Fly High with an Education Loan This Makar Sankranti

It is noteworthy that the festival calls for a celebration in honour of Surya - the Sun God, who represents the spiritual light of knowledge and wisdom, signifying turning away from the darkness of ignorance to the light of knowledge. Similarly, the colourful kites flying high in the sky are primarily a symbol of our dreams and aspirations.

If you wish to fly the kite of your aspirations high by making a bright and flourishing career, turning towards the light of knowledge, i.e. pursuing higher education, is a must! It is an investment towards your thriving career and a necessity to lead a successful life.

However, pursuing higher education is not as easy as it sounds for everyone, especially considering the education inflation worldwide. Quality education in India can cost you anywhere from Rs 5 lakhs to Rs 50 lakhs, whereas education abroad can cost a minimum of Rs 25 lakhs and can go up to 1 cr or even more!

While some of us can easily shift money from other investments towards an education fund, most of us have to consider breaking our retirement fund, liquidating assets like gold and real estate property, and whatnot! However, liquidating existing investments made for specific goals may not prove to be the right choice, as it can disturb your financial future.

If you want to fly your kite high without breaking the thread, i.e. follow your (or your child's) dreams and aspirations by pursuing higher education without compromising on your other financial goals and risking your future, then there is no better option than an education loan. An education loan can fuel your dream of higher education in India or abroad for career-oriented courses like engineering, management, medicine, etc., at the graduate or post-graduate level.

An education loan covers all the study-related expenses incurred during the course duration. It generally includes admission fees, tuition fees, hostel fees, library fees, the cost of books, a laptop, and travel tickets (if you are studying abroad), etc. You can apply for an education loan from a bank or other financial institution along with a parent, guardian, or guarantor. A student is considered the main applicant, and a parent as the co-applicant.

You, as a student, have to repay the loan after completion of the course. Typically, the banks give the students six to twelve months after completing the course to start paying the EMIs. This relaxation time to pay the EMIs is called a moratorium period.

The interest rate on education loans varies across lenders. It can be anywhere from 7% to 18% p.a., depending upon factors like the type of interest rate (fixed or floating), loan amount, domestic education or education abroad, among others.

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Here are the benefits of availing of an education loan:

1. A student with no/less financial support from the family, aiming to pursue higher education, can fulfil their dreams with the help of an education loan. Besides, studying with an education loan makes a student more responsible towards education and finances.

2. Education loans are offered at attractive interest rates (typically 1% to 3.5% above the Marginal Cost of Funds based Lending Rate, i.e. MCLR) for a loan repayment tenure of as long as 15 years. They can be availed from a minimum of Rs 50,000 to a maximum of Rs 1 cr, depending upon the lender's terms and conditions.

3. The banks do not insist on a guarantor for loans up to Rs 4 lakhs. Besides, the margin money for education in India is 5%, whereas it increases to 15% for education abroad.

4. A student or a parent/guardian has to pay a simple interest charged by the lender during the study period. And after the moratorium period (relaxation period) of 6 to 12 months, a student is liable to repay the loan.

5. An education loan typically covers all the job-oriented courses in India and abroad, such as graduation, post-graduation, diploma, professional, vocational, doctorate, and certificate courses for a minimum of six months duration. Apart from the regular full-time courses, an educational loan can also be availed for part-time courses. Banks and other financial institutions usually have a specified list of courses that are eligible for an educational loan

6. An education loan is offered for the courses offered by government universities and colleges, e.g. Mumbai University, reputed private institutes or government-aided institutes, e.g. IIT, international institutes that are a part of the bank's approved list, and professional institutes, e.g. CFA. It is advisable to check the list of approved institutes with the lender before applying for an educational loan.

7. A legal guardian can avail of a tax benefit for the interest paid under Section 80E of the Income Tax Act for a maximum of 8 years. However, there is no tax benefit on the principal amount of the loan.

Here are the things to consider when applying for an educational loan:

1. Eligible institutes and courses:

While enrolling for a course, you must check with your preferred lender if the institute and the course you aspire to complete are eligible for an education loan. Any confusion can put you in a challenging situation and even waste your academic year.

2. Interest rate:

While the interest rates of education loans are generally affordable, they range from 7% to 18% p.a. Hence, it is crucial to check the education loan interest rate before applying. Furthermore, you must carefully choose the type of interest rate as it can make a considerable difference in the amount of EMI.

3. Other fees and charges:

While some banks do not charge any processing fee or prepayment fee, others charge 1% to 3% of the loan amount as a processing fee. The loan prepayment and foreclosure fee can vary largely from lender to lender.

4. Loan tenure:

Most borrowers believe that the longer the loan tenure, the lower will be the EMI. This is why many borrowers choose the longer loan tenure. However, take note that the longer the loan tenure, the more interest you pay towards the loan. Shortening the loan tenure by a few years can significantly lower your total interest outgo.

5. Customer service:

While many of us do not pay much attention to customer service when applying for a loan, take note that you will need to approach the lender multiple times during the loan tenure. You might have to request to extend the moratorium period, reduce or extend the loan tenure, prepay or foreclose the loan, need duplicate statements, negotiate on the interest rate, etc. Therefore, the ease & convenience to apply for & repay the loan and excellent customer service should be your priority when choosing the lender.

To conclude:

Hundreds and thousands of students are flying the kites of their aspirations high with an education loan by pursuing their dream education and careers. It is the most convenient way of financing quality education that often comes at a high cost without burdening your parents. In the long term, an education loan will prove to be the best investment that offers the best returns.

So, this Makar Sankranti, start your journey towards the light of knowledge and fly the kite of your aspirations higher with an educational loan!

Warm Regards,
Ketki Jadhav
Content Writer