Top 9 Advantages of Education Loan You Need to Know

In today's competitive and financially challenging environment, securing an education loan has become essential for many students pursuing studies abroad. Previously, parents often depended on their savings, or property like Gold, Fixed Deposits, and land, to fund their children's education. However, there has been a notable shift towards the importance of education loans as a means of financing higher education.

This change is driven by the growing awareness among students and parents regarding the many benefits offered by education loans. Understanding the advantages of getting an education loan over a personal loan or any other type of funding for educational purposes has become increasingly clear.

While you may already be familiar with some of these advantages, In this article we are going to list out all the benefits that students can get through an education loan when pursuing higher studies either abroad or in India. By getting into the specifics of these advantages, students can make informed decisions about their educational financing options.

Search for a Lender: To get an education loan, begin by finding banks and financial institutions that provide instruction loans for real estate. It would include public sector banks (like SBI and Bank of Baroda), private banks (like ICICI and HDFC), and NBFCs (Non-Banking Financial Companies). Look at interest rates, loan amounts, and repayment terms and find interest rates, loan amounts, and repayment terms that best suit you.

Submit the Loan Application: Once you select a lender, take out the education loan application form. You'll need to submit documents such as:

• A recognized university’s admission letter.
• Proof of expenses with the course fee structure.
• Aadhaar, passport
• Any academic records and any required financial documents.

Loan Sanction Process: The lender will examine your application, which in this case includes recommendations that are based on your academic performance, the reputation of the university, course of study, and the ability of the co-applicant, who is normally a parent or guardian, to repay the money. When you meet the requirements then the loan is approved and sanctioned.

Loan Disbursement: After approving the loan, the bank is willing to transfer the amount. For tuition fees, they usually make payments through the institution of their choice. On other expenses like meals or books, the bank probably pays the money directly to your account.

Moratorium Period (Grace Period): It extends from the time taken to complete the course up to 6 months to 1 year after completion of the course. During this time, you do not make any payment whatsoever at this stage of the process. Traditionally, interest is not charged on the loan during this period if the student bank is a public bank, although it may be charged in private banks.

Repayment Process: After the moratorium ends, you have to start paying the loan in EMIs (Equated Monthly Instalments). Repayment periods normally amount to 5 to 15 years, depending upon the amount borrowed and terms. EMIs are calculated based on:

• Loan amount or principal amount.
• Fixed or variable interest rate.
• The repayment period (loan tenure).

Types of Education Loans:

• Secured Loans: They have the requirement of collateral, like fixed deposits or property. Most secured loans come with lower interest rates and higher loan amounts of loans.
• Unsecured Loans: These don’t require collateral, and may have higher interest rates. For smaller loan amounts, they are typically offered 

Interest Rates and EMI Calculation: The typical interest rate will be between 8% and 12% depending on the lender. This is widely used for calculating the EMI for the Loan Amount, Interest Rate, and repayment tenure. There are online EMI calculators to get an idea of what your monthly payments would be.

Eligibility Criteria:

• Applicant Eligibility: It is for an Indian citizen who has been admitted to a recognized educational institution in India or abroad. In this case, NRIs, OCIs (Overseas Citizens Of India), and PIOs (Persons Of Indian Origin) may also be eligible.
• Co-applicant: The lender is usually secured from repayment security by the fact that a parent, guardian, or spouse is generally required as the co-applicant.
• Credit Score (CIBIL): A good CIBIL score (above 750) reduces loan approval chances and also provides unfavourable terms.

Tax Benefits and Subsidy Schemes: Interest paid on education loans was tax-deductible under Section 80E of the Income Tax Act. The overall cost of the loan is reduced. For students from economically weaker sections (EWS), there are government interest subsidy schemes such as the Central Scheme for Interest Subsidy (CSIS) that waive interest payments during the moratorium period, subject to conditions, for domestic studies.

For more detailed information on education loans, work and all of the essentials, you can read our Complete Guide on Education Loans by clicking on the link.

• Compared to taking the money out on credit cards or personal loans, the interest rates on education loans are usually lower.
• Reduced rates also go a long way towards minimizing the total interest paid over the tenure of a loan and thus keep the monthly payments to a manageable level while also minimizing overall savings.
• Rates can be fixed or floating, and fixed rates are stable while floating rates might save if markets improve.
• Borrowers of secured loans can usually get better rates than unsecured loans as the risk to the borrower is lower compared to those who choose to not put collateral. 
• Simple interest is generally applied by public sector banks during the moratorium period, whereas private banks use compound interest, and hence costs become higher over time. 
• In addition to all of that, a good credit score can also result in lower interest rates because they are viewed as lower risk by lenders. 
• Interest subsidies for students from economically weaker sections can make government schemes further cheaper for students. 
• As a whole, education loans offer a lower interest rate on them and therefore are a cheaper and manageable way for us to pay for studies.

One big advantage of education loans is the moratorium period, which is not available with other loans such as personal loans. Education loans are unlike other loans that the student will have to pay back right away. The time that you’re studying plus 6 months (or even 12 months) is usually how long this period lasts. So you can study without worrying about money at this time since you don't have to pay for anything. That means education loans are good options for helping students cover their education expenses.

When pursuing education abroad, an education loan can be a complete solution covering a diverse range of expenses essential for a student's academic journey.

The expenses include

• Tuition fees
• Travel expenses including tickets
• Accommodation costs such as house rent,
• Daily expenses like food expenses
•  Living expenses,
• Laptops and other necessary equipment.

This complete coverage ensures that students can focus on their studies without financial concerns stopping their educational dreams.

With a motive to empower students from economically disadvantaged backgrounds, the Government of India has rolled out a series of impactful education loan interest subsidy schemes. These schemes aim to reduce the financial burden on loan applicants seeking higher education. Here are some key subsidy schemes:

1. Central Sector Interest Subsidy Scheme
2. Dr. Ambedkar Central Sector Scheme of Interest Subsidy

One of the significant benefits offered by these schemes is the exemption from paying education loan interest during the moratorium period. This crucial support provides students with financial relief as they pursue their academic aspirations. However, it is important to note that once the moratorium period ends, beneficiaries are required to start repaying EMIs independently, marking a step towards financial independence and responsibility.

• Section 80E of the Income Tax deduction is for the people who had taken loans for higher education. 
• To claim the deduction you can only do that on the interest you pay and not the main loan amount. 
• The benefit lasts for up to eight years starting from the day you will start repaying the loan. It can only be claimed by individuals, such as parents or legal guardians, for use on loans taken out for the education of themselves, their spouse, children, or a student for whom they are the legal guardian. 
• If you want to use this deduction, you must have a certificate from your bank that shows the amount of interest and the principal amounts paid. You can take this deduction on your tax return for up to eight years or until the loan is paid in full, whichever is less. 
• The deduction ends after the loan is repaid if you pay off the loan within eight years. You can’t claim interest deductions over eight years
• Some individuals like to take the full eight years to repay their loans to reap the tax savings, whereas others want to repay the loan sooner to stay debt free and retain a good credit score which will be useful when seeking bigger loans such as a home loan. 
• But the education loan must come from a bank and not a friend or relative, for you to take the deduction.

Sending money abroad for educational purposes has become increasingly common. However, recent changes in tax regulations impact these transactions. Let’s delve into the advantages of education loans and how they relate to Tax Collection at Source (TCS).

TCS Simplified Starting from October 1, 2023, the Tax Collected at Source (TCS) rates for foreign remittances have been revamped. While most overseas transactions attract a hefty 20% TCS, there are exceptions.

• Below Rs 7 lakhs: No TCS applies.
• Equal to or above Rs 7 lakhs (via loan): TCS rate is 0.5%.
• Equal to or above Rs 7 lakhs (without a loan): TCS rate is 5%.

One of the key advantages of taking an education loan is that it can help you build your CIBIL score. A CIBIL score is a measure of your creditworthiness generally ranges between 300-900. A score above 750 is considered a good score and it is used by lenders to determine whether or not you are a good candidate for a loan. By taking an education loan, you are demonstrating to lenders that you are responsible and able to manage your finances. This can help you build a good CIBIL score, which can make it easier for you to get loans in the future like a home loan, car loan, etc.

Additionally, having a good CIBIL score can help you get better interest rates on loans, which can save you money in the long run. Overall, taking an education loan can be a smart financial move that can help you build your credit and improve your financial future.

Education loans offer a significant advantage by eliminating the necessity to liquidate valuable assets to fund education expenses like FDs, insurance, and Government bonds as security and grant you a loan against that security. This benefit ensures that individuals can pursue higher education without the burden of selling assets. By availing an education loan, students and their families can secure financial support specifically tailored for educational purposes, allowing them to retain their valuable assets for future needs or investments. This financial flexibility not only eases the immediate financial strain but also preserves long-term financial stability and growth opportunities. Education loans serve as a strategic financial tool that empowers individuals to access quality education without compromising their existing assets, encouraging personal and professional development seamlessly.. 

Taking an education loan can liberate parents from all financial burdens as the student is responsible to repay his education loan after the completion of his studies and the moratorium period. 

So, these are a few benefits of an education loan. Borrowing an education loan will help you meet the total costs of studying abroad. 

Student loan benefits a lot as it provides invaluable aid to students to support their higher education. If you are looking for an abroad education loan, apply through WeMakeScholars as our team will explain to you the education loan uses and will guide you through the entire process of student loans.

Our team has closely helped 25000+ students to process their education loans in a cost-effective way. We value students’ time and efforts because of which we provide you with all the required details and will guide you through the entire process of applying for your study abroad. We connect you with the best education loan lenders across India who can fund your education. Our team shares a special affinity with the education loan lenders because of which it is possible to help our students with the entire loan process with legal formalities done in the stipulated time frame. 

To conclude, students must now be aware of the advantages of education loans and how they can avoid exhausting their savings. However, even at WeMakeScholars our financial experts suggest taking an education loan to fund one’s higher education as there are innumerable uses of education loans. If you find yourself in such a situation where you are hesitating to avail of an education loan, or thinking that it can become a financial liability on your parents, we are just a call away. Connect with our team to get professional advice on education loans.