“EDUCATION LOAN”

By Sakhi Shah.!

Topics covered.

• INTRODUCTION• EXPENSES COVERED• LOAN AMOUNT AND SECURITY• MARGIN MONEY• REPAYMENT OF LOAN• INTEREST CONCESSION• DEDUCTION UNDER SECTION 80(E)• DOCUMENTS REQUIRED• CONSEQUENSES OF LOAN DEFAULT• ADVANTAGES & DISADVANTAGES OF EDUCATION LOAN• COMPARISON BETWEEN BANKS• CONCLUSION• APPLICATION FORM

Definition of education loan.• Education loan is an unsecured loan granted by banks under which some

amount of money is granted to students at special rates. With the help of education loan, the students can achieve higher and costly studies at cheaper rates. 

• NOTE:-

• Vocational training and Skill development courses are not covered in this category.

Expenses Covered For education loan• Tuition Fee

• Examination

• Books/Computer

• Hostel

• Insurance

• Educational trips

• Uniforms

• Library/Laboratory

• Passage Money for travel abroad

• Two-wheeler (upto Rs. 50,000/-)

Loan amount and security.LOAN AMOUNT

• For study in India a maximum amount of Rs 10 lakhs can be drawn.

• For study at Abroad a maximum amount of Rs 20 lakhs can be drawn.

SECURITY:-

• For amount less than Rs 4.5 lakhs parents co-obligation is required but there's no need for security.

• For amount between Rs 4.5 lakhs and upto Rs 7 lakhs, parents co-obligantion is required together with collateral security in form of 3rd party guarantee.(guarantor)

• For loans beyond Rs 7.5 lakhs, tangible collateral security (usually a house) of a suitable value must be hypothicated.

Margin money

• The margin is the amount you need to pay from your own funds, while the rest is paid by the bank.

• EG:- If you need, say, a loan of Rs 100,000 and the bank is ready to finance 80% (Rs 80,000) of the loan amount then you will have to make arrangements for the remaining 20 per cent (Rs 20,000).

• Nil for loan up to Rs. 4 lakh.

• For above 4 lakh in India 5% and 15 % for abroad.

Repayment of Loan Amount• This loan is repayable from 1 year after the completion of the

course or from 6 months from gainful employment whichever is earlier. The repayment period is typically 5-7 years. The interest until the beginning of repayment is bourne by the Government of India for low income families.

• For loan amount upto 7.5 lakh or above the repayment period is 10-15 years respectively.

• If tenure increases by even 1 day or more penalty interest is chrgd.

Interest Concession • Under the IBA Scheme, 1%interest concession is provided for the loanees if the

interest is serviced during the period when repayment holiday is specified for interest repayment under the scheme. For agricultural family and girl child concession vary from bank to bank.Eligibility for lnterest concessionThe interest subsidy under the Scheme shall be available to the eligible students only once, either for the first undergraduate degree course or the post graduate degree diplomas in lndia. Interest Subsidy shall, however, be admissible for integrated courses (graduate + post graduate). lnterest Subsidy under this Scheme shall not be available for those students once they discontinue the course midstream, or who are expelled from the Institutions on disciplinary or academic grounds. However, the interest subsidy will be available only if the discontinuation was due to medical grounds for which necessary documentation to the satisfaction of the Head of educational institution will have to be given.

Deduction under section 80(E) of I.T Act

• Assessee must be an Individual Tax Payer. This deduction is not allowed to an HUF or any other kind of tax payer

• This deduction is towards the Interest you pay on the loan taken

• The loan must be taken from any Financial Institution or a Approved Charitable Institution (not a relative or friend or any other person/entity)

• This loan is taken for higher education for you, your spouse or your children or for a student for whom you are a legal guardian.

The advantage for the assesses is that they get the benefit for deduction on their net income for the interest payable on the loan amount.There is no limit on the amount of interest you can claim as deduction under this section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. Therefore, this has to be claimed in 8 successive years by the tax payer or earlier when the interest is paid in full.

Eligibility for deduction:-

Documents Required• Completed Loan Application Form

• 2 Passport Size Photographs

• Proof of residence (passport, voter's ID card, etc)

• Proof of admission

• 10th/12th/Graduation/Post Graduation marks statements (all applicable)

• A detailed statement from the institute giving the breakup of expected expenses

• Proof of satisfactory academic performance after loan approval for every semester

• Parent's Income Tax Assessments of last 3 years

• Parent's proof of income (salary slip, form 16)

• Parent's bank account statement (last 6 months)

• If the individual was working full time before the course, he/she should also submit Details of Present Employment.

• Proof of income (salary slip, form 16) and Income Tax Returns for the last 3 years

• Agricultural deed for agricultural family.

Consequences of loan defaults

• Legal action can be taken to get the borrower to repay the loan in full. Borrower can be sued indefinitely.

• Credit reference agencies can be informed about the default. This can make it hard to get a credit card, mortgage and loan in future.

• The department of treasury can take steps to offset federal and state income tax against student debt. This means no more tax rebates until the balance is fully cleared.

Advantages & Disadvantages of edu. LoanAdvantages

• The major purpose of this loan is to give financial help to the students for further studies.

• Interest rate is less as compared to other types of loans.

• Repaying the loan amount is only after completion of the study.

• It helps the students to fulfill his/her dreams by availing this loan.

Disadvantages• The deduction under 80E is only for the

interest on the loan and not for the principal amount.

• Customers have lack of knowledge.

• If the borrower fails to repay the loan amount then the bank creates utter pressure on the on the borrower that they can take a drastic step.

• Too much of paperwork.

COMPARISON OF BANKSBANKS / DIFFECRENCES

HDFC CENTRAL BANK OF INDIA

HSBC SARASWAT BANK

RATE OF INTEREST(FIXED)

12.50% 10% 12% 14.25%

PROCESSING FEE 1%& 1.5%

0% 1% & 1.93% 1% &0.5%

REPAYMENT PERIOD 1-3 YEARS

1-7 YEARS 1-4 YEARS 12 MONTHS

MAX AMT OF LOAN 15,00,000 15,00,000 10,000,000 10,000,000

Conclusion• The Banks offer good services to the Society by providing Educational Loan

for the students who are unable to continue their higher education due to lack of cash.

• Sometimes the borrower may not be able to repay the amount in the specified period or they may not get sufficient salary as they must have expected, this may lead to brake in the repayment and thus their credit score can decrease.

• So after analyzing everything the conclusion is to always take an extra care before taking educational loan from any bank. Also search for better offers in different banks and analyze before availing the loan.

Education Loan Application Form of HDFC