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Benjamin Franklin once said- "An investment in knowledge pays the best interest." Quality education is essential to be successful in life. For many students, getting into a top university and graduating with a college degree is achieving success in life. In today’s knowledge economy, education plays a vital role. But, the cost of education is skyrocketing. It is even more costly if the student wants to study abroad. Parents prefer to avail of Student Loans to effectively fund their child’s higher education and effectively meet all related expenses.
The Reserve Bank of India (RBI) has ordered all scheduled commercial banks in India to adopt the Education Loan Program, which aims to provide financial support to deserving students to pursue higher education in India and abroad with convenient terms and conditions
1. What is a Student Loan?
Student loans are a form of cash aid that students can use to cover their studies’ expenses. The student loans are intended to cover tuition, books and supplies, and living expenses while the borrower obtains a degree.
A. Undergraduate Student Loan College student loans can be used by people who have completed higher education and wish to take a three or four-year course to improve their job opportunities. B. Professional/ Graduate Student Loan Students wishing to pursue advanced degrees or higher education at universities worldwide are eligible for graduate / professional student loans. C. Career Education Loan Students who wish to attend career-oriented college programs can avail themselves of career education loans at technical and commercial schools and colleges across the country. D. Loans for Parents Parents of students can take advantage of these unsecured loans to cover their Children’s education-related expenses, such as tuition, living expenses, books, uniforms, and other expenses, such as transportation costs, A student can apply for a loan. A parent, spouse, or sibling can be the co-applicant. It is offered to students who want to study in India or pursue higher education overseas. The maximum amount provided for India and overseas studies is different and varies from bank to bank. Government loans have lower interest rates and can be repaid until after a certain period or after they start earning a certain amount. Most Indian banks offer student loans to study in India and abroad. Some banks also provide credit cards to their student loan customer.
2. Eligibility Criteria for Student Loans
Banks typically check the following criteria to approve the student loan:
The applicant should be an Indian citizen.
The applicant and co-applicant(s) should be over 18 years of age.
The co-applicant(s) need to have a regular source of income.
The applicant should have an excellent academic record.
The applicant should have secured admission to a recognized University/Institution. Some banks offer the loan even before one has secured admission into the university.
Note: Different banks have different eligibility criteria. Make sure you go through them before applying.
3. Documents Required for Student Loans
The banks generally require the following documents:
Duly filled loan application form (you can apply online too).
Photo ID (PAN/Aadhar/Driving License/Voter ID etc.).
Passport size photos of the applicant and co-applicants.
Age proof (birth certificate, Aadhaar, PAN card, driving license,
Address proof (Aadhaar, passport, latest electricity bill, latest
telephone bill, ration card, bank account statement, etc.).
Copy of the admission letter of the Institute along with the ‘fee schedule.’
Mark sheets and/or pass certificates of 10th,12th, Degree Courses,
National level entrance test.
Income statements of co-applicant (Salary slip, Form 16,
Income-Tax Returns of the last two years, and Computation of income of the previous two years certified by a Chartered Accountant).
Bank Statement/Pass Book of the last six months.
4. Features & Benefits of Student Loans
Student loans are available both for studies in India and abroad. The maximum loan amount available is up to 1 crore, and the repayment tenure is up to 15 years. Interest rates start from 7.30% per annum. The moratorium period is up to 1 year after course completion or six months after getting a job. Special concessional interest rates are given to female students. Collateral free loans/ no third party guarantee provided up to Rs 7.5 lakh from significant banks. Equated Monthly Installment (EMI) repayment options are pocket-friendly. Tax Benefits are provided on the interest paid under Section 80-E of the Income Tax Act.
5. Applying for a Student Loan in India
Most banks provide student loan details on their website. But it's always best to call the banks and discuss the details with their representatives. It is recommended that you apply for a loan as soon as possible, as the entire loan application, approval, and disbursement process can take a long time. There are two modes:
The application form can be completed online with all necessary documents attached. And then submit it online. Some banks may also provide virtual assistants to help with the application process.
This can be done by visiting the nearest branch with all required documents and the duly completed application form and requesting it in person. Once the loan application is accepted, the banks disburse the amount directly to the college/university as per the given fee structure.
6. Tax Implications
The amount of interest paid on a student loan is deductible from total taxable income with no upper limit under section 80E of the Indian Income Tax Act. The tax benefit must be claimed for a maximum of 8 years, starting from the year where the interest payment began. Over eight years, the tax deduction is not allowed. Please note that the principal amount does not qualify for any tax deduction.
Prerequisites of a student loan
Loans are money borrowed to be repaid with interest. Therefore, it inherently carries a certain amount of risk.
Failure to pay on time and default on loans can create poor
Creditworthiness and make it difficult to obtain more loans in the future.
It is advised to go for a mandatory career counseling session to understand different career landscapes better.
Research about the university/institution as well as the bank from which you require a loan.
Go for a degree that will lead to a job that earns well enough to
repay the loan.
Student loans not only aim at self-development but these are for the best country interests. Taking a student loan helps you in building a good credit score. Student loans are proof that ‘not all debts are bad. Educated India is the foundation of a well-established India.