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
Eligibility
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