What is an Educational Loan?
Education is every student’s dream. For many, it is graduating from top universities. Big institutions require a hefty amount of money. Finance should never be a barrier for any student. Each student deserves a quality education. Education loan is now available around the world, in every educational institution. Educational loan plays a crucial role in being the bridge between the student’s dream of education and finance.
Education loan covers basic course fees, accommodation, exam, and other miscellaneous expenses. Education loan is provided to students who want to pursue an education in the nation or abroad. The amount of loan varies from bank to bank and the country the student wants to study in. The educational loan can be taken for a full course or half course. It can be taken for management, engineering, medical, hotel management, or any other such course.
Education loans can be availed through government or private financial institutions lending money. Government institutions offer a lower rate and private sectors often offers higher rate. The banks can finance up to 100% of the amount. There is no margin required up to the loan of 4 lakh. The banks ask for collaterals for loans above 7 lakh. A third-party guarantee is required.
Types of Educational Loans
There are three types of educational loans:
Federal loan: borrowers seek federal loans as it comes from the government. Federal provides direct subsidize loans and indirect subsidize loans. To apply for federal loans one has to fill free application for federal student aid, FAFSA. In subsidizing loan you don’t have to pay the interest while you are in school. The government pays your interest until that time. Subsidize loans go to students whose family income is low.
If your loan is unsubsidized, then you are responsible for paying the amount and the interest. All types of students can avail this loan. The interest rate is slightly higher than the subsidized loan. There are also plus loans that are available both for parents and students. Plus loans are for the parents and the depended on students. These loans have a fixed interest rate of about 6%-8%.
Private loans: private educational loans are for those students who can’t meet the required funds even after obtaining a loan from FAFSA. The private loan follows a more standardized process, with a credit check. Private loans have higher payment rates.
Health professional loans: such loans are specifically for the students pursuing in the area of medicine and nursing.
Repayment of loan: The loan has to be re-pay by the student. The payment generally starts after the student has finished the course. Some banks provide a grace period of 6 months after the completion of the course to find a job. The repayment period is usually between 5-7 period or more. The bank charges simple interest. The payment of simple interest during the course period lessens the equated monthly installment (EMI) burden on the student for future repayments.
Benefits of Educational Loan
Benefits: it allows a tax deduction on the interest paid on the repayment. This deduction is allowed only for the individuals paying interest himself. The deduction is allowed for a maximum of years.
Despite your financial standing or field of study, you can find an education loan that suits your needs. It can help you and your family to fund your higher education and reduce the financial burden of school.