Benefits Of Taking Education Loan
Education Loan

Top 8 Benefits of Education Loans You Need to Know

Top 8 Benefits of Education Loans You Need to Know

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Know the advantages of education loans, from tax exemptions to reduced financial stress. Learn why education loans are beneficial over self funding.

GyanDhan

Ananya Ghai

Updated on: 31 Oct 2023

Education is the cornerstone of personal and professional development. It empowers individuals to pursue their dreams, acquire essential skills, and contribute to society. However, the rising costs of education can be a significant barrier for many. This is where education loans come into play. They provide a financial lifeline to students and their families, making higher education more accessible. 



  1. list items Wide range of expenses covered
  2. list items Tax exemptions on education loans
  3. list items Tax benefits under section 80E
  4. list items No need to liquidate assets
  5. list items Lower interest rates
  6. list items Easy repayment strategy
  7. list items Build financial discipline
  8. list items Education loan subsidy schemes
  9. list items Study loan vs personal loan
  10. list items Frequently asked questions


Education is often regarded as the key to unlocking one's potential and securing a brighter future. However, the rising costs of education can be a significant financial burden for many individuals and families. This is where education loans come into play, offering a lifeline to those aspiring for higher education. The benefits extend beyond reduced financial stress, encompassing tax advantages, tax savings, and covering a wide range of educational expenses. 

Below are listed nine hidden benefits of taking an education loan:

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Reduced financial burden

Higher education, whether in India or abroad, will definitely make you reach for your savings. While it sounds better than starting your life with debt, it restricts you financially and dips your savings considerably. 

Firstly, if you use your savings to finance your education, you will be confined to the amount you have. A dream college or dream destination could be well beyond your reach. Secondly, your hard-earned savings are not like the bottomless chips and coke offered at a diner. Your savings will eventually, lead to unnecessary panic and tension in case of an emergency.

On the other hand, understanding what expenses are covered under an education loan is crucial, especially as the cost of education abroad continues to rise. It's essential to consider inflation, currency fluctuations, and tax implications when making financial decisions. Taking an education loan not only safeguards against rising expenses but also offers tax benefits, ensuring long-term cost savings. An education loan covers 100% of the expenses incurred, thus keeping your savings intact. The education loan products are designed in a way to give the student complete financial support.

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Tax exemptions on education loans

Tax exemptions are the icing on top of education loans. There are two parts to this - TCS (Tax collected at source) and Tax exemption while filing your Income Tax return.

If you are paying a foreign university a tuition fee above INR 7 lakhs in a financial year, 5% tax will be collected at the source. The same tax will be 10% if PAN and Aadhar cards are not furnished at the time of application. However, students who take an education loan are eligible for a 0.5% concession. The education loan should be applied for by a financial institution. 

In simple words, it means that you will be subjected to a higher TCS if you self-finance your education or arrange the funds through anyone other than the authorized financial lenders. Therefore, it is another reason to not dip into your savings and apply for an education loan. 

Check Your Education Loan Eligibility

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Tax benefits under section 80E

Another benefit of an education loan is the tax exemption on the interest paid on an education loan. Under the Chapter VI-A of Section 80E of the Income Tax Act of India, the interest payments made for an education loan will fall under ‘Deductions’. These tax benefits on education loans should alone drive students to take one. 

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No need to liquidate assets

Typically, parents sell valuable assets to cover the costs of education, which can ultimately disrupt long-term financial plans such as purchasing property or a home for their children's marriage. By opting for an education loan, banks use your liquid assets like Fixed Deposits (FDs), insurance policies, and government bonds as collateral and provide you with a loan backed by these assets. As a result, the education loan you obtain will not interfere with your long-term financial objectives.

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Lower interest rates

Education loans typically come with lower interest rates compared to personal or any other credit options. This makes education loans a cost-effective way to finance your education because you end up paying less interest over the loan's tenure. Lower interest rates result in more affordable monthly payments, which can ease the financial burden on students and their families. This extended repayment period allows borrowers to comfortably repay the loan without straining their finances.

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Easy repayment strategy

Education loans offer a grace period, which is a specified period after graduation or leaving school during which borrowers are not required to make loan payments. This grace period can vary but is typically 6 to 12 months. It gives graduates time to find employment and establish their financial stability before starting to repay the loan. Additionally, lenders often offer a range of repayment plans, such as income-driven repayment, graduated repayment, or extended repayment. These options allow borrowers to choose a plan that aligns with their income and financial circumstances, making it easier to manage and pay off the loan.

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Build financial discipline

Taking out an education loan can be a valuable opportunity for students to learn financial discipline. It teaches them to budget their expenses and manage their finances responsibly, as they have a loan to repay. Timely repayment of an education loan can positively impact a borrower's credit history, which can be beneficial for future financial endeavors, such as applying for credit cards, buying a car, or purchasing a home.

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Education loan subsidy schemes

Some countries and regions offer education loan subsidy schemes to provide financial assistance to deserving students. These subsidies may come in the form of interest rate reductions, loan forgiveness programs, or direct financial support to cover a portion of the education expenses.

Education loan subsidy schemes can significantly reduce the overall cost of education by lowering the interest burden on borrowers. This makes higher education more accessible to students from diverse economic backgrounds.
 


 

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Study loan over self-financing or personal loan

Taking an education loan over self-financing or a personal loan can indeed be a wise financial decision for various reasons:

1. Loan amount

Education loans typically offer higher loan amounts compared to personal loans. With collateral, you can access substantial funds for your education, sometimes as high as INR 1.5 crore. Even without collateral, you can borrow up to INR 40 Lakh, which is often sufficient to cover tuition fees, living expenses, and other education-related costs. In contrast, personal loans often have lower limits, typically capping at around INR 25 Lakh.

2. Interest rate

Education loans generally come with lower interest rates compared to personal loans. The interest rates for secured education loans are even more attractive, starting at 9.40% for women and10.90% for men. Unsecured education loans may have slightly higher rates, starting at 11.25%. In contrast, personal loan interest rates typically start at 13% and can go much higher, up to 24%. Choosing an education loan can result in significant interest savings over the life of the loan.

3. Moratorium period

Education loans offer a moratorium period during which you don't have to make any repayments. For secured education loans, this period can extend to the study duration plus six months after graduation. Even for unsecured education loans, you may only need to pay simple interest during your study period. Personal loans, however, usually require immediate EMI payments, which can be financially burdensome for students and their families.

4. Loan tenure

Education loans typically provide more flexibility in terms of loan tenure. You can choose from loan tenures of 7, 10, 15, or 20 years, which can make the EMI more manageable. Personal loans, on the other hand, often have shorter tenures, typically around 5 years, which can result in higher EMIs.

In Conclusion

Education loans offer several advantages over personal loans when it comes to financing your education. They provide higher loan amounts, lower interest rates, extended moratorium periods, and more flexible loan tenures. These features can ease the financial burden of pursuing higher education and allow you to focus on your studies without immediate repayment obligations.

If you are considering an education loan, it's essential to research and compare the loan options available, including interest rates, repayment terms, and eligibility criteria, to make an informed decision. Additionally, consulting with experts can help you navigate the loan application process and choose the right lender for your needs.

One such platform is GyanDhan, India’s first education financing marketplace on a mission to make higher education accessible to all. With partnerships with leading lenders such as State Bank of India, Bank of Baroda, ICICI Bank, Axis Bank, and HDFC-Credila we aim to provide the best loan option to aspiring students.

With GyanDhan, you can access a wide range of loan options tailored to your needs and financial circumstances. Our dedicated team of experts can guide you through the loan application process, ensuring a seamless and hassle-free experience. So, take that crucial step toward your educational dreams, and explore the possibilities with GyanDhan by checking your education loan eligibility. Your brighter future awaits!

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Frequently asked questions

Does an education loan save income tax?

Section 80E of the income tax act allows education loan borrowers to claim tax deductions for the interest paid without any maximum limit. This tax benefit extends for a period of eight years, making the interest on education loans completely tax-free during this time frame.

What is the maximum loan amount limit of education loans?

Public banks offer loan amounts up to INR 2 Cr and private banks offer up to INR 80 Lakh.

Which type of education loan is best?

For students who can pledge collateral against the loan, secured loans from public banks are the best options. Whereas, for students who lack collateral, unsecured education loans are the best options.

Is it easy to repay an education loan?

The most common method of repaying your education loan is through Easy Monthly Installments (EMIs). EMIs represent predetermined, fixed sums agreed upon at the loan's inception, enabling students to gradually repay their study loans by making monthly payments.