Guide to Education Loan

Day by day due to increasing competition among the students, their ambitious and aims are too stretching sky with the dedication and hard work. In order to achieve dreams properly and timely, all the resources need to be in proportion. With the money factor playing a major role, one needs to have a sufficient bank balance for higher studies. So in order to help the needy students, the concept of education loan has been introduced.
While we consider the reasons for taking an Educational Loan, many will wonder as to why to choose a student loan over a Personal Loan. The answer lies in the many benefits of Educational Loans. With the rising inflation, parents, students, and professionals alike are finding that funding higher education in India or overseas are not as easy as it used to be.

Eligibility criteria for Education Loan
Although criteria vary from bank to bank, general criteria have been described below:
1. Nationality
An applicant should be an Indian National to avail an education loan in India.
2. Age Criteria
An applicant with 18 years of age can avail an education loan or your parents can take the loan in their name. No educational loan is given if you are above the age of 35 years.
3. Admission to an educational course
The applicant should have confirmed admission in a college/university in India by the UGC/Government/AICTE/Appropriate authority.

Application process
Step1: Loan application form
The applicant has to fill in an application form which may ask for details such as:

1.Two passport size photographs
2.Graduation, secondary school certificate, or High school certificate or mark sheets
3.KYC documents (Voter ID, and PAN card) that include ID, address, and age proof
4.Signature proof
5.Parents income proof

For collateral-- Documentation for Immovable property, FDs.

Applicant/candidate if applying for a loan to study abroad will need to provide the documents below:

1.Two passport size photographs
2.KYC Documents Voter ID and PAN card) that include ID, residence and age proof
3. Mark sheet or certificates of the last examination passed
4.Proof of admission to the university and the course
5.Schedule of course expenses
6.A copy of the scholarship letter (If you have)
7.Last six months bank account statement of the borrower, parents or guardian
8.Last 2 years' Income Tax assessment of borrowers, parents or guardians
9. For collateral- The details of security offered. If required, the candidate has to provide an advocate's search and report about its marketability, mortgage ability, etc.

Step 2: Personal discussion

Once the applicant is done with the application form, there is a round of personal discussion with the bank employee wherein he/she may be asked various question relating to the academic performance, about the course/ subject one has selected, probably the institute, etc.
Step 3: Applicant need to provide supporting documents

Before the bank considers the loan application, the applicant needs to deposit the mandatory documents related to admissions. The bank needs the documents to verify the enrollment of the student the concerned institute.

If your loan amount is above Rs. 4 then the applicant may also require collateral security such as papers relating to the property to be mortgaged.

Step 4: Approval or denial of the loan

A guarantor is mandatory for an education loan. The applicant's parents or guardians could be the guarantor. The bank before sanctioning the loan will run a thorough check of the guarantor and his/her credit history.

After completion of the process, the bank can sanction or deny the applicant's loan.
Step 5: Disbursal of the loan

Once the formalities are completed by the applicant, the bank will disburse the loan. The bank pays out the college/institute fee directly to the concerned institute.

Need to know:

Loan financing, collateral requirement 
The banks can finance up to 100% of the loan depending on the amount. Currently, for loan up to Rs 4 lakh, there is no margin money required. For studies in India, 5% of the required money has to be financed by the applicant. On the other hand, for studies overseas, the required margin money increases to 15%. 
The banks also ask for collateral for loans above Rs 7.5 lakh. Presently, the banks do not ask for any collateral or third-party guarantee for loan up to Rs 4 lakh. For loans above Rs 4 lakh up to Rs 7.5 lakh, a third-party guarantee is required. A collateral is asked for a loan exceeding Rs 7.5 lakh. 

Interest rate 
The banks use the Marginal Cost of Funds based Lending Rate (MCLR), plus an additional spread to set an interest rate. Presently, the additional spread is in the 1.35-3% range. 

Benefits under the Income-tax Act 
Section 80E of the I-T Act allows for a deduction on the interest paid on the repayment. This deduction is allowed only for the individuals paying interest on the loan for himself, spouse or children or for the student to whom you're a legal guardian. 
You can deduct the entire interest amount paid from your taxable income. This deduction is allowed for a maximum of 8 years. The principal amount does not qualify for any tax deduction.