Plan right for education

Wealth creation may not keep pace with inflation. In such cases, education loans provide a viable option to fund the higher education.

By Author  |  Published: 21st Apr 2019  12:05 amUpdated: 20th Apr 2019  9:10 pm

Hyderabad: Higher education is a costly affair. Arranging the required finances can be a tricky thing for parents. They have to assess the cost and start building the corpus. However, the corpus may not be sufficient particularly if they start saving late. Also, wealth creation may not keep pace with inflation. In such cases, education loans provide a viable option to fund the higher education.

Education loan is available for career-oriented courses like medicine, engineering, management and other courses at graduate and post-graduate level at institutes in India and abroad. The loan covers tuition fees, examination fees, library subscription, cost of books, laboratory tools and equipment, laptop, hostel charges and others. Students can apply for an education loan. However, their parent(s) or guardian will be treated as co-applicants. A confirmed admission from the institution is a must.

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Usually, a guarantor is not required for a loan below Rs 4 lakh, but this varies on a case-to-case basis.  In some cases, where the loan is up to Rs 7.5 lakh, lending agencies might seek a third-party guarantee. This is a further layer of security. For loans higher than Rs 7.5 lakh, they might also insist on a collateral security.

Tax benefit

Interest paid on education loan is allowed as a deduction under Section 80E of the Income Tax Act. The loan should be taken for the higher education of self, spouse, children, or the student for whom the individual is a legal guardian. The tax deduction is available from the year you start paying the interest on the education loan, and the seven immediately succeeding financial years or until the interest is paid in full, whichever is earlier.  The interest rate will be on base rate plus model.

The applicant’s annual family income and the course pursued are primary determinants for the applicable loan amount. The applicant need not repay the borrowed amount immediately. Post the completion of the course, the repayment tenure can stretch up to 5-7 years.

Right Cover

According to Santosh Agarwal, chief business officer- Life Insurance,, one should consider investing in a child insurance plan to secure children’s future financial needs.

The child insurance plan continues even after the demise of the policyholder. The insurance company pays the future premiums till the policy term continues.  The maturity proceeds are paid to the children upon attaining a certain age and the intervals decided by the policyholder at the time of buying the policy. It can be monthly, quarterly, half-yearly or yearly. A lump sum amount is also disposed to the beneficiary if the policyholder dies before the maturity of the policy, says Agarwal.

There is a flexibility to choose the customised payout – monthly, quarterly, half-yearly or yearly depending upon the requirement. Apart from customised payouts, there is also the flexibility to choose the periodic premium payment options. Future premiums are waived off in case of demise of policyholder within the policy period. One can chose to invest in either in an unit linked insurance plan (ULIP) or endowment plan.  One can avail tax benefit under Section 80C of Income Tax Act.

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