Did you know you can avail of education loans even for courses such as sports administration and music technology? And once you start earning, just like in the case of an education loan for a regular course of study, you can avail of lucrative tax benefits as well? Financial institutions are increasingly warming up to the idea of funding not-so-conventional courses, provided there is a good likelihood of such studies leading to a job.
"There are many courses which appear to be different or out-of-the-box in India, however, elsewhere in the world, they lead to established career options," says Ajay Bohora, Co-Founder and CEO, HDFC Credila Financial Services. Credila, an HDFC venture, has been funding several unconventional courses including in sports and exercise, optics and photonics, physio therapy and sports management.
"More students are coming forward to opt for offbeat courses such as image consulting, music and even gaming—as part of engineering— courses, though this is still at a nascent stage," says Neeraj Saxena, CEO, Avanse Financial Services, a DHFL venture. Such courses account for 3-4% of Avanse’s education loan portfolio.
To avail of a loan, the procedure is much the same as for a regular education loan. You can apply online via websites of financial institutions such as HDFC Credila and Avanse. After a review of the application, applicants are required to submit admission details, academic record-related documents, KYC and financial details and other supporting documents. Subsequently, the institution approves the loan amount as per its eligibility criteria.
The duration of these unconventional courses can vary from 12 months to more than four years. Typically, lenders offer three repayment options. One mode allows student to repay the entire amount after securing employment or completing the course. The second option involves co-borrowers servicing the interest amount during the course period, while the third way is to allow co-borrowers to partly service the interest amount till the course's completion.
While interest rates for education loans can go up to 14.5%, the effective rate is likely to be much lower, thanks to tax benefits
Though lenders have started disbursing loans for offbeat courses, you must be prepared to convince them of a your favoured course’s utility in getting you a job. &qout;We factor in the job creation ability of all courses before sanctioning the education loan," says Saxena. Given that loan disbursement for even regular courses has fallen 60% in the last five years, you cannot leave things to chance.
The best way to go about it is to carry out research on the course, university and country of your choice, and assess its job-generating capability and then present your case to the lender. Remember, even if banks come across as reluctant to fund some non-traditional courses at the outset, they could still consider funding them if you convince them of the course’s job-creation value.
You can also improve your chances by spending a few years in your chosen field of interest to gain experience, before you opt for a study course. "From the lender’s standpoint, it means that the applicant, having worked in the same field, has established a threshold level of salary even before pursuing a course in that domain," says Bohora. If you build a robust network during the period, your employment prospects will look up, making it easier for you to convince financial institutions.
Additionally, you can fall back upon the conventional mode of boosting your case by getting your parents on board to partly meet your repayment commitments. Likewise, if your spouse has a stable job, it is also considered a positive. "We view such cases favourably as it enables students to minimise the risk of default with the demonstrated financial support from the spouse," says Bohora.
Education loans, for conventional or unconventional courses, offer attractive tax benefits. For example, according to Credila, a loan of around Rs 40 lakh for a one-year course in sports administration and technology from Switzerland, at 12.25% will translate into an EMI of about Rs 63,000 per month, for a 120-month tenure. But if you avail of the tax benefits under Section 80E of Income Tax Act, you can save up to 30% of the interest amount paid, effectively reducing the interest on your loan to 8.5% from 12.25%.
Similarly, on a one-year course in sport and exercise standard, that requires an education loan of around Rs 18 lakh, the interest amount of around Rs 18,400 on the education loan will get reduced to about Rs 12,700 due to tax benefits—almost 30% saving on interest. An individual can avail of tax benefit if he/she has taken an education loan to support the higher studies of self, spouse, children or for his/her legal ward, in his capacity as guardian.
But education loan applicants should bear in mind that the income tax benefits can be availed of only if the loan is taken from scheduled banks in India or gazette-notified financial institutions as per the Income Tax Act.