Impact of Education Loan in India
Education plays a crucial function in human capital development and it is likewise a potent weapon for social change, social mobilization and social dominance. Education enables people to move upward in the socio-economic ladder. Education is the corner stone of Progress and upliftment. It leads to increased awareness and social consciousness of the people and provides for more responsible leadership of the nation. Man has been aspiring from more and beer education in order to earn more and improve his social status. All people are equal and have equal claims to right to education. Equality of educational opportunity is closely related to economic development of the individual as well as the nation. Equality of educational opportunity is essential for
improvement of human resource an acceleration of the pace of national development. The main objective of the Constitution of India is to provide equal education opportunity to the people irrespective of castes, sex, religion,
colour and socio economic status. Therefore the government has been launching from time to time several programs and policies for educational development of all communities ever since the commencement of the
Constitution of India.
In this circumstance, access to education is not equally distributed among the communities and Inequalities of educational opportunities are the main barrier to economic advance. According to 2011 Census shows that literacy is not evenly spread among Indian nations. The literacy rate of India in 2011 is 74.04%. The Male literacy rate is 82.14% and Female literacy rate is 65.46% according to Census 2011. Among the Indian states, Kerala has the highest literacy rate 93.91% and followed by Mizoram 91.58%. Among the Union Territories, Lakshadweep has the highest literacy rate of 92.28%. Bihar has the lowest literacy rate in India with 63.82%. Gender gap in literacy is another major crisis in India and It is observed that the Male literacy is highest in Lakshadweep 96.11% and Kerala 96.02%. The Female literacy is highest in Kerala 91.98% and Mizoram 89.40%. Lowest male literacy is in Bihar 73.39%. Lowest female literacy is in Rajasthan 52.66%. (Census of India: 2011). At present we can see that many crimes have been going on around us. Crimes against women, child and Dalits have been increased. To stop or reducing crimes, education should be as a part of moral
values and these are the worthy ideals or principles that one follows to distinguish the right from the wrong. These ideals or virtues are considered worthy in building up the character of an individual. Plato rightly argued that there is need of moral values and he observed education as a means to achieve justice, both individual justice and social justice. According to Socrates "Education means the bringing out of the ideas of universal validity which are latent in the mind of every man". Plato said that "Education is the capacity to feel pleasure and pain at the right moment. It develops in the body and in the soul of the pupil all the beauty and all the perfection which he is capable of." Aristotle rightly pointed out that "Education is the creation of a sound mind In a sound body. It develops man's faculty, especially his mind so that he may be able to enjoy the contemplation of supreme truth, goodness and beauty of which perfect happiness essentially consists. Rousseau said that “Education of man commences at his birth; before he can speak, before he can understand he is already instructed. Experience is the forerunner of the perfect" (Swastik 2010).
According to studies, the cost of education is increasing at an average of 15% per annum. The tentative cost of an MBA is up from Rs 2.5 lakh to Rs 20 lakh in 15 years. So if a couple starts saving Rs 2,000 per month for 15 years, at an average rate of 12%, they will be able to save approximately Rs 9.5 lakh.
What does an education loan cover?
It covers the basic course fee and other related expenses such as (college) accommodation, exam and other miscellaneous charges.
Who can apply for the loan?
A student is the main borrower. A parent, spouse or sibling can be the co-applicant.
Whom is the loan offered to?
It is offered to students who want to study in India or pursue higher education overseas. The maximum amount offered for studies in India and overseas are different and varies from one bank to another.
Types of courses covered under the loan
It can be taken for a full-time, part-time or vocational course and graduation or post graduation in the fields of engineering, management, medical, hotel management, architecture, etc.
Eligibility, documents required
To apply for the loan, one must be an Indian citizen, having secured an admission into a college/university recognised by a competent authority in India or abroad. The applicant must have completed his higher secondary level schooling.
Some banks offer the loan even before one has secured admission into the university.
As per the Reserve Bank of India (RBI) guidelines, there are no restrictions on the upper age limit, but some banks may have it.
Loan financing, collateral requirement
The banks can finance up to 100% of the loan depending on the amount. Currently, for loan up to Rs 4 lakh, there is no margin money required. For studies in India, 5% of the required money has to be financed by the applicant. On the other hand, for studies overseas, the required margin money increases to 15%.
The banks also ask for collateral for loans above Rs 7.5 lakh. Presently, the banks do not ask for any collateral or third-party guarantee for loan up to Rs 4 lakh. For loans above Rs 4 lakh up to Rs 7.5 lakh, a third-party guarantee is required. A collateral is asked for loan exceeding Rs 7.5 lakh.
Once the loan application is accepted, the banks disburse the amount directly to the college/university as per the given fees structure.
The banks uses the Marginal Cost of Funds based Lending Rate (MCLR), plus an additional spread to set an interest rate. Presently (in 2017), the additional spread is in the 1.35-3% range.
The loan is repaid by the student. Generally, the repayment starts when the course is completed. Some banks even provide a relaxation period of 6 months after securing a job or a year after the completion of studies for repayment.
The repayment period is generally between 5 and 7 years, but can be extended beyond that as well.
During the course period, the bank charges simple interest rate on the loan. The payment of simple interest during the course period lessens the equated monthly instalment (EMI) burden on the student for future repayments.
While applying for a loan, one should also look out for bank charges such as those related to processing, pre-payment, late payment of EMIs, etc. Most lenders charge processing fee of around 0.15 percent of the loan amount.
Benefits under Income-tax Act
Section 80E of the I-T Act allows for deduction on the interest paid on the repayment. This deduction is allowed only for the individuals paying interest on the loan for himself, spouse or children or for the student to whom you're a legal guardian.
You can deduct the entire interest amount paid from your taxable income. This deduction is allowed for a maximum of 8 years. The principal amount does not qualify for any tax deduction.