Things you should know before applying for an education loan

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The cost of rising education pinches the pocket of many, especially when the income of many households has been affected by the ongoing pandemic. In such a case, an education loan offers a solution instead of compromising on the quality of your education. With the help of the education loan students can apply for colleges, both in India and abroad, that may fit into their budget. After finishing college, the students can repay their loans as they embark on the new journey.

Here are a few things you should know before applying for an education loan.

1) Education loan covers tuition fees, accommodation charges, travelling expenses, etc. You need to find with your lender what all it offers.

2) One needs to be an Indian citizen and have taken admission in a recognised college to be eligible for an education loan. Parents can become co-applicant if the person is not earning. For loans of higher amounts banks generally ask for collateral to protect themselves from any default.

3) Education loan scheme allows students to take a loan for the longer term. For example, for loans up to Rs 7.50 lakh tenure is up to 10 years and for loans above Rs 7.50 lakh, the tenure can increase up to 15 years.

4) One should compare interest rates from different banks and NBFCs before signing on the dotted lines. Education loan is available in the range of 6.75% to 14% depending on the bank you choose.

5) Income tax benefits are allowed on home loans under Section 80E of the Income Tax Act. The interest amount paid on your educational loan is eligible for deduction from your total income.

6) The education loan scheme provides a lot of flexibility along with repayment holidays. The loan payment starts after the study period plus a moratorium of 6 months or one year after getting the job, whichever is earlier.

7) If due to some reason a student is not able to find a job in the moratorium period then one can apply for an extension of the tenure.

8) The credit score gets affected if one defaults on EMI. It might also affect the eligibility of a student for future loans. The default might affect the guarantor as well.

9) With education institutes mushrooming all across the country it is suggested to calculate return on investment first before applying for a loan. The rough estimate of the total college cost and your likely earnings will give you an idea if the course is worth doing.