I am a 22-year-old student going for higher studies in the UK. Can I take an additional education loan if I already have one?
In this edition of Ask Money Today, finding out the details about education loans and if there is the option to top it up
- Aug 1, 2023,
- Updated Aug 1, 2023 12:11 PM IST
I am a 22-year-old student going for higher studies in the UK. I have already taken an educational loan for the academic fees, but require additional funds for my stay and other expenses. I am a co-owner of the property along with my mother in Pune. Please advise how I should approach this.
Name withheld
Reply by Akriti Singh, Chief Alliances Officer, India Mortgage Guarantee Corporation (IMGC)
Education loans are of two kinds in India: The first type is a secured loan, where one is required to provide an asset, possibly a property, or a fixed deposit as collateral. In such cases, the loan amount sanctioned varies between 65-90% of the asset’s value. The second type is an unsecured loan, where the rates are very high. Besides academic fees, most education loans also cover stay and miscellaneous expenses.
Key facets of an education loan
Tax benefits: Interest paid (a component of EMI) is allowed as a deduction under Section 80 E of the Income Tax Act,1961. This deduction is available for a maximum of 8 years or till the interest is repaid, whichever is earlier. Time for servicing: One gets a full or partial moratorium on paying the EMIs. The duration of the moratorium is usually the educational course duration plus one year. Generally, unsecured education loans carry higher interest rates than secured lending options. The difference in cost ranges between 100–150 bps (1-1.5%) more than the secured loan variety. Such unsecured education loans carry shorter loan repayment periods, with the maximum period stretching to 7 years. Hence, from purely a borrowing cost perspective, a secured educational loan may work.
Given the information in the question, the borrower is the co-owner of the property. Hence, the property may be leveraged using a loan against property that is another secured lending avenue. Here, the rate of borrowing may also be attractive. A loan against property maybe 50-100 bps (0.5 to 1%) cheaper than an education loan.
From your perspective, however, multiple factors may influence the decision-making process. The most important factor should be the cash flows of your parent based in India and the party servicing the loan in whichever form.
One may not get tax exemptions on a Loan against Property, but the additional funds can cover the expenses that the education loan does not cover. In this case, there will also be no moratorium for EMI payments. A well-informed decision needs to be taken, accounting for the various factors.
(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)
I am a 22-year-old student going for higher studies in the UK. I have already taken an educational loan for the academic fees, but require additional funds for my stay and other expenses. I am a co-owner of the property along with my mother in Pune. Please advise how I should approach this.
Name withheld
Reply by Akriti Singh, Chief Alliances Officer, India Mortgage Guarantee Corporation (IMGC)
Education loans are of two kinds in India: The first type is a secured loan, where one is required to provide an asset, possibly a property, or a fixed deposit as collateral. In such cases, the loan amount sanctioned varies between 65-90% of the asset’s value. The second type is an unsecured loan, where the rates are very high. Besides academic fees, most education loans also cover stay and miscellaneous expenses.
Key facets of an education loan
Tax benefits: Interest paid (a component of EMI) is allowed as a deduction under Section 80 E of the Income Tax Act,1961. This deduction is available for a maximum of 8 years or till the interest is repaid, whichever is earlier. Time for servicing: One gets a full or partial moratorium on paying the EMIs. The duration of the moratorium is usually the educational course duration plus one year. Generally, unsecured education loans carry higher interest rates than secured lending options. The difference in cost ranges between 100–150 bps (1-1.5%) more than the secured loan variety. Such unsecured education loans carry shorter loan repayment periods, with the maximum period stretching to 7 years. Hence, from purely a borrowing cost perspective, a secured educational loan may work.
Given the information in the question, the borrower is the co-owner of the property. Hence, the property may be leveraged using a loan against property that is another secured lending avenue. Here, the rate of borrowing may also be attractive. A loan against property maybe 50-100 bps (0.5 to 1%) cheaper than an education loan.
From your perspective, however, multiple factors may influence the decision-making process. The most important factor should be the cash flows of your parent based in India and the party servicing the loan in whichever form.
One may not get tax exemptions on a Loan against Property, but the additional funds can cover the expenses that the education loan does not cover. In this case, there will also be no moratorium for EMI payments. A well-informed decision needs to be taken, accounting for the various factors.
(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)