Here’s what you should know about education loans

Education is an expensive commodity that needs good planning. Saving for kids' higher education, thus, tops the chart for most parents when it comes to financial planning.

However, sometimes parents aren't able to save a corpus huge enough to cover the rising cost of higher studies. Especially if the kid wants to study abroad.

A masters degree from a premier institution or an Ivy league school in the USA can cost up to Rs 1.5 crore. Education loan can be looked upon as a funding option if the savings don't suffice.

Education loans primarily cover the course fees, other charges associated with the course, including living expenses, travel and other expenses needed to live abroad.

A student can opt for a loan while the parents/guardian can be co-applicants. Education loan is offered to any students who wishes to pursue further studies in India or overseas.

Documents required to avail such a loan include KYC documents, bank statement of last 6 months, guarantor form (optional), copy of admission letter from the university with fees schedule.

Marksheets and passing certificates of S.S.C., H.S.C, degree courses (if any) must also be produced for loan application. During the course period, the bank charges interest rate on the loan.

The loan should ideally be repaid by the student borrower. Repayment begins either a year after the course is completed or within six months of getting a job (whatever is earlier).

SBI charges 6.85-8.65% interest rate for a loan upto Rs 1.5 crore whereas PNB charges interest at 7.30% & onwards for Rs 15 lakh loan. The maximum loan tenure in both cases is 15 years.

Banks demand a collateral worth upto Rs 7.5 lakhs in case of education loans. This can be in the form of property or bank deposit. Providing a collateral reduces the overall interest rate charged on the loan.

Margin money is a small part of the loan that should be paid by the borrower. This differs as per the lender, course and loan amount. Make sure to check this before finalising the lender.

Section 80E of the I-T Act allows for deduction on the interest paid on education loan repayment. You can enjoy the benefit if you're repaying for yourself, kids, spouse or in case you're the legal gaurdian to the kid who opted for the loan.