The upper limit of a student loan can vary depending on the type of course or college and also the borrower’s eligibility.
The second wave of the Covid-19 pandemic has compounded the challenges for many. Even young people face challenges when it comes to planning for higher education. One of the most common ways to close any education funding gap is to take out a loan. However, before you apply for an education loan, you should be aware of a few key points including its eligibility criteria, tax implications, etc.
Meet the eligibility criteria
If you are under 18 or have no source of income, you can apply for a student loan with your parents or siblings as co-applicants. There is no collateral requirement for student loans up to Rs 4 lakh. For a loan amount greater than Rs 4 lakh and up to Rs 7.5 lakh, the bank can ask for a guarantee if the income of the co-applicant is insufficient. For loan amounts over Rs 7.5 lakh, banks usually require a co-applicant and adequate physical collateral.
Before applying for a student loan, the student must also have a letter of confirmation of admission to a college recognized by UGC, AICTE, governments, etc. Loan is also allowed for admission to leading stand-alone colleges such as IITs, IIMs, etc. Student loans are available for undergraduate and postgraduate courses. You can also get a student loan for admission to a foreign college.
Student loan covers expenses such as fees or expenses for university / school, hostel accommodation, exams, libraries, laboratories, books, uniforms, purchase computers, security deposit up to a set limit, travel, purchase of two-wheelers up to a certain limit, or other costs essential to the course.
How much loan to ask
The upper limit of a student loan can vary depending on the type of course or college and also the borrower’s eligibility. For example, banks may allow a loan of up to Rs 30 lakh for an MBA course in India, while this may allow a loan of up to Rs 80 lakh or more for medical courses. Some banks allow a loan of up to 100% of the value of the material collateral. Now the question arises, what loan amount should you apply for?
The answer is not that simple. You should apply for a loan based on your current needs, the likelihood of future income, and the availability of collateral. You might want to avoid taking a larger loan if you have enough to pay from your own sources – it would help you save a lot on interest repayment. You can also avoid taking out a loan for college admission where the fees are very high and the average salary at the time of placement is very low – this could prevent you from repaying the loan after completing the course.
Repayment and loan term
Banks usually allow a term of up to 15 years after the start of repayment. Banks also allow a repayment moratorium / leave of one year after completing the course or six months after getting a job, whichever comes first. Interest accrued during the moratorium is added to the principal and, accordingly, the amount of the EMI is determined.
Interest paid on a student loan during the fiscal year for oneself or for a parent (spouse or children) may be used as a tax deduction under Section 80E of the Income Tax Act. returned. There is no maximum limit to this and all interest paid during the year can be deducted from tax.
You need to identify the colleges and courses you plan to be admitted to after the results. This will help you estimate the loan amount you will need, and you will have time to organize the collateral and the margin money. You can select the best lender as per your requirement based on loan amount, interest rate, processing fee, processing time, etc. Planning early will help you save time during the admission process.
The writer is CEO of BankBazaar.com
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