5 MinsAug 24, 2021
Harmanpreet Kaur, 24, has got admission to a top-tier MBA institute. The fee for the two-year course is Rs 25 lakh. Her parents can afford to pay up the fees upfront, but she doesn't want to strain them financially. She is considering the benefits
of taking an education loan vs self-financing her course.
An education loan should not be treated as a loan but as an investment that lets you study the course of your choice from a top-ranking institute. It can help you build the foundation for a successful career in future. But given that the Covid-19
pandemic has resulted in a shortage of jobs, Harmanpreet is naturally worried about finding her dream job and repaying her education loan. However, she should remember that an education loan offers tax benefits too. Let us see the advantages
of availing of an education loan.
- Save funds, stay liquid: If Harmanpreet takes an education loan, her parents don't have to liquidate their funds to finance her education. It eases the financial burden on the family.
- Long moratorium period: Moratorium periods for education loans last for the entirety of the course. Some banks offer an extension of six months after the student starts her job or for one year after the course. This means
the student doesn't have to worry about repaying the loan in the short term, and the family can better plan their finances with this timeline in mind.
Students from economically weaker sections can take the loan under the government’s
'Subsidy on Interest' scheme.
- Lower interest rates: Education loans are much cheaper than other forms of unsecured loans, such as a personal loan.
- Tax benefits: Interest paid on education loans is completely deductible under Section 80E of the Income Tax Act, 1961. Axis Bank tax benefit calculator illustrates
the benefit There is another tax benefit for students who are studying abroad. Under current laws, any payment above Rs. 7 lakh made abroad attracts TCS (Tax Collected at Source) of 5%. So, if a student is studying abroad, and she self-finances
the course, she will have to pay 5% TCS. However, if the student avails an education loan from a financial institution in India, the TCS is only 0.5%.
- Multiple expenses covered: The education loan pays for various costs a student might incur -- travel, living, study material, laptops, insurance etc.
- Builds financial discipline: An education loan helps inculcate financial discipline from an early age, as the student has to start repaying the loan immediately after working. This ensures that you save or set aside money
to repay your loan and forms the first step in the journey towards financial independence. Besides, regular repayment of the loan also helps the student build a credit history, which is essential when you want to take a home loan or an auto loan in future.
- Funding of refundable deposits: Many banks and education lenders also fund refundable deposits that universities ask students to pay. This is generally capped at 10% of the tuition fee.
- No Collateral: Lenders give collateral-free loans if the loan amount isn't high. Generally, most banks offer loans worth Rs 4 lakh – Rs 7.5 lakh without security. Axis Bank funds higher
amount up to Rs 40 lakh based on university & co-applicant profile.
Axis Bank provides education loans to students desirous of pursuing professional qualifications or higher studies in India or overseas. The interest rates are competitive, and students from defined categories are eligible for subsidies under government
schemes. To know more, click here.
Disclaimer: The Source, a content creation and curation firm has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.