bank MCLR + 2.15% MCLR + 2.00%   a) 1% Interest concession will be provided, if the interest is serviced during the study period and the moratorium period, till the commencement of repayment
b) Concession of 0.50% in ROI for girl students
c) MCLR + 0.95% for students admitted to premier institutes
Upfront fee of 0.75% +ST for education loans exceeding Rs.10.00 lakhs     U/S 80E
Allahabad Bank MCLR+2.00% MCLR+2.00% MCLR+1.85% a) 0.50% rebate for girl students
b) 1.00% interest concession if interest is paid during study & moratorium period
c) Concessional rate for IIT/IIM – MCLR+0.35%
d)For NITs & others – MCLR+1.85%
For loan amount above Rs.10.00 Lac – 0.15% or maximum of Rs.3000/-
For loan amount above Rs.20.00 Lac – 0.10% or maximum of Rs.5000/-
    U/S 80E
Federal Bank MCLR + 1.7% to 5.05% for max loan of Rs.10 Lakhs for studies in India and Rs.20 Lakhs abroad     0.00%     U/S 80E
Bank Of Baroda One year MCLR + Strategic Premium + 2.50% One year MCLR + Strategic Premium + 1.75%   a) For List-A Institutions
Upto Rs 15 Lacs : One year MCLR + Strategic Premium + 0.25%
Above Rs 15 Lacs: One year MCLR + Strategic Premium
b)For List-B Institutions
Upto Rs 7.50 Lacs : One year MCLR + Strategic Premium + 0.75%
Above Rs 7.50 Lacs: One year MCLR + Strategic Premium + 0.50%
c)For Studies abroad
One year MCLR+ Strategic Premium+ 1.00% for listed institutes
One year MCLR+ Strategic Premium+ 2.50% for all other institutes
0.00%   Penal interest @ 2% p.a. on overdue amount, if the loan amount exceeds Rs.4/- lacs. U/S 80E
Indian Bank Interest rate of MCLR +0.6% for List B Institutes and MCLR for List A Institutes
Need based loan limit up to Rs.30.00 lakh, but depends on Institute category
  0.00%     U/S 80E
Axis Bank 15.00% 14.50% 13.50%   0.25% concession for girls 0.00% 0.00% @24% per annum i.e. @ 2% per month on the overdue installment/s U/S 80E
HDFC Average rate of 11.9% where maximum loan availed is restricted to Rs 10 Lakh     Maximum up to 1% of the loan amount or Minimum Rs. 1000/- whichever is higher Upto 4% of the Outstanding Balance prepaid, if loan is foreclosed/ part paid during Moratorium 24 % p.a. on overdue/unpaid EMI amount U/S 80E

Repayment The loan needs to be repaid by the student on the completeion of his course. The repayment period varies between 5 – 7 years The bank usually charges simple interest on the loan amount during the course period. This reduces the EMIs payable for repayment.

Benefits under Income Tax Act the tax deduction is on the interest paid on the loan repayment under Sec 80 E for an unlimited amount. This is allowed for the individual paying the loan interest for period of 8 assessment years

Neena Shastry

Research Desk

Dilzer Consultants Pvt Ltd

26 December 2017