Education Loan is a term loan granted to Indian Nationals for pursuing higher education in India or abroad where admission has been secured.
A student who wants to pursue higher education can get a education loan irrespective of whether he/she will be studying in india or abroad.
The course selected for higher education should be conducted by colleges/universities approved by UGC/ AICTE/IMC/Govt. etc.
General Expenses considered for Education loan
- Fees payable to college/school/hostel
- Examination/Library/Laboratory fees
- Purchase of Books/Equipment/Instruments/Uniforms
- Caution Deposit/Building Fund/Refundable Deposit (maximum 10% tution fees for the entire course)
- Travel Expenses/Passage money for studies abroad
- Purchase of computers considered necessary for completion of course
- Any other expenses required to complete the course like study tours, project work etc.
Repayment will commence one year after completion of course or 6 months after securing a job, whichever is earlier. A repayment moratorium (also called a repayment holiday) is the coursework period + 1 year or 6 months after the student gets a job/starts earning – whichever is earlier. You can avail flexible repayment plans.
Interest Rates differ from banks to banks.
For Eg: Interest rates for Education loan from SBI is at 10%
|Loan Amount||Rate of Interest (w.e.f. 27.02.2012)|
|For loans upto Rs.4 lacs||350 bps above Base Rate, currently 13.50% p.a.|
|Above Rs.4 lacs and upto Rs.7.50 lacs||325 bps above Base Rate, currently 13.25% p.a.|
|Above Rs.7.50 lacs||200 bps above Base Rate, currently 12.00% p.a.|
The interest paid on education loan gets a tax rebate under Section 80-E of the Income Tax Act 1961.
Before going to the EMI calculations, let us consider first what is EMI and what does it mean.
An equated monthly installment (EMI) is the amount of money that is paid back to the lender on a monthly basis. It is essentially made up of two parts, the principal amount and the interest on the principal amount divided across each month in the loan tenure. The EMI is always paid up to the bank or lender on a fixed date each month until the total amount due is paid up during the tenure.
But the trick here is that EMI which you give it monthly is not equally divided in interest payment and the principal repayment. During the initial period interest repayment component is more and during the latter years of repayment the principal component is higher.
Formula for EMI calculation:
E = P×r×(1 + r)n/((1 + r)n – 1)
E is EMI
where P is Priniple Loan Amount
r is rate of interest calualted in monthly basis it should be = Rate of Annual interest/12/100
if its 10% annual ,then its 10/12/100=0.00833
n is tenture in number of months.
For derivation of the formula and calculation of the EMI..check out for the next post..