 Is it necessary to have an account with the bank to avail of an educational loan? |
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Initially, this used to be important criterion with nationalized banks. Now, however, with more relaxed norms, it is not mandatory to have an account. However, if one does have an account with that particular bank, it becomes easier to get the loan sanctioned. This is because the bank can examine your past financial records and transactions, and make a decision quickly.
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| What do banks mean by `recognized' and `reputed' institutions? |
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`Recognized' institutes refer to those that are affiliated to the State/Central universities and come under the Central government's University Grants Commission (UGC) programs or the All India Council on Technical Education (AICTE). The majority of the colleges fall within the ambit of the UGC and AICTE. `Reputed' institutes are those that are pretty well-known and have standard courses of repute. The definition of `reputed' institutions might vary with banks, which usually have a list of colleges and institutions that they consider reputed. Hence, you need to check with the bank whether it will finance courses run by that particular college/institute.
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| How are my second- and third-year fees going to be disbursed? |
| Answer |
The fees for all the years will be disbursed to the college/institute directly. Initially, while applying for a loan, the bank will verify the tenure of the course, and determine the cost of the entire course, as applicable at that point of time. Then, each year, the applicant is required to submit a form available from the bank that gives the details of the money required, and then the bank directly disburses the loan to the college/institute.
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| What Income Tax (IT) relief's can be claimed for repayment of educational loans? |
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Under Section 80 E of the IT Act, a deduction will be allowed in respect of repayment of loan taken for higher education, subject to the following conditions: In computing the total income of an assessee, being an individual, these shall be deducted, in accordance with, and subject to, the provisions of this section: any amount paid by him in the previous year, out of his income chargeable to tax, by way of repayment of loan, taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his/her higher education, or interest on such loan, provided that the amount that may be so deducted shall not exceed Rs 25,000. The deduction specified above shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or untill the loan referred to above, together with the interest thereon, is paid by the assessee in full, whichever is earlier.
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| Can educational loans be availed for part-time courses/distance-learning programs (correspondence courses)? |
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Most of the banks prefer not giving loans for part-time or correspondence courses, but ultimately it all depends on the bank's discretion and your relation with the bank. Since eligibility criteria are relaxed for these types of courses, and the chances of getting a good job after such courses are generally bleak, and also assuming that the applicant would be already working somewhere, banks prefer to stay away from financing these kinds of courses. But there are banks like the State Bank of India that provide students' loans for part-time and correspondence courses.
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| What is an interest portion and EMI? |
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The interest portion is the amount paid by the student during the time of his course that starts immediately from the month following the loan disbursal. During the tenure of his course, he/she keeps paying interest to the bank, whereas the main principal is only paid at the end of the holiday period. EMI or Equated Monthly Installment` is the amount payable by the student after the end of the holiday period that includes a certain portion of interest and principal. EMIs are calculated on a quarterly reducing basis.
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| Can a minor avail of an educational loan? |
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No, a minor cannot avail of an educational loan. But his parents/guardians who satisfy the eligibility criteria can do so. Banks assess the individual's repaying capacity at the time of disbursing the loan, and, hence, minors are ineligible for educational loans
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| What happens if I take a break from my studies? |
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If, for any untoward reason, you are unable to complete the course, you will have to start paying the EMIs immediately. Some banks might give the students some grace period, either to continue his/her studies or to start repaying the loan. But this is entirely the bank's discretion.
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| Is there a penalty for pre-payment? |
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That depends on the bank. Nationalized banks do not have any pre-payment charges, but private and foreign banks usually charge a penalty, which usually ranges from 0.25 per cent to 2 per cent of the outstanding loan amount.
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| I need to pay in dollars for my studies, but the bank is in India. Can I get a foreign exchange loan? |
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Although the bank is in India, the student gets his amount in dollars for studies overseas, and the amount is paid directly to the institution abroad. Hence, you need not worry about the currency. The banks charge students a fee for this service, strictly as per RBI norms.
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