Sunday, April 17, 2011

New Education Loan

Now, take a loan to pay school fee. With this new facility, you can avail of loans ranging from Rs 30,000 - Rs 4 lakh from specific banks for classes up to senior secondary.

It's very likely that the fee your parents paid to educate you from kindergarten till graduation is less than the annual fee that you pay for your child's playschool today. In a metro city, a playschool can make you poorer by Rs 35000 - 1 lakh a year, while primary and secondary education in a private school can cost between Rs 50000 and Rs 5 lakh a year.

Paying such high fees could be a problem if you face a financial crisis, but there's no way you can remove your child from school, can you ? Now, you can resolve this dilemma by simply stepping into a bank. Yes, banks have started offering education loans for children's school fees, a phenomenon that took off about a year ago.

Loan Criteria

Earlier, education loans were offered only for professional courses. Now, you can take them to pay the school fees for classes ranging from nursery to senior secondary. The banks that offer this facility include public sector entities, such as Bank of Baroda, Central Bank of India, State Bank of Hyderabad and J&K Bank, others to follow soon. The loan amount varies from Rs 30000 - 1 lakh, but the Bank of Baroda has an upper limit of Rs 4 lakh. Though you don't need an account with these banks to avail such facility, account holders are given preference. Another condition is that the school should be affiliated to ICSE, CBSE or any state education board.

The loan is primarily meant to fund the tuition fee, but it can also be used to pay for other expenses, such as buying a laptop or any apparatus that may be required for projects.  However, in such a case, the equipment will remain in the bank's name as security till the total amount is paid.

Cost of Loan

Another option to tide over the difficult period is taking a personal loan, but this comes with a high rate of interest, which ranges from 14-19% and can go up to 24% in certain situations. On the other hand, an education loan is available at 12-13%. Despite that fact that both are unsecured loans, the one for education is cheaper.

Funding for coaching
Coaching classes, which help students prepare for various entrance exams, have become a vital part of the education system. Now one can approach the banks as they provide loans for coaching taken for professional courses. So, students appearing for entrance exams for civil services, medicine, chartered accountancy, engineering, etc, can opt for this loan. However it comes with certain conditions. A caveat is that you have to appear for the entrance exam of a recognized course, otherwise you will not be eligible for the loan.

Confusion over tax

According to Section 80E of the Income Tax Act, the interest that you pay on an education load is a deductible expense. Earlier, only the loan taken to fund professional course came under this ambit. This has been amended from the assessment year 2010-11 to include vocational courses pursued after passing the senior secondary exam.

However, there is some confusion about the inclusion of coaching classes. Typically, one can't claim tax deduction for coaching fees. However, under Section 80E, it is suggested that a loan taken for the purpose of higher education be available for tax exemption. So, it is possible to claim an exemption on the loan taken for coaching classes. This is in contrast to Section 80C, where tuition fee is specifically mentioned.

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