Benefits of an Education Loan

‘What are the benefits of an 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 of the various education loan benefits helps in the longer run, especially during your education loan repayment period. Some of these education loan tax benefits are only applicable to students who belong to certain sections of society. This article will give you an account of all the advantages of education loans that candidates get to avail of 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, if candidates approach their abroad education loan process with the help of a strategy, borrowing an education loan may turn out to be an asset, after all. This article aims to provide you with knowledge regarding the benefits of borrowing an education loan in India so that you can effectively plan yours and avail of one without facing a lot of hassles.

Read More: Abroad Student Loan Process: How to Get a Second Education Loan

Students who plan on studying abroad know very well that the entire process can cost a lot if not implemented in a well-planned manner. Funding is one of the major components of the higher education loan process and 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? 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. Before you even think of exploring this option, you need to understand one thing. While self-funding ensures that a student finishes his/her education without any financial liabilities, it may not be the best method of funding higher studies abroad for a lot of reasons. Students who fund their higher education by themselves are often required to cater for any financial emergencies during their course period abroad while also trying to ensure a constant presence of money for all their 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 faced by students is finding the right scholarship that is applicable to their field of study. 

None of the challenges that apply to the above two funding sources is true in the case of an abroad education loan.

An education loan sanction letter is one of the most widely accepted funding proofs by the embassies of the USA, Canada, Australia, New Zealand, and 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 that can be enjoyed by students who choose to fund their higher education abroad through an education loan. 

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 benefit. However, very few opt to avail of it. This is because they are not entirely aware of how this benefit of an education loan helps students save 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 of 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. These salary brackets are decided by the Income Tax department.

This education loan tax benefit can be availed by eligible candidates for 8 consecutive years in the duration of the education loan tenure. If you have taken a secured education loan to fund your higher studies abroad then you should consider claiming your education loan 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 a certain few 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. To know the correct process of claiming this education loan income tax benefit, 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.

Read More: Education Loan Eligibility in India (The Complete Guide)

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 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 education loan benefit is considered to be a bonus factor is that in the duration of the education loan moratorium period, candidates are not expected to make any repayment. Interest will be charged for this entire duration on the basis of simple interest by government 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. 

There are multiple sources available in the market through which students can seek financial assistance to repay their education loan without any burden. One such source is the proper utilization of education loan interest subsidy schemes which students can avail of to shoulder their education loan burden. The Government of India has introduced several education loan interest subsidy schemes for the benefit of loan applicants who belong to the financially backward sections of society. The subsidy schemes are explained below. 

• Central Sector Interest Subsidy Scheme: The Central Sector Interest Subsidy Scheme is for students who come from economically backward sections and for students who want to pursue their higher education in India. This scheme is only applicable to students whose yearly family income does not exceed Rs 4.5 Lakhs per annum. This scheme can be availed only once i.e. either for undergraduate or postgraduate or any other combined courses. 

• The Padho Pardesh Education Loan Interest Subsidy Scheme: The main aim of this scheme is to provide interest subsidies to meritorious students coming from economically backward sections. This scheme will help students to provide opportunities for employability in the future. This scheme applies to students whose yearly family income does not exceed Rs.6 Lakhs. Students who are availing of this scheme must produce a self-declaration or certificate of belonging to the minority community according to Section 2(C) of the National Commission for Minorities Act, 1992. The education loan tax benefits of this scheme apply 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, the 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. For EBC candidates, the 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 society only are eligible to claim the education loan benefits of the various subsidy schemes.

The advantages of education loans 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 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 trouble in getting a pre-visa disbursement from your bank, do avail assistance from the WeMakeScholars financial team.

There is another widespread notion that students must use the entire education loan amount that 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 that 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 that is being actually disbursed to applicants.

The term '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. 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 systematically and knowledgeably, 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 benefits of an education loan that one applicant gets to avail of may not apply to you as your case may differ from theirs.

One of the key factors that play an important role in having a successful education loan tenure and being able to repay your education loan in time is to have a thorough knowledge of the various ways in which the education loan process works. 

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.