Education is costly, may it be overseas or in India. However, whether to tap into your savings or opt for an education loan is always a puzzle. For quality overseas education, you must spend tens of lakhs. The decision to fund this expense is far from straightforward. Many may require disturbing their emergency or retirement fund or redeeming assets like equities, gold, and real estate.
Hence, it is necessary to be familiar with an education loan, a prudent choice to fund education expenses. There are significant reasons for opting for an education loan for studies abroad. We’ve discussed a few below.
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1. Higher loan proceeds
Education loan proceeds depend on tuition fees and other expenses during the course tenure. Also, when processing the education loan application, few lenders tend to appraise the future income prospects after the course completion and might factor in your repayment capacity for fixing the loan proceeds. Usually, you can avail of loan proceeds of up to Rs 1.5 crore for studies abroad.
2. Lower study loan interest rate
Study loan interest rate is generally lower than other loan alternatives like a personal loan. Additional concession of 50 bps on interest rate is allowed to female borrowers. A 1% interest rate concession is permitted on repayment of interest constituents during the moratorium period. Also, few lenders like IDFC FIRST Bank levy lower interest rates if education is pursued through reputed institutions.
3. Availability of moratorium period
The moratorium period is also known as the EMI holiday. In the scenario of an education loan, the moratorium period acts as a duration when no EMI repayments are required. This period is available for up to 1 year after completing education or after six months of getting employment, whichever is earlier.
The major reason to offer a moratorium period is to endow sufficient time to get employment and start repaying EMIs from the earned income, lowering your financial burden. However, remember that during the moratorium period, the interest constituent earns simple interest until the moratorium period ends. Other loan options do not provide any moratorium period benefit.
4. Higher loan tenure
You can opt for an education loan for up to 15 years. Such high tenures merged with a lower interest rate result in reduced EMI outgo. However, alternative loan options like personal loans come with lower repayment tenures of five years.
5. Tax benefits
According to Section 80E of the Income-tax Act, 1961, you can claim a tax deduction on an education loan on the interest component of EMI for eight years beginning from the year you start repaying your EMIs. It helps reduce the tax burden if you are liable to pay your income tax. In the case of personal loans, there’s no tax exemption allowed.
Given the education loan benefits, this option must not be looked upon as a loan but as an investment option that allows you to study the program from a top-ranked institute. It can assist you in forming the foundation for a pragmatic and successful career in the future. Leading lenders in India like IDFC FIRST Bank quickly process and approve education loans if you meet the eligibility criteria.