Guidelines of Reserve Bank of India on Education loans

RBI while issuing guidelines on "New Education Loan Scheme-Ceiling for Priority Sector Lending" vide RPCD.PLNFS.No.BC.44/06.12.05/ 2003-04 dated 4th November 2003, directed all Scheduled Commercial Banks to implement the model Education Loan Scheme up to the ceilings of Rs.7.50 lakh for studies in India and Rs.50 lakh for studies abroad respectively, under priority sector advances.

Comprehensive Education loan Scheme framed by Govt. of India

An Indian national having secured admission to job oriented professional/ technical courses offered by reputed universities abroad is eligible to apply for education loan. No margin/participation is required up to a loan of Rs.4 lakhs while above it, 15% margin is to be borne by the parent. The expenses considered for loan are tuition & hostel fees, examination/library/laboratory fee, purchase of books/equipment/ instruments/uniforms, caution deposits with the institutes, the purchase of computers and other incidental expenses of study tours etc., required for completion of the course. The interest rate is at PLR for under Rs.4 lakhs loan while above it is PLR + 1%. No processing/upfront charges are collected on education loans.

Documentation required and the procedure involved for Education loans

Admission confirmation letter from the university and the details of expenses under various heads towards the study course is the primary document for applying to education loan. The power for sanction of education loan is delegated, and preferably the Branch nearest to the place of domicile should be approached for the processing.

Security norms

Relaxations were recommended by Indian Banker's Association, vide their Circular No.IBA/POL/2004-05/ dated 12th August 2004, specifying that no security need be given for loans upto Rs.4 lakhs; collateral in the form of a suitable third party guarantee to be submitted for loans between Rs.4 lakhs to Rs.7.5 lakhs, with a discretion to waive third party guarantee if satisfied with the net-worth/ means of parent who would be executing the document as "joint borrower". Whereas for loan above Rs.7.5 lakhs suitable collateral security is a must.

Tax Benefit on repayment of Education loan under the Income Tax Act

Repayment of an education loan is deductible under Section 80E of the Income Tax Act. The yearly limit for deduction is Rs.40,000/- (for both the principal and the interest). The deduction in respect of loans taken for higher education will be available for a maximum of eight years starting from the date of repayment.

Following are the links to the Nationalized / Scheduled Banks offering Education Loans for Foreign Studies:
Andhra Bank