Section 80 E defines Education Loans

College fees – two words that can strike terror in the heart of any parent. Today students do not have the means (parental or otherwise) to fund either tuition fees, course materials, or general living expenses, and find themselves having to apply for education loans.

The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges etc.

Education loans are available with two interest rate options: fixed and floating. Most banks offer only the floating rate option. In this case, when interest rates move higher you end up paying a higher amount of EMI, or else, the tenure of your loan gets extended.

The education loan providers generally require a guarantor who can take the responsibility to repay the loan, in case the student fails to repay the whole loan amount.

Education loan repayment is deductible under Section 80E of the Income Tax Act. The deduction will apply only on loans taken for higher education. The educational loan should be for either an individual’s or his/her relative’s higher studies.

Higher education here means full-time studies for any graduate or post-graduate course in medicine, engineering, or management, or post-graduate courses in applied sciences or pure sciences, including mathematics and statistics.

Now for some repayment tips:

Make loan repayments from income chargeable to income tax. If repayments are made from income exempted from income tax, it will not qualify for deduction.

And remember, the amount eligible for deduction is interest component of the loan repayment. This deduction is available for a maximum period of eight assessment years beginning in the year in which the interest is first paid.

The main thing when considering applying for education loans is to make sure that you get the best deal possible for your particular needs. It is worth spending some time researching. It may also be worth seeking the advice of a professional in the field.

A little time spent in this way can save you a great deal of money in the long run. Education loans options may seem viable but one should not lose sight of the fact that there is a real danger of falling into a debt trap because you end up committing your future earnings towards your loan repayment, thus increasing expenses every month.

The author is a Certified Financial Planner and is Vice-President, Personal Finance at Apnaloan.com Services (P) Limited.

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