Education loans: Important points you should know

Due to the rise in the cost of higher education, applying for student or education loans is a very common practice among students.

Higher education is always an added advantage while looking for job opportunities and also acts as an opportunity to grab handsome salary packages. So ,it is considered as an investment. However, higher education does not promise employment. Therefore, education loans carry a huge degree of risk.

When an individual is unable to repay education loan, his or her credit rating will get hit may never be able to procure a loan again. However, prompt payment of loan installments boosts credit score.

Here’s everything you need to know about student loans to help you take a decision:

— The main borrower of the loan is the student. There can be co-applicants(father, mother, guardian, spouse etc.). The loan covers tuition fee, accommodation expenses, travel expenses and other miscellaneous expenses

— Most banks require you to present the offer letter from the university to avail the loan. Loans can be applied for undergraduate, postgraduate and diploma courses, PhDs, specialisation courses. Ease of acquiring the loan also depends on how well known the university is and what is the scope of the course you are studying in the job market. More promising the bank finds that you will be employed at the end of your education, the easier it is for you to attain the loan.

— No collateral or third party assurance is required for loans below Rs 4 lakh. Loans between Rs 4 lakh and Rs 7.5 lakh require at least a third party assurance. Loans above Rs 7.5 lakh require collateral as well as third party assurance.

— Loans also incur various other charges such as processing fees, late payment charges, pre-payment charges and other such fees that may increase the cost of borrowing.

— Period of repayment depends from bank to bank. Some banks require you to start repayment soon after your course ends. Others provide a relaxation period of about 6 months giving you time to procure a job. However, the repayment period begins once a job has been acquired. The conventional period of repayment is 5-7 years.

— The interest paid on education loans is income tax deductible for a period of 8 years. However, the principal amount is not tax deductible.