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Dreams indeed have wings. Fortunate are those who start dreaming at a tender age.
When a student hits teenage wings start growing on his/her dreams, being a doctor, engineer, lawyer, pilot, businessman, or investment banker starts seeming clear.
The heart becomes full of motivation, spirit is in top gear and roll up the sleeves attitude begins to shape up; then comes the next and the most important thing – financing the dreams.
A friend of mine couldn’t take admission in BTech, even when he got a good score in pre engineering test because of the shortage of money.
Parents do all they can in order to make ends meet every month but circumstances, at times, do put in hindrances to dreams of their children when they don’t have money needed to finance their graduation or post-graduation.
This is when ‘student loans’ pitch in.
Read till the end and you'll learn how to create your own EMI calculator within 2 minutes
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What are student loans?
Those who know what student loans are can skip to the next section, but those who don’t, student loans refer to money borrowed from a banking institution or a non-banking finance institution at a specified rate of interest to finance the higher education of the borrower.
Mostly, student loans are for the higher studies of the students, which means that the candidate must have passed senior secondary education.
Student loan eligibility
Most of the banks share almost the same education loan eligibility criteria. Few of them differ with each bank and it would be better if you visited or called them to get all the details.
However, I won’t refrain myself from listing down the common ones.
1. Your age must fall between 18 and 35. There are a few student loans lending institutions who don’t believe in age restriction.
2. The student should be an Indian citizen
3. There has to be a co-applicant applying for loan, father, mother or your relative who is a working professional or businessman.
4. The student must have scored well in HSC/SSC examinations.(A good academic record helps)
5. The student must have secured admission in a reputed institute recognized by the government/AICTE.
6. The student must be applying for graduation or post-graduation courses of medical, management or engineering (Check with your bank for a complete list of courses).
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Are education loans tax deductible?
The answer is yes. Under section 80E you can claim the tax exemption after you have started paying EMIs on your education loan.
There are education loans tax benefit in India but on the interest part of the EMIs.
So, here’s one more important piece of information which you must know; it is that when you take any type of loan there is an interest component as well as a principal component.
Principal component is the original sum borrowed and interest component is what you are charged by the finance institutions from which you borrowed money. Finance institutions start charging the interest component from the first month onwards, if they don’t then how are they going to run their operations.
Cap on exempted amount
As such there is no cap on the amount that is exempted under the section 80E. But you have to remember that the principal component is not exempted, only the total interest paid within the financial year (01 Apr -31 Mar) is exempted
When can I claim this tax deduction?
When I was reading and collating information about student loans procured in India, this question popped in my mind.
Here’s the answer to it – if you, as a student, have taken the loan then you can start claiming the deduction right from the year you start paying your EMIs.
Usually, you’re given a period of one year after completing your education before bank asks you to pay your first EMI.
Time limit
Everything has got pros and cons. One of the major pros of student loan is that there is no maximum amount under section 80E like I told you before.
But, one of the major cons is that you can claim the tax deduction only for 8 years. There are certain student loans which span across a time span of 15 years so you can’t claim the tax deduction after the 8th year.
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Education loan interest
Interest is what a borrower looks at when borrowing loans from any financial institutions or even individuals.
Lower interest rates on home loans, car loans have fulfilled the dreams of many and even now the interest rates on personal loans have been way too lesser than before.
With this pops the question of student loan interest rates in mind so here is a list of banks providing education loans with the required information on interest rates
State Bank of India
Effective interest rate on student loans – 10.15 %
The important thing to note here is that SBI education loan interest is also categorized. In general, you will find the above figure but there is a special SBI scholar loan scheme in which if you have secured admission in IIMs and IITs or even NITs then the interest rates range within 8.2% to 8.35%.
Axis Bank
Loan amount up to 4 lakhs -> 15.2%
Loan amount between 4 lakhs and 7.5 lakhs -> 14.7%
Loan amount more than 7.5 lakhs -> 13.7%
HDFC Bank
The range of HDFC education loan interest is between 9% and 14.1%. You can call them up to gather more information on the interest rates.
ICICI Bank
Like all other banks ICICI bank also provides education loans. The education loan interest charged by ICICI bank starts from 11.5%.
So, you must have got a nice idea about the study loan interest rates fixed by different banks on their respective products. You can see that interest on education loan in India is very affordable.
When you’re very much capable in securing position in a reputed institute, it is a signal to a wealthy future in which paying off your student loans at such affordable rates is a small deal.
Interest free education loan
There is a common myth in India about no interest student loans. People think they exist, but let me put that upfront for you, they don’t.
There is no financial institution in India which can provide you a student loan at 0% interest
But, there is a scheme propagated by the government of India ‘Central sector interest Subsidy scheme’ (CSIS). This scheme was created in the year 2009.
Under CSIS, government provides you full interest subsidy on education loans taken from banks on professional medical and technical courses. It also doesn’t require any collateral or third party guarantee.
The eligibility criteria is that you must opt for courses in NAAC affiliated colleges and schools. Also, your entire family income must be less than 4.5 lakhs per year. Almost all banks provide you loans under CSIS scheme and if you fall under this eligibility criteria then you should go for it.
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How much student loan can I get in India
With all the information in this article about education loans, it is very important to tell you how much student loan banks or financial institutions can sanction you.
This section of the article answers specific questions like –
Q. How much education loan can I get for mbbs or mba?
Q. How much education loan can I get for studying abroad?
Well, I must say the maximum loan disbursement amount is quite standardized however, for a bank or two it varies a little.
Here’s a list of top Indian banks with their maximum quantum of education loans
1. HDFC bank
Up to Rs 20 lakhs for studying in India.
HDFC bank hasn’t set any maximum amount limit for studying in abroad.
2. Axis Bank
Up to Rs 10 lakhs for studying in India.
Up to Rs 20 lakhs for studying abroad.
3. SBI
Up to Rs 10 lakhs for studying in India.
Up to Rs 30 lakhs for studying in abroad.
4. ICICI Bank
Up to Rs 50 lakhs for studying in India
Up to Rs 1 crore for studying in abroad
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Education loan collateral
Offering loan comes with a lot of risk for the financial institutions. The only risk is what if the borrower defaults on EMIs or the entire loan.
Thus, to reduce the risk banks and non-banking finance companies get into the practice of pledging collateral from the borrowers.
A collateral is nothing but you keeping any tangible or intangible asset of yours against the money which you will be borrowing to fund your education.
Tangible collateral are like a house, a bungalow, a piece of land or any other accepted real estate and fixed deposits, bonds etc fall in the category of intangible assets which can be pledged as collateral.
Most of the banks, prime examples State bank of India, HDFC do not require any collateral from you until the quantum of loan amount exceeds 7.5 lakhs.
Only, the parents are required to be co-borrowers if the student loan you’re taking is below7.5 lakhs.
education loan without collateral
There are certain non-banking finance institutions which provide collateral flexibility to students securing admission in premier institutions.
If you think from their perspective then these institutions should be so top notch that a highly paid job is very much obvious after passing out from them.
But good things always come at a price. It will be better to expect higher interest rates on such unsecured education loans, which is another word for collateral free education loan.
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Margin for education loan
Let me tell you what ‘margin money in education loan’ is with the help of an example.
Suppose you have got 20,000 bucks and here comes your friend A asking you for 10,000 to sponsor his education.
On enquiring you find that he needs exact 10,000 bucks to fund his education.
Now, comes your friend B asking you for 11,000 bucks to fund his education. Though, the amount is a little bigger than what A is asking for but on further investigation you found that B is putting in 4000 bucks from his own pocket.
This makes the total cost of education as 15,000.
Who will you give the money to? Naturally B because he’s putting in money from his own pocket too demonstrating his seriousness towards education.
So, if you had lent money to A earlier it would have been education loan without margin money.
However, during lending money to B, the loan margin is 4000/15000 * 100 = 26.67%
Thus, loan margin is a certain percentage of money that you’ll have to put in from your own pocket.
SBI education loan margin comes as 0% for education loan below Rs 4 lakhs. However for an amount above Rs 4 lakhs, it is 4% for studies in India and 15% for studying abroad.
For HDFC bank, the loan margin is also NIL up to an amount of Rs 4 lakhs but more than 4 lakhs it is 5%.
In Axis bank, the margin for education loan is 0% up to Rs 4 lakhs but for a student loan amount of more than 4 lakhs it is 5% for studies in India and 15% for studies in foreign countries.
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Student loan EMI calculator
When you visit the websites of different financial institutions, you’ll always find a fancy loan EMI calculator there.
Just by entering the loan taken, the interest rate and the time in which you are going to repay it completely, the fancy calculator gives you the monthly instalment you’ll pay to the bank.
But creating this EMI calculator is no big deal. You can make it in MS Excel.
I will show you how –
1. Open MS Excel
2. Go to Sheet 1
3. As you can see in the below image, place rate of interest in cell C2; so if the rate of interest is 10.25% then divide it by 100 and write it in C2.
4. Place number of periods in cell C4. So, if the number of years within which you’re repaying the education loan amount is 5 then number of periods becomes 60 (12 * 5). It is monthly instalment hence we need to put the number of periods as total number of months.
5. Then in cell C6, put in the principle value i.e. the education loan taken. In our case it is 7.5 lakhs.
6. In cell C9, type =PMT(C2/12,C4,C6) and you’ll get the EMI.
The PMT formula in MS excel takes as parameters the rate of interest, the number of periods and the principle value.
You may be wondering why I have divided the rate of interest by 12, it is because we have to consider the rate of interest per month.
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Conclusion
There are so many students with high self-respect who finance their own education using education loans just because they don’t want burden on the bank account of their parents.
The fees of premier institutions or let’s say, higher studies are increasing every year and thus, it makes sense to borrow loan.
By reading this article, you know all about student loan in India, however, the decision to take it is entirely yours so before you take this important decision, remember to do some thorough analysis.
How many of these topics you already know about? Is there any topic from this article which you read about the first time?
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