Education loan: Income tax benefits, moratorium period, lower interest rates for IIMs and IITs

Education Loan

New Delhi: The cost of education is rising rapidly, especially, if you are considering to study at a reputed institute. Quality education is a must for a complete and successful life. In order to provide best possible education, parents consider to make an investment in mutual funds (MFs), fixed deposits (FDs), unit-linked insurance plans (ULIPs), etc., for the long term horizon.

With the rising cost of education, there could be instances where one may fall short of funds. In such a situation, an education loan comes to rescue. It helps to act as a bridge between the shortage and the required amount. Expenses for education balloons further when the higher education institute is located outside India.

Education loan helps to cover a proportionate amount of educational expenses on which the applicant or the co-applicant can claim a tax break as well. It is important to do proper homework before opting for an education loan such as check if the loan is available for the particular course and college or not. Determine the loan amount to be required for your choice of course. Apart from tuition fees, check if other expenses such as hostel charges, mess charges, others, are covered or not. Also, while deciding the course you must keep in mind that the course you will do will help to repay the loan.

Next thing is to compare the loan rates- You can check government website-, managed by NSDL, to check the details of banks offering education loans. It may be noted that banks generally offer lower rates for premier institutes such as IIMs and IITs.

Education loan comes with a moratorium period, which means that the borrower has the option not to pay the equated monthly installments (EMIs) for up to 12 months after the course ends or six months after the borrower starts working, whichever is earlier. The repayment of the loan is generally between five to seven years but can be extended beyond that also. It is the first loan that an individual takes, one can build a good credit score by paying it off on time.

An education loan can be taken for a full-time, part-time or vocational course, graduation and post-graduation course, in the fields of engineering, management, medical, hotel management, architecture, etc.

Section 80E of the Income-Tax act, 1961, allows the borrower to claim a deduction in the interest paid on the repayment of the loan. This deduction is allowed only for the individuals paying interest on the loan for himself, spouse or children or for the student to whom you are a legal guardian.


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