Education, whether domestic or international, proves to be quite expensive. Education inflation is steadily rising and pursuing higher education in any reputed institutes requires a considerable amount of money. While parents save money to educate their child, sometimes, the savings might not prove sufficient, especially given the increasing cost of education. In such cases, an education loan comes to the rescue.
- What is an education loan?
- How to apply for an education loan?
- Benefits of education loan
- Affording an education loan
- Repayment of an education loan
- Estimating the amount of education loan
What is an education loan?
An education loan is a loan which is allowed by banks and non-banking financial companies to fund higher education. You can avail a loan for yourself, your children and even for your dependent siblings for financing their education. Some of the features of education loan are as follows –
- The loan funds the cost of tuition, admission, boarding expenses and other costs related to the course being financed
- The loan is a good loan as it offers tax benefit on the interest paid for the loan under Section 80E of the Income Tax Act, 1961
- The repayment usually starts a year after the completion of the course of getting a job, whichever is earlier
- The repayment tenure allowed is between 7 to 10 years
How to apply for an education loan?
You can apply for an education loan either by visiting the branch of a bank or NBFC offering the loan or online. Online application can be done either through the website of the bank or NBFC or through the website of loan aggregators. Aggregators are better as they allow you to compare the loan offers of different lenders and then choose one which has the lowest interest rate. A collateral security might be needed to avail the loan when the loan quantum is high. You must also fulfil the eligibility criteria of the lender to avail the loan.
Benefits of education loan
An education loan is beneficial in the following respects –
- Ease of financing quality education
- Funding international education
- Protect your financial savings from being drained
- Affordable interest rates
- Funding of all types of expenses incurred in higher education
- Tax benefit on interest paid
- Easy repayment which allows the student time to get a job before loan repayment starts
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Affording an education loan
An education loan has a long repayment cycle and also a low interest rate. These factors make it easy for parents to afford an education loan. Moreover, the tax benefit allowed at the time of repayment of the loan also helps you increase your disposable income therefore making the loan affordable.
Repayment of an education loan
Repayment of the education loan is done through EMIs. The EMIs depend on the rate of interest, principal amount of loan and the repayment tenure selected. The repayment starts a year after completion of the course and getting a job. This allows students to easily pay off the loan. As a parent, you should make your child repay the loan from his/her income. This makes your child financially responsible and also reduces your debt burden.
Estimating the amount of education loan
When planning for your child’s future, you need to estimate the cost of education which would incur when your child pursues higher education. Moreover, if you are availing an education loan, you need to assess the amount of loan needed to sufficiently cover your child’s education expenses.
When estimating the cost of the child’s higher education, inflation should be considered. Inflation would increase the cost of education in future and so you need to find out the actual funds needed. For instance, if a course today costs Rs.10 lakhs, in 10 years’ time, it might double to Rs.20 lakhs.
You, therefore, need to plan to accumulate Rs.20 lakhs by the time your child needs funds for education. Thereafter, when the time comes, you can finance the education of your child through your savings and also through an education loan if your savings fall insufficient.
Education is a very important thing for your child and being a parent, you would want the best for your children. To afford the best education, you can save and also avail an education loan to ensure that your child does not have to compromise on the education which he/she should receive. For complete details on education loan, take this course on financial planning and understand what the loan is all about and how it works.