Are you looking for ways to fund your child's higher education? Although you might have saved some money already, but do you really want to strain yourself financially in one go? There is a better way to plan your child's higher education without
breaking your Fixed Deposits or Mutual Funds. This is made possible via Education Loans.
If you are wondering if it is beneficial to take an Education Loan, the answer is yes! Read on to learn about a Student Loan and its benefits.
Benefits of an Education Loan in India
1. Financial benefits
- Save funds, stay liquid: You need not liquidate your savings in FDs, Mutual Funds or other investments. Instead, you can keep earning
interest on them.
- Pay after education: You can start repaying the loan in EMIs after the course is completed. You need not pay it immediately while your child is still studying.
2. Education Loan subsidy schemes
A major benefit of an Education Loan in India is the Education Loan Subsidy Scheme. This is applicable only if your family income is up to ₹4.5 lakh per annum. The government bears the full interest during the moratorium period of the Education
Loan.
3. Moratorium period
The provision of a moratorium period is a substantial benefit of taking an Education Loan. It includes the duration of the course, plus an extra
6 months to 1 year, depending on the bank. You can start paying the loan EMIs after the moratorium period. Although, a big advantage of paying EMIs right from the start is that the bank charges only simple interest during the moratorium period.
Thus, you can save on the total loan interest costs.
4. Low interest rates
An Education Loan interest rate is fairly low compared to other collateral-free loans, such as a Personal Loan. Education Loan is linked to the
repo rate, which is currently 6.5% p.a. A spread is added to the repo rate as decided by the bank. This spread is negotiable if you provide collateral security to the bank or if you get admission to highly prestigious institutions.
5. Tax benefits
Below are the two benefits of Education Loan in Income Tax -
- The full interest portion of the Education Loan can be claimed as deductions under Section 80E of the Income Tax Act. There is no maximum limit and it can be claimed for a total of 8 years. Thus, you can make substantial use of the tax benefits
of Education Loan in India.
- If you are going to study abroad without taking a loan, you will have to pay 5% TCS (Tax Collected at Source) for an amount above ₹7 lakh. However, an Education Loan above ₹7 lakh attracts only 0.5% TCS.
6. Multiple expenses covered
One of the main features of an Education Loan is that it covers many expenses, like tuition fees, hostel / mess fees, books / laptop costs, equipment / laboratory / uniform fees, travel expenses (for abroad), etc. Some banks also fund refundable
deposits demanded by the college. It is generally capped at 10% of the tuition fee.
7. No collateral requirements
One of the major benefits of an Education Loan for students is that no collateral is required in many cases, generally for amounts of up to ₹7 lakh. Axis Prime Abroad Education Loan is a popular and flexible product in this regard. It provides an Education Loan without collateral up to ₹75 lakh for premier courses abroad. The loan amount covers all expenses, including travel. You can opt for a loan tenure of 15 years.
Additionally, the bank provides a multi-currency Forex Card.
8. Builds your credit score
One of the benefits of Student Loans is that students get an opportunity to build a good credit score. Once your child gets employed after the course completion, they
can pay the EMIs and start building their credit history. A good credit score helps them apply for loans in the future, for example, a Home Loan. It also helps build financial discipline early in life.
Also Read: How to select the right Education Loan for you?
Conclusion
A college degree builds a strong foundation for a high-flying career. Since higher education is getting more expensive every year, a Student Loan benefits you in many ways. The advantages of an Education Loan include enormously reducing your financial
burden, getting lower interest rates and no collateral requirements. The disadvantage of paying interest is equalised by the income tax benefits of the Education Loan. Easy repayment terms, like paying the EMIs after the moratorium period,
are also a major benefit of an Education Loan in India.
FAQs
1. What makes Education Loans a better option than other loans for higher studies?
There are many benefits of an Education Loan, like no requirement of collateral yet a lower interest rate.
2. How does the repayment process for Education Loans work in India?
Most banks give a grace period, known as a moratorium period, of 6 months to 1 year, after the course is completed. You can start paying the EMIs after
the moratorium period ends. You can also start paying the EMIs right after the loan is disbursed, depending on your financial ability.
3. What are the tax benefits of taking an Education Loan?
You can claim tax deductions on Education Loan every financial year under Section 80E of the IT Act. There is no maximum limit for this, however, the period is capped
at 8 years.
4. Can I use the funds from my Education Loan for expenses beyond tuition fees?
Yes, an Education Loan covers all kinds of expenses, including tuition fees, examination fees, hostel / mess fees, air ticket / visa fees (for
abroad), etc.
5. What is the advantage of a Student Loan?
Education Loans in India offer financial flexibility, allowing you to save funds and stay liquid without liquidating other investments. The Education Loan Subsidy Scheme, applicable
for families with an annual income up to ₹4.5 lakh, covers full interest during the moratorium period. The provision of a moratorium period, linked to the course duration, provides additional flexibility in repayment. With low interest rates
linked to the repo rate and tax benefits, including the full interest deduction under Section 80E of the Income Tax Act, Education Loans are cost-effective. They cover comprehensive expenses, from tuition to travel, and often require no collateral,
especially for amounts up to ₹7 lakh. Moreover, Education Loans contribute to building a good credit score, enabling future loan applications and fostering financial discipline from an early stage.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
