Higher education is getting expensive every day. For many families, such education must be financed through an education loan. All the banks and NBFCs provide education loans. In this post, I will discuss a popular education loan scheme from the State Bank of India: SBI Student Loan Scheme.
SBI Student Loan: Important Things to Know
- Eligibility: Available to Indian nationals for pursuing higher education in India or abroad
- You must already have secured admission to the university/institution.
- Maximum Loan Amount: Rs 10 lacs (for education in India), Rs 20 lacs (for education abroad)
- No processing fees or any upfront charges
- Repayment starts a year after completion of course. Repayment Tenure of up to 15 years.
By the way, SBI has two more loan products. I am listing down a few differences from the SBI Student Loan scheme.
- SBI Scholar Loan (available to students of Premier Institutes e.g. IITs, IIMs, NITs etc): Maximum loan amount is higher. Interest rate is lower. Lesser security is required. You can expect loan sanction process to be much simpler.
- SBI Global Ed-Vantage Loan (only for education abroad): Maximum loan amount up to Rs 1.5 crores. Broader range of expenses covered under the loan product.
In this post, let’s limit our focus to SBI Student Loan Scheme.
What Are the Courses Covered under SBI Student Loan Scheme?
For Studies in India
- Graduation, Post-graduation including regular technical and professional Degree/Diploma courses conducted by colleges/universities approved by UGC/ AICTE/IMC/Govt. etc
- Regular Degree/ Diploma Courses conducted by autonomous institutions like IIT, IIM etc
- Teacher training/ Nursing courses approved by Central government or State Government
- Regular Degree/Diploma Courses like Aeronautical, pilot training, shipping etc. approved by Director General of Civil Aviation/Shipping/concerned regulatory authority
As I see, this broadly covers the choice of courses that you would want an education loan for. However, there can always be an element of subjectivity. For better clarity, you must contact your nearest SBI branch.
For Studies abroad
- Job oriented professional/ technical Graduation Degree courses/ Post Graduation Degree and Diploma courses like MCA, MBA, MS, etc offered by reputed universities
- Courses conducted by CIMA (Chartered Institute of Management Accountants) – London, CPA (Certified Public Accountant) in USA etc
What Are the Expenses Covered under the Student Loan Scheme?
I am copying these details from SBI website.
- Fees payable to college/school/hostel
- Examination/Library/Laboratory fees
- Purchase of Books/Equipment/Instruments/Uniforms, Purchase of computers – essential for completion of the course (maximum 20% of the total tuition fees payable for completion of the course)
- Caution Deposit/Building Fund/Refundable Deposit (maximum 10% of tuition fees for the entire course)
- Travel Expenses/Passage money for studies abroad
- Cost of a two-wheeler up to Rs 50,000
- Any other expenses required to complete the course like study tours, project work etc
Do I Need to Furnish Any Security?
Depends on the loan amount.
- For loans up to Rs 7.5 lacs, there is no need to provide collateral or third-party guarantee. Only your parent/guardian needs to sign up as co-borrower.
- For loan above Rs 7.5 lacs, you need to provide tangible security. This is, of course, in addition to parent/guardian signing up as co-borrower.
If you are married, your spouse or parent(s)-in-law can sign up as co-borrower.
How Much Loan Can I Get?
These parts are never very clear to me. In addition to cap on the maximum loan amount, there is provision on margin too. Margin is the portion of education cost that you need to fund from own pocket.
- For cost of education up to Rs 4 lacs: No margin is required
- For cost of education above Rs 4 lacs: 5% for courses in India, 15% for courses abroad
In How Many Years, Do I Need to Repay the Loan?
Repayment starts one year after completion of the course. You have an option to repay the loan in up to 15 years. Typically, the loan duration is 7-8 years. Longer duration means lower EMI. Do note tax benefit is available for only 8 years. If you avail a second loan later for another course, you have to repay the combined loan amount in 15 years after the completion of the second course.
Tax Benefits on Repayment of Education Loan
You get tax benefit for payment of interest of an education under Section 80E of the Income Tax Act. Entire interest paid is tax deductible. There is no cap. However, there are a few conditions that need to be met before you take such tax benefits. All such aspects have been discussed in detail in this post.
Moratorium during the Study Period
There is one aspect that makes an education loan product very different from a regular loan product. It is moratorium on loan repayment during the study period. And it is needed too. How will a student repay the loan? As mentioned above, the loan repayment begins one year after the completion of the course. Interest during the study period (and the subsequent 1 year) gets accrued and is added to the loan amount. When you are ready to repay the loan, your EMI is calculated on the sum of principal and accrued interest. By the way, there is no compulsion to avail the moratorium period. You can choose to pay the interest amount during the study period too.
Point to Note: You can avail tax benefit for interest payment only for 8 financial years (including the financial year in which you start repaying the loan). So, if you plan to pay the interest during the study period, keep this aspect in mind. Personally, I believe tax consideration will only skew your decision-making. Start repaying the loan as early as possible.
What Are the Documents Required for Availing the Loan?
- Admission letter
- Statement of cost of study
- KYC documents of the student and parent/guardian
- Bank account statements, IT returns, statement of asset and liabilities for parent/guardian/co-borrower
Reach out to the bank for the exhaustive list of documents.
What Are the Interest Rates for SBI Student Loan?
Interest rates keep changing. I will list out the current rates from SBI website. You can check the latest interest rates on SBI education loans on SBI website.