EDUCATION LOAN IN INDIA

With advent of technology, the education is getting more expensive. Everyone wants to get quality education. For many, it is graduating from a top university either in India or abroad. An engineering degree in India costs Rs. 15 Lakhs+ while MBA costs Rs.20 Lakhs. Thus it is very necessary that we should know about all the intricacies of education loan-terms, conditions, procedure and benefits.

An education loan covers the basic fee of the course and the miscellaneous charges like accommodation etc. Student is the main borrower while parent is the co-applicant. As per the RBI guidelines, letter of admission, Class X and XII mark sheet, income documents of co-applicant is required. The banks can finance up to 100% of the loan depending on the amount. Currently, for loan up to Rs 4 lakh, there is no margin money required. For studies in India, 5% of the required money has to be financed by the applicant. On the other hand, for studies overseas, the required margin money increases to 15%. 

The banks also ask for collateral for loans above Rs 7.5 lakh. Presently, the banks do not ask for any collateral or third-party guarantee for loan up to Rs 4 lakh. For loans above Rs.4 Lakh up to Rs. 7.5 Lakh, a third-party guarantee is required. Collateral is required for loan exceeding Rs. 7.5 Lakh.

 Interest rate 
The banks uses the Marginal Cost of Funds based Lending Rate (MCLR), plus an additional spread to set an interest rate. Presently (in 2017), the additional spread is in the 1.35-3% range. 

Repayment 
The loan is repaid by the student. Generally, the repayment starts when the course is completed. Some banks even provide a relaxation period of 6 months after securing a job or a year after the completion of studies for repayment. The repayment period is generally between 5 and 7 years, but can be extended beyond that as well.  During the course period, the bank charges simple interest rate on the loan. The payment of simple interest during the course period lessens the equated monthly installment (EMI) burden on the student for future repayments. 

Education loans taken for certain relationships will qualify for tax deduction: Education loan taken for pursuing higher studies for self, children, and spouse or for a student for whom one is a legal guardian would qualify for tax deduction.

Thus, parents and legal guardians are eligible to claim the deduction for the interest component paid by them. However, one cannot claim this deduction for education loans taken for his sibling or other relatives. Moreover, only the borrower who has availed the education loan can claim the tax deduction. For example, if a person takes an education loan for his child, spouse or his legal ward, only he can claim the tax deduction. The student, i.e. the child, spouse or his legal ward, cannot claim the deduction even if the loan is repaid from his funds after the completion of his studies. However, if the loan is taken in the joint names of parent/legal guardian and child/legal ward, then both of them will have the flexibility to claim the tax deduction based on their tax liability.