The times are changing, and changing fast. The few years have witnessed a high increase in students aspiring for MBA and professional courses. The number of colleges offering these courses is also on the rise. With fees of these courses skyrocketing, students are queuing for educational loans from banks. Gone are the days when one had to run from pillar to post to borrow money to study. Now a variety of Instruments are available for pursuing higher studies.

 

Almost all nationalised banks offer educational loans to students for studies in India and abroad. Besides some private trusts are running study loan scheme, the terms and conditions of which vary from organisation to organisation. To garner students to avail educational loan nationalised and private banks have even started putting their posters in college campus and promote their schemes. This trend is catching on and one will see lot of students going in for educational loan once the awareness level increases.

 

Let us look at bank loans for funding your Post Graduation courses in India.

 

A longer repayment tenure would mean more interest payments on your loan. Before you set out to complete the paperwork for a loan calculate the Equated Monthly Installments (EMI) to know how much you are expected to pay and whether you have the capacity to pay that in time.

 

Never forget the fee charged for disbursing a loan to you. Some banks have a higher fees than others. You need to take care of this important component of loan disbursements.

 

Many public sector banks do not charge you a penalty for prepayment of loans whereas many private banks ask for a penalty payment. Check this out upfront.

 

You need to know well in advance that interest rates do not fluctuate. If they fluctuate the choice is yours. There are quite a few fixed interest rate loans and if you are worried about variable interest rates then the best option is to go for a fixed interest rate to avoid surprises.

 

You need to check out the repayment burden on yourself and see if an annual payment suits you. If not then go for the monthly plan.

 

One can claim a deduction of up to Rs. 40,000 on the amount paid out of the taxable income in the previous year. This is a comprehensive limit, and includes principal and interest, if any.

One can claim the deduction if you've taken a loan from a financial institution or an approved charitable institution to pursue full-time courses for graduate or post-graduate level studies in engineering (including architecture), medicine and management or a post-graduate course in applied sciences or pure sciences, including mathematics and statistics.

The deduction is allowed for the first assessment year relevant to the previous year when the assessee starts repaying the loan and for seven assessment years immediately following thereafter. In other words, the deduction is available for a maximum period of eight years from the first year of repayment. The deduction shall be allowed for the period of loan and interest repayment, if it is repaid in full before the end of the above period.

Note: This deduction cannot be claimed by parents who have taken loans for the higher education of their children.

  

Documents required:

 

Typically the following are the basic minimum documentation to be provided to the bank while availing of loans from them:

 

Mark sheet of last qualifying examination for school and graduate studies in India.

Proof of admission to the course.

Schedule of expenses for the course.

Statement of Bank account for the last six months of borrower.

Income tax assessment order not more than 2 years old.

Brief statement of assets and liabilities of borrower.

Identity and give proof of residence.

Copies of letter confirming scholarship, etc.

Copies of foreign exchange permit, if applicable.
 

Processing:

 

Most bank claim to disburse the loan money within one to two days after the required papers are submitted to them. A checklist is provided to the person seeking loan giving the details of the required documents like proof of age, address, admission expenses, assets and liabilities of co-obligants, details of collateral security, certificate of last qualifying examination etc.

However experienced loan-seekers say getting loan from banks is an uphill task. There are students who could get the loan, but after the deadline for fee deposit had expired.

 

Terminology:

 

Loan rate is one where the rate of interest is linked to the Prime Lending Rate. It is also known as "Floating Rate Loan". If you have opted for adjustable rate loan, then you stand to gain if interest rates drop. Likewise you need to be prepared to take the risk when interest rate increase. Therefore, in this case the gain/ loss of interest rates fluctuation is borne by the borrower. The rate on loan is generally revised on regular intervals.