One education loan Provides many benefits. The most obvious one is that loans are an easy financing option that covers almost 100% of the expenses incurred during the period of education. The amount of finance that students can borrow exceeds the amount they or their parents could have saved. Limited savings also lead to limited spending and could possibly put Dream University out of reach. Mint Tells you some benefits that a student can get educational loan,
Firstly, it may be better to take an education loan instead of using the personal savings of the parents. Adil Shetty, CEO, BankBazaar.com said, “The education loan rates are low today. It provides eligible borrowers an opportunity to borrow bigger without having to worry about interest at this point. The family chooses to seek bank financing or self-finance with their own funds. After all, the family has been saving for years to finance the child’s education. However, the current environment gives an opportunity to the student to get funding cheaply. This will allow the family fund to remain invested for higher returns and not hamper their wealth creation goals. It would be ideal to find the right balance between self-financing and bank financing so that they get the best of both worlds.”
Secondly, education loans are eligible for double tax benefits. Ankit Mehra, founder and CEO of Edu fintech company GyanDhan, said that the central sector interest subsidy allows the applicant to avail tax deduction on interest paid in education loan under Section 80E of the Income Tax Act. Applicants/co-applicants can avail this exemption for a maximum period of eight years, and there is no limit on the deduction amount.
The second advantage is the reduction in Tax Collected at Source (TCS) on foreign education loans; If a student’s foreign exchange transactions are high 7 lakhs in a financial year, TCS is 5% without education loan.
“However, students who take education loan for their studies abroad are eligible for concession and 0.5% less TCS. Considering the loan amount for a foreign education would be very high 7 lakh in a financial year, the tax can be exorbitant, an additional expense,” Mehra said.
Third, education loan offers students a moratorium period, which means the applicant does not have to pay his education loan during the moratorium period. The lender charges simple interest during the study period, and it is deposited and compounded along with Equated Monthly Installments (EMIs). This process helps the students to reduce the financial burden that the lender will not force them to repay during their studies. Compared to a personal loan, a well-known albeit significantly higher-priced option, an education loan gives students room to decide whether they are stable enough to repay the loan. Personal loans do not offer a moratorium period to the borrowers.
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