Government Student Loans: Pros & Cons
Government student loans are touted to be one of the most reliable sources of abroad education loans in India. A major percentage of students who wish to study abroad often choose a government bank education loan as their funding source for higher studies. Although the total number of students applying for government students loans are at an all-time high, the number of students who actually get an education loan is low. One of the major reasons for this phenomenon is the lack of awareness amongst students about the provisions made for an education loan for abroad studies by Indian government.
Despite the many benefits offered by government bank education loan schemes, the number of students who apply for government student loans often fail to meet some of the basic requirements of government bank education loans due to their sheer ignorance about government bank education loan policies. This article will list out the various factors of government bank education loan terms and conditions, their pros and cons and certain facts which are not known to a lot of students, thus enabling you to decide the best bank for education loan by yourself without having to ask for the opinions of others.
Why Fund Your Higher Studies With An Education Loan?
The process of studying abroad is not a cheap affair. The immigration laws of Germany, Canada, New Zealand and Australia, which are some of the preferred destinations of higher studies chosen by Indian students, require international students to deposit their annual living expenses well in advance, even before starting their visa process. This means that if you plan on funding your higher studies in the above countries by yourself, you will be required to fulfil this financial pre-requisite in order to qualify for a student visa.
For students who come from financially well-off backgrounds, this may not seem like an impossible task. However, students who have limited means of living will have to struggle to put the total amount together. This is where funding your higher studies with the help of an abroad education loan helps. Education loans ensure a continuous flow of funds, thus enabling students to fulfil the various financial requirements placed by the respective universities/countries in which they plan to study.
Now even if you don’t plan on studying in any of the above-mentioned countries, funding your higher studies abroad with the help of an abroad education loan has a few other benefits. These benefits will be discussed in the following paragraphs.
What Are The Major Highlights of Government Student Loans?
Government Bank Education Loan Interest Rates in India
The interest rates applied on abroad education loan schemes by the respective lenders can be a major deal-breaker for students and parents alike. Most government banks offer some of the lowest education loan interest rate in India. This is one of the very first major reasons why government student loans are preferred by a lot of students who wish to study abroad.
The education loan interest rate in India offered by even the most prominent banks does not exceed 10%. This makes government student loans even more affordable for students.The government bank education loan interest rate in India is calculated on the basis of a benchmark score called the MCLR (Marginal Cost of Funds-Based Lending Rate).
The values of MCLR are modified from time to time based on various factors which in turn, affect the government bank education loan interest rate in India. Now, the good news is that these changes do not affect the education loan interest rates of applicants whose repayment is ongoing at the moment and this is again, applicable only to government student loans.
Student-Friendly Education Loan Terms
The terms of education loan for abroad studies by Indian government banks have some of the most student-friendly provisions. Especially when it comes to government bank education loan repayment.
1. A Payment Free Moratorium period
One of the biggest highlights of any government student loan scheme is the provision of a payment-free moratorium period. A moratorium period is basically a loan holiday which is granted only to education loan applicants in India. This provision can be modified according to the education loan policies of different lenders. All government student loan schemes grant payment-free moratorium period to students.
The moratorium period which is granted to students by government banks exempts all applicants from making any contributions towards the education loan repayment till the time they finish their course, plus six months post that time. This provision has been introduced by government banks, keeping in mind the fact that most loan applicants are students who haven’t yet become financially independent and due to this very reason it may become difficult for them to begin their repayment during their course duration. Hence, the entire course duration plus six months post this time is granted as moratorium period to students who are funding their higher studies with the help of government bank student loans.
2. Income Tax Exemption on Education Loan Interest Under Section 80 E of Income Tax Act
This is a common benefit which can be enjoyed by all students who wish to study with the help of both government student loans, as well as education loan without collateral. Under Section 80 E of the Income Tax Act, those who have borrowed an education loan to support their studies can claim an income tax exemption on a certain percentage of their education loan interest payment. This benefit can be claimed by either the education loan applicant or their co-applicant, whoever among the two begins their education loan repayment first.
There is a common misconception that it is not possible to avail this benefit as per the suggestions made by the current government on 1st February 2020 regarding the provisions of this year’s annual budget.
You need to note that citizens have the liberty to still choose the old income tax regime and continue to enjoy the benefits of the various schemes which enable them to avail of certain exemptions on their income tax payment. This includes benefits availed under Section 80 E of the education loan Income Tax Act.
3. Education Loan Interest Subsidy Under Subsidy Schemes Introduced by the Government of India
Education loan applicants belonging to certain sections of the society who borrow abroad education loans under INR 20 Lakhs are eligible for an education loan interest subsidy under three different schemes for subsidy introduced by the government of India.
- Central Sector For Interest Subsidy Scheme: Applicable to education loans to study in India.
- The Padho Pardesh Central Sector Education Loan Interest Subsidy Scheme.
- Dr Ambedkar Central Sector Education Loan Interest Subsidy Scheme for students belonging to EBC and OBC
The 16th episode of the Loanflix web-series will give you a detailed description of this particular topic. Again, this benefit is applicable only to students who have availed government student loans to fund their higher education abroad. Loanflix is a series of short videos which give you an insight into the smallest aspects of the abroad education loan process in India. The concept of this mini web series is developed and presented by the WeMakeScholars team.
4. Education Loan Forgiveness
All government student loans are eligible for an education loan forgiveness only under the condition that candidates were unable to get employed for up to five years after their course completion. Only Bona Fide students can avail of this provision, i.e. loan applicants will be required to provide relevant proofs regarding their claims of unemployment for five consecutive years post their course.
This rule, however, does not include unsecured education loans provided by NBFCs. In order to know further details about the government student loan process, do get in touch with the financial team of WeMakeScholars.
5. The Flexibility of Choosing Co-Applicants/Co-obligator/Co-borrower For Education Loans
One of the reasons why a lot of students are unable to secure an abroad education loan successfully is their unawareness about the subject. In the education loan process, a co-applicant generally refers to a person from your own family (father, mother & siblings) who co-signs the education loan agreement. The purpose of a co-applicant is to guarantee a successful education loan repayment. Due to this clause, the financial records of co-applicants have to meet certain requirements of lenders. However, when it comes to government student loans, the parents who are retired professionals, in the farming industry, pensioners, non-earning members as primary co-applicants for their education loan. Under these circumstances, students can name third-party individuals such as their cousins, uncles, aunts, friends with a stable income profile, as their financial co-applicants.
This flexibility is only applicable to government bank education loans. NBFCs have adopted totally different policies for their co-applicant selection criteria.Despite all of the above benefits, a major amount of students are unable to secure government student loans to fund their higher studies abroad. Let us take a look at the different factors which make it difficult for students to borrow government bank student loans in India.
Government Student Loans Issues
1. Delayed Pre-Visa Disbursement
Countries like Canada, Germany, New Zealand, Australia and sometimes, the UK, require international students to deposit their living expenses into banks which are based in these countries. For example, the GIC program of Canada requires students to deposit their living expenses for at least a year’s time, for an investment scheme. This is a mandatory requirement which has to be fulfilled by students who plan to study in these countries. Also, fulfilling this financial pre-requisite is a compulsory requirement for their student visa.
Now, students who directly approach government banks for their education loans often face issues in getting their respective bank to disburse certain part of the total education loan amount, before their visa process.
One of the biggest issues of government student loans is that most bank officials, even those of best bank for education loans, do not know much about education loans. As a result, their knowledge of the financial pre-requirements of studying in the above countries is very less or almost nil. In 2016, some of the major public banks like SBI, which is considered to be one of the best bank for education loan, released a circular stating that pre-visa disbursement can be released to students whose university/country requires them to deposit expenses related to their higher studies of stay, prior to their visa process.
Although this situation has improved a lot in today’s age, you might come across an official or two who do not know about this provision. Since the financial team of WeMakeScholars happened to play a crucial role in bringing this issue faced by students into the light, they share an excellent rapport with the core teams of all prominent government banks. Hence, if you are looking forward to getting your pre-visa disbursement in time, do approach the financial team of WeMakeScholars.
2. Longer Processing Time
A lot of students often rethink their decision to borrow government student loans because of the painstakingly long amount of time taken by government banks to process them. However, organizations like WeMakeScholars have been able to successfully bridge the communication between banks and students by offering their assistance to students who are looking forward to funding their higher studies abroad with the help of government student loans. The financial team of WeMakeScholars provide end-to-end support to students in their abroad education loan process. One of the biggest advantages of approaching this organization is that their services are absolutely free of cost. So, if you look forward to having a hassle-free education loan process, do get in touch with the financial team of WeMakeScholars. Do watch the 8th episode of Loanflix in order to understand the various different myths about the government bank education loan process, and understand the truth about a lot of them.
In the past couple of years, the modifications made in the terms of education loan for abroad studies by Indian government has enabled a lot of students to fulfil their dreams of studying abroad with the help of an abroad education loan. These provisions of the government of India has made the abroad education loan process, even more, easier for students.
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’s at 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