Education Loan Benefits: A Complete Study
‘What are the benefits of education loan?’ This is a very common question asked by most candidates who are looking for ways to fund their higher education abroad or within India. Many students who wish to borrow an education loan are mostly concerned about their education loan repayment. Having a thorough knowledge about the various education loan benefits helps in the longer run, especially during your education loan repayment period. Some of these education loan benefits are only applicable to students who belong to certain sections of society. This article will give you an account of all the education loan benefits that candidates get to avail during their education loan repayment.
The phrase ‘education loan benefits’ is an irony in itself. How can a loan be beneficial? Isn’t it considered to be more of a liability? Yes, an education loan to fund your studies abroad is a major financial liability. However, there is always a solution to resolve any such liability and the following education loan benefits will make you rethink your decision to fund your higher education by yourself.
Why Borrow an Education Loan?
When it comes to pursuing your higher studies abroad, it is common knowledge that the entire process is not cheap. Education loans are one of the most preferred sources of funding all across India. A major percentage of students often resort to education loans to fund their higher studies abroad, regardless of their financial capacity. So what draws them to education loans? In order to know the reason behind students’ inclination towards education loans, let us take a brief look at the other sources of funding:
Self-funding: Students who come from financially well-off households have the option of funding their entire course abroad by themselves. However, before you even think of exploring this option, you need to understand one thing. While self-funding is one of the best ways to fund your higher studies abroad, it does not ensure a smooth flow of money in the duration of your course abroad. You will be required to cater for any and all financial emergencies during your course period, while also catering to ensure a constant presence of money for all your personal expenses back home.
Scholarships: Students whose academic records reflect exemplary skills in their curricular and extracurricular activities are awarded fully-funded scholarships to study abroad. However, the catch here is that such scholarships are awarded only to a handful of such students. Another challenge here is finding the right scholarship which is applicable to your field of study.
None of the challenges which are applicable to the above two funding sources is true in the case of an abroad education loan.
An education loan is one of the most widely accepted funding proofs by the immigration authorities of the USA, Canada, Australia, New Zealand, Ireland which are some of the preferred destinations for a majority of Indian students to study abroad.
Now let us take a look at the various education loan benefits which is applicable to students who choose to fund their higher education abroad with the help of one.
Education Loan Benefits: Income Tax Exemption under Section 80 E
How does an education loan income tax benefit sound to you? A major percentage of candidates who borrow an abroad education loan to fund their studies are well aware of this provision. However, very few opt to avail it. This is because they are not entirely aware of how this benefit of an education loan helps students save on a significant amount of money during their education loan repayment period.
Section 80 E of the Income Tax Act, 1961, states that loan applicants or their co-applicants can avail a certain percentage of exemption on their yearly income tax payment by declaring their education loan repayment details. The percentage of exemption on the yearly income tax payment depends on the salary bracket to which the respective co-applicant or loan applicant belongs. The eligible salary brackets for an education loan income tax benefit is decided by the Income Tax department.
This education loan income tax benefit can be availed by eligible candidates for 8 consecutive years in their education loan repayment duration. If you have taken a secured education loan to fund your higher studies abroad, then you should consider claiming your education loan income tax benefit post the moratorium period granted by your respective government bank.
In the case of unsecured education loans, candidates or their co-applicants may start claiming from the beginning of the course period. Education loans borrowed from both, government banks, as well as NBFCs are eligible for this exemption.
Only one person among the two, i.e, either the loan applicant or their co-applicant can claim this education loan benefit. Individuals working in India only are eligible to claim this education loan benefit. In order to know the correct process of claiming this education loan income tax benefit, do watch the 15th episode of Loanflix, an informative web-series on the abroad education loan process. The web-series is developed and presented by the WeMakeScholars team. In case of any doubts regarding this or any other benefits of education loan, do get in touch with their team by requesting a callback.
Education Loan Benefits: Moratorium Period
This is one of the main highlights of borrowing a secured education loan from government banks.
According to the RBI regulations, all education loan applicants are to be granted a loan holiday by the lending institutions before their education loan repayment process begins. However, since NBFCs have their own policies regarding education loan recovery and also since are directly not controlled by the RBI, this particular benefit of an education loan is not applicable. This loan holiday is called a moratorium period in education loan terms
The reason why this benefit of education loan is considered to be a bonus factor is that in the duration of this moratorium period, candidates are not required to make any repayment. Interest will be charged for this entire duration on the basis of simple interest by banks. Post the completion of this moratorium period, students may begin their interest and EMI payments.
Most of the government banks grant the entire course duration, plus six months to a year’s time as the moratorium period for secured education loans. Unfortunately, NBFCs (Non Banking Finance Companies) do not have a similar provision.
Education Loan Benefits: Education Loan Interest Subsidy
The government of India has introduced a number of education loan interest subsidy schemes for the benefit of the loan applicants who belong to the financially backward sections of the society. The subsidy schemes are:
- Central Sector Interest Subsidy Scheme: Applicable to students whose yearly family income does not exceed Rs.4 Lakhs and those who have borrowed an education loan to fund their studies in India.
- The Padho Pardesh Education Loan Interest Subsidy Scheme: Applicable to students belonging to the minority communities recognized by the government of India and whose yearly family income does not exceed Rs.6 Lakhs. The education loan benefits of this scheme are applicable only to students who have borrowed an abroad education loan to support their higher studies outside of India.
- Dr Ambedkar Central Sector Scheme of Interest Subsidy on Educational Loans for Overseas Studies for Other Backward Classes (OBCs) and Economically Backward Classes (EBCs): For OBC candidates, total income from all sources of the employed candidate or his/her parents/guardians in case of an unemployed candidate shall not exceed Rs.3.00 lakh per annum. ii. For EBC candidates, total income from all sources of the employed candidate or his/her parents/guardians. In the case of an unemployed candidate, the yearly income shall not exceed Rs.1.00 lakh per annum. Students who come from specific sections of the society only are eligible to claim the education loan benefits of the various subsidy schemes.
The education loan benefits of these subsidy schemes include the waiver of the education loan interest charged during the moratorium period. However, post the moratorium period, these students are to start the repayment of EMIs by themselves.
Students who fit the eligibility criteria for an exemption on the education loan interest payment under any of these schemes are supposed to intimate their respective lending banks in the first year of their course. No new applications will be accepted in the second year of their course. Since the subsidy portal is opened by the government only once in every financial year, it is recommended that you apply for this benefit of education loan immediately after it has been sanctioned by the lending bank.
Check out the 16th episode of Loanflix to know more about the entire education loan interest subsidy process in detail. If you are stuck at any point in your education loan repayment process or are facing troubles in getting a pre-visa disbursement from your bank, do avail the assistance of the WeMakeScholars financial team.
What is a Disbursed Loan Amount? Are Sanctioned Amount and Disbursed Amount the Same?
There is another widespread notion that it is mandatory for students to use the entire education loan amount which was sanctioned. An education loan sanction and education loan disbursement are two different activities in the abroad education loan process.
Government banks, private banks, as well as NBFCs, charge interest only on the education loan which is disbursed by candidates. Hence, even though a certain amount is sanctioned by your lender at the beginning, they are supposed to charge interest only for the amount which is being actually disbursed to applicants.
Sanctioned loan amount refers to the loan amount allocated to a student. Disbursed loan amount refers to the actual money withdrawn by loan applicants for the purpose of funding their daily expenses and interest is applicable only on the latter.
The entire education loan repayment and disbursement processes are explained in detail in the 28th and 29th episodes of Loanflix. In order to understand the entire process well, do get in touch with the financial team of WeMakeScholars. They have an excellent grasp of the current practices of the education loan market and hence, will be able to provide you with the appropriate assistance during your education loan process.
An education loan is indeed a major financial liability to take over. However, if you approach the entire process in a systematic and knowledgeable manner, then you may not face as many obstacles as you expect to face along the journey. It is very crucial to understand that different lenders may choose to handle the education loan applications of individual applicants on a case by case basis. Hence, the education loan benefits that one applicant gets to avail may not be applicable to you as your case may differ from that of them. The main key to having a successful education loan tenure and to be able to repay your education loan in time is to remain one step ahead by having a thorough knowledge of the various ways in which they work.
At WeMakeScholars, the financial officers specifically empower their students with the abundant knowledge they possess about the education loan process, thus enabling them to get an education loan no matter how complicated their case may be. Do stay tuned for the next article which will give you a complete account of Loanflix’s 36th episode on the education loan process to get an abroad education loan to pursue aviation programs.
Note: WeMakeScholars is an organization funded and supported by the Government of India that focuses on International Education finance. We are associated with 10+ public/Pvt banks/ NBFCs in India and help you get the best abroad education loan matching your profile. As this initiative is under the Digital India campaign, it is free of cost. The organization has vast experience dealing with students going to various abroad education destinations like the US, Canada, UK, Australia, Germany, Sweden, Italy, China, France among others.