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When we talk about education and various institutes that charge huge amounts of pennies to get an entrance we need to make sure that we know the subsidy benefits of education loans and how everything works. To be more precise we need to be more focused upon the legalities, pros, and cons of taking an education loan as well. Any of the main advantages are: the interest charged on an educational loan for research can be reported as a deduction under Section 80E of the Income Tax Act, 1961. Interest charged on an educational loan for research can be reported as a deduction under Section 80E of the Income Tax Act, 1961. So here is the basic review of the benefits of education loans.
Student Loan Subsidized
Educational loans are loans given to students to allow them to cover the expense of professional/vocational studies and to repay them after the student has finished and/or become financially independent.
High tuition costs make it impossible for students to follow their aspirations of higher education in renowned schools, both in India and in international universities.
Further, owing to high inflation, school fees and other associated spending on schooling continue to grow and have become a significant disincentive for students to achieve their ambitions. If the high cost of education has been a problem for prospective students and their parents, then the alternative of an education loan currently provided by all renowned banks and NBFCs in India should be evaluated.
Education Interest Debt Subsidy
Many tax incentives and an appealing government interest subsidy program are available in India to make educational loans accessible for any student. Any of the main advantages are as follows:
Interest charged on an educational loan for research can be reported as a deduction under Section 80E of the Income Tax Act, 1961. Interest charged on an educational loan for research can be reported as a deduction under Section 80E of the Income Tax Act, 1961. Any interest charged (without any limitation) on the education loan is tax-deductible in compliance with Section 80E of the Income Tax Act. The tax exclusion lowers the effective interest rate on the education loan by about 250–400 basis points, taking the effective interest rate to as little as 9.5 percent.
The Central Government of India has introduced an Interest Rate Subsidy Program for Education Loan for Students who are part of the Society’s Economically Disadvantaged Sections (EWS). Under this scheme, the Government of India shall offer maximum interest subsidies during the moratorium period specified as the Course Period plus one year or six months after the date of employment. The student must have documentary evidence that the total annual income of the student’s family together from all sources does not surpass Rs 4.5 lakh. The interest subsidy under the program is only applicable to qualifying students once in their lifetime. The grant is valid for First Degree Course or First Graduate Graduate Course in India and is also eligible for Blended Courses (Graduate + Post Graduate) Canara Bank is the nodal bank to introduce the scheme. The scheme is valid from the academic year 2009–10 beginning on 1 April 2009 and thus the amount of the loan taken from the academic year 2009–10 is covered by the Interest Subsidy Scheme.
RBI has defined education loans as priority sector loans in which banks are expected to lend 40 percent of their incremental advances to priority sector lending sectors. Banks are under intense pressure to reach their priority lending goals in the sector and thus usually charge a comparatively lower interest rate on these loans compared to other commercial loans. This serves as an unofficial subsidy to make student loans affordable at lower interest rates.
Key Benefits and Advantages for Student Loans
The Indian Banking Association has released a Model Educational Scheme, which specifies the educational loan schemes that banks in India should adopt. Based on the Government Order, most public sector banks in India are providing a model educational loan scheme. The model scheme offers instructions to banks on the eligibility of student applicants, the preparation courses to be covered, the expense heads that can be funded under the college loan, the moratorium period, the maturity and prepayment provisions, the margin criteria, the margin conditions caps and collateral-free loans or loans dependent on third party guarantees. Many public sector banks or government banks follow the model scheme. However, a few of the leading banks, such as the State Bank of India (SBI), HDFC, and Avanse DHFL, have launched many other customer-friendly features, such as higher valuation collateral-free loans, lower margin criteria, and adjustable EMI schemes.
Education loans can be used at competitive interest rates of as low as 11.25 percent, with an average interest rate of as low as 9.5 percent (taking into account the impact of tax benefit available on education loan)
The educational loan comes with a moratorium term of normally one year after the course has been finished or after the student enters employment, whichever is sooner. The payment of EMI starts just after the end of the educational program. This means low financial pressure on the student and his/her family for the time that the student is studying and is unemployed and unearned.
Woman students receive extra incentives when they are eligible for up to 0.50 percent discount on the rate of interest on the college loan relative to male students.
Many banks do not seek collateral protection on loans of up to a certain amount, further reducing the burden on student borrowers to mortgage land. Some major banks, such as SBI and HDFC Cedilla, are also willing to lend up to Rs 30 lakh without any collateral for admissions to prestigious institutions such as IITs/IIMs, etc.
Student loans are helping students all across to gain financial stability in their careers and help them to move ahead and keep progressing and going ahead. Since there are no collaterals for a lot of banks, this creates an ease to go ahead in the field and get yours done easily. Just check all the legalities before barging into one and then make sure to follow steps, enquire in detail and you are set to go and get your education loan and move with flying colors.