The demand for education loans has increased in India due to rising costs, increased demand for foreign education, and the need for upskilling courses or executive programs to boost career growth.
While student loans may seem scary, there are many benefits of education loans that you can avail of while financing your child’s higher education!
Tax break
Tax exemptions are the most incredible benefits of education loans. Under Section 80E of the Income Tax Act of India, the interest paid on education loans can be claimed as a deductible by the beneficiary.
Tax benefits do not cover the principal amount of a loan but can be claimed when paying the interest amount. Parents can claim this deduction for the next 8 years from the start of payments after the moratorium period is lifted.
Moratorium period
Education loan payments do not start the right way. Banks that offer education loans give you a period wherein you are not required to pay your EMI, which is called a moratorium period. T
his period is generally for six months to 1 year; in exceptional circumstances, it can be more. This period is provided to help students find employment to start paying their loans without financial stress.
Attractive Interest rates
Educational loans have relatively low-interest rates than personal loans or house loans. Banks constantly compete to provide the best possible interest rates to students who need education loans.
This gives students the advantage of shopping around for the best and most interest rates to reduce the final amount and quickly pay off their debt.
Zero collateral
Education loans do not require collateral in the form of an FD, land, bond, or other assets! Your child can get a collateral-free education loan to study abroad or in India.
Banks assess requirements like the third-party guarantor, the parent’s credit history, and your child’s educational background to decide if your application is strong enough for approval.
Banks also place heavy emphasis on the course and university your child is going to study.
Wide coverage
Contrary to popular belief, education loans provide blanket coverage. Education loans cover many payments like tuition fees, living expenses, and flights and help parents settle their child comfortably in a foreign land.
Additional read: Does education loans cover living expenses
Cashback on Refundable Deposits
Education loans cover refundable deposits your child may have to pay during their university application process. This is not a feature offered by every education loan provider.
It also depends on the loan amount and whether your loan is collateral free or dependent. Do check with your bank if you have the facility to get your money back on refundable deposits.
Secure your retirement savings
Another benefit of an education loan is that you do not have to use your savings for your child’s education.
If you do not have enough savings or investing stored, especially for schooling, then opt for an education loan that covers your tuition fees.
The education loan amount you should be going for should be 25% of your child’s total expenses. For example, if the cost is Rs. 50 lakhs, then your loan amount should be Rs. 12 to 13 lakhs.
An education loan can help you ensure quality education for your child and keep your retirement savings intact for the rainy day.
Helps build Credit
One of the tremendous benefits of education loans is that it helps with credit building. Your child may want to buy a house in the future in a foreign country, and having a good credit history can accelerate that process.
If you want your child to settle in a foreign country, then ensuring they have a good credit history is essential. Education loans can help them build a credit history with regular payments.
This shows the financial institutions that you are a safe bet and trusted client for future loan applications.
A significant benefit of education loan is that it helps parents support their child’s dream and build their future. Education loans are convenient if your child plans to go abroad or opt for an expensive degree in India.
They provide financial support to those in need of immediate funds.
