Of degrees, loans and more...

Financial resource crunch has often staved off the middle class Indian student from higher education. To add insult to injury, the recent fee hikes announced by premier institutes such as the IIMs and IITs have made quality education a distant dream for deserving youngsters with a monetary disadvantage. "Hitherto, only education abroad was considered out of reach, but spiralling costs of education in India as well have put such thoughts at bay. One is at wit's end when it comes to thinking about garnering funds to send children to medical or engineering schools," opines Pramod Acharya, a concerned parent of an 18-year-old.

Even the first step to acquiring admission to professional courses- gathering brochures- is so expensive that one has to spend a sizeable chunk to get a decent number of them. "Competition for admissions to an MBA programme is so tough, that I had to collect brochures for 10 institutes and that cost me a fortune," declares Aaron Jason, an MBA student.

Educational Loans

So how does one go about chasing his or her dream of a good education? Experts believe that getting a loan sanctioned by a bank, whether it is to pursue a degree abroad or from a premier institute in India is not difficult for a meritorious student. Recent RBI regulations have given a thrust to educational loans and the government has proposed to take over the interest burden during the moratorium period for students from families whose income is less than 2.5 lakhs per-annum. Hence, the scene looks brighter for students from lower and middle-income groups, who want to pursue higher education. Moreover, banks these days do not insist on a collateral for loans up to rupees four lakhs.

Public and private sector banks have various education loan schemes for school, graduate and postgraduate studies in India. For example, Bank of Baroda offers Baroda Vidya, a one of its kind finance option for parents of students pursuing school education. These loans are available for studies from nursery to senior secondary school. There are many other banks that provide customised financial solutions to their customers. "All professional, graduate, postgraduate courses and other courses approved by the UGC/ government/AICTE are eligible for loans," informs V Rangarajan, assistant GM, Rural Banking Department, Indian Bank.

However, things may vary subject to the lending agency. Take the example of Shravan Kamath, 24, a Mumbai-based professional, who is headed to the US for a degree in communication studies. He has managed to get a loan of about 60% of his actual costs from a public sector bank at 13.5% interest. "I am getting the rest of the amount through the scholarship that I have been awarded from the institute," declares Kamath. So what does he think about the services of the funding agency? "Although the process is quite easy you have to wait for at least a month for the cheque to get ready," he answers.

"Banks prefer giving loans to meritorious students in order to be doubly sure that the applicant will not turn into a defaulter. Thus, stringent checks about both the academic background of the student, and the credibility of the institute that he or she is applying to are undertaken to avoid any trouble. This often causes the inadvertent delay," informs a bank employee who does not wish to be named. Some students prefer taking loans from public sector banks.

Almost all public sector banks offer educational loans up to Rs 20 lakhs for higher studies on foreign shores. However, a suitable third party guarantee is required for loans above rupees four lakhs, and tangible collateral security is required for loans above Rs 15 lakhs.

Tax exemption

According to M H Balasubramanian, a practicing chartered accountant, "Under section 80E of the Income Tax Act, 100% of the interest paid on loan taken for pursuing higher education by the student will be allowed as deduction from gross total income of the initial assessment year and for seven successive assessment years or until the interest on such loan is paid by the student in full, whichever is earlier." The exemption is currently available only to the student and not to the parent or co-borrower.