Education loans give financially deprived students an opportunity to fulfill their dream of an elite carrier. Even though many financial institutes provide exclusive loan facilities to the students, there are still some difficulties in the bank procedure. Many students are facing issues with acceptance of application, loan sanction period, interest rates, subsidy on interest, repayment of interest while studying, and repayment of the principal amount.
According to IBA (Indian Bank Association), the banks should not refuse loans citing service area. Student can secure up to Rs.20 Lakhs amount for higher education. Students need not pay any interest to the bank during study period and moratorium period. Bank should communicate the decision of the loan approval within 15 to 30 days. Loan repayment could be done over a 10-15 years period and students from economically weaker sections can claim for interest subsidy. There is no specific restriction with regard to the age of student to be eligible for education loan. Banks should not reject any application without a valid reason.
There are many cases where banks disobey rules and ask for early period repayments within 3 to 5 years instead of offering the 10-15 years time period. These are most often noticed in cases where student is unable to repay the amount, due to poor economic state or unemployment. The banks also demand payment of interest while study is in progress, they insist on clearing the dues piled up as soon as possible. Another issue that is often noticed is rejection of loan application without clear and valid reasons. Even when a student gets admission on the basis of merit, applications are rejected based on marks obtained in the university examinations, ignoring the entrance exam scores. Students find it difficult to claim interest subsidy as bank officials deny the existence of such schemes.
Education Loan Task Force
In response to problems faced by the students, Education Loan Task Force (ELTF) came into force. ELTF was formed to guide highly deserving, poor students to avail the bank loans for higher education. It provides all information pertaining to borrowing such as pre-borrowing, in-school, and repayment. Whenever the bank goes against RBI rules, ELTF will take that up to the higher authorities to find solutions. It is a volunteer group which does not undertake to get any loans from Banks instead it is just a convener of the process of acquiring and repayment of loans.
Students who need to get any clarification or guidance can contact on ELTF with proper details. Depending on the information provided by students about the name of bank, branch, and details of application, it will suggest a course of action to be taken.
Section 80E
For the benefit of students who have taken huge amount of loans for their undergraduate and post graduate programs, the government has devised a special act to ease their burden.
For an Individual tax payer, Income Tax Act provides for deduction of interest paid on educational loan. Section 80E is a law passed by the government for the tax deduction on repayment of education loans. The tax deduction is applicable only if the person has individual family and Hindu Unite Family is ineligible to apply for it. The law states that it is the deduction in respect of interest on loan taken for pursuing higher education.
Eligibility for Claiming Deduction
Deduction is allowed only on interest on educational loan, not on principal amount. Deduction can be claimed only if the loan is taken on the person's name. Deduction can only be exercised if the loan is taken for education purpose of self, children, spouse, or the student of whom the individual is the legal guardian. The deduction is not only allowed for courses pursued inside India but also for higher studies pursued abroad. Loan must have been taken from an Indian financial institute, bank, or approved charitable trust Deduction period is calculated from the year of commencing repayment to the maximum of 8 years or until the interest is repaid by the individual in full. Tax benefit is not allowed for part time courses and if repayment is made from income exempted from income tax.
There was ceiling of 40,000 for tax deduction till April 1st, 2006. Currently the entire amount of interest paid in the year is eligible for deduction.
Loans are no longer a swim in a shark tank. With the deductions under section 80E and the ELTF governing board, students can pursue their education without a worry of unfair interest rates or money hungry mongrels.There was ceiling of 40,000 for tax deduction till April 1st, 2006. Currently the entire amount of interest paid in the year is eligible for deduction.
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