Thursday, Jan 20, 2022 08:15 [IST]

Last Update: Thursday, Jan 20, 2022 02:40 [IST]

Efficacy of Education Loan amidst Mounting Inequality

Dr Sarbapriya Ray, Associate Professor, Dept. of Commerce, Vivekananda College, Thakurpukur, Kolkata

Indian billionaires(at least Rs 7400crores)  witnessed  their combined fortunes more than double during the covid-19 pandemic, and their count shot up by 39% to 142, while the wealth of the ten richest is adequate to fund school and higher education of children in the country for 25 years, a new study showed  very recently. If the richest 10 persons spend Rs 10 lakh dollar per day(about Rs 7.4 crores ),it will take 84 years to exhaust their wealth. Report also exposed that first 98 richest persons hold wealth equivalent to wealth of 55.5 crores of poorest Indians amounting to Rs 49 lakh crores and 10 percent of people belonging to upper layer of the wealthier society holds 45 percent of national wealth.  In its annual inequality survey released on the first day of the World Economic Forum’s online Davos Agenda summit, Oxfam India further said that an additional 1% tax on the richest 10% can provide the country with nearly 1.7 million extra oxygen cylinders, while a similar wealth tax on the 98 richest billionaire families would finance Ayushman Bharat, the world’s largest health insurance scheme, for more than seven years. The covid-19 pandemic saw a huge rush for oxygen cylinders and insurance claims during the second wave last year. On wealth inequality, Oxfam report further said that 142 Indian billionaires collectively own wealth of $719 billion (over Rs53 trillion), while the richest 98 of them now have the same wealth as the poorest 5.5 billion people in the bottom 40% (nearly Rs49 trillion).
Amid this very recent scenario of inequality prevailed in Indian economy, quality education is of major significance to any human being, and students travel along rough terrain untiringly to achieve it. With the thriving stiff competition and mounting price rises, the cost of education is on the rise recently and choosing for an education loan appears to be the finest solution to most of the students who envisage of higher studies or studying overseas. An education loan is a loan that students apply to meet the financial requirements to complete their course. It can be taken either by the parents or the student or the spouse to fund higher education in India or abroad which covers the cost of studies and other related expenses like travel, living, study material, laptops, insurance etc.
Some of the ordinary ways of funding higher education are through using family savings, borrowing from friends and relatives, liquidating assets like fixed deposits, land, gold etc. or taking an education loan. Formerly, it was supposed that only people from the middle- income group prefer to fund their education through students’ education loans.  Currently, parents have acknowledged this paradigm shift of funding their children's education by accepting an education loan. It is a fact that no investment bears such a higher return than the one on proper education. Guardians have acknowledged the fact that it is harmless to finance his/her dependents’ education by taking a loan for study overseas as there are many uses of education loan. This revelation will wrap up all the benefits of education loan that a student can avail of for higher study.
With benefits of an education loan emerging out to the forefront, many prosperous families are also opting for an education loan and availing of exclusive benefits like income tax benefits under section 80E of Income Tax Act, 1961, opportunity for students to take their own financial responsibilities, preserving their family savings, rising costs, to minimize financial burden on the ageing parents, building a good credit history.
The most noticeable one is that education loans are an effortless financing option that covers almost 100% of the expenses incurred during the period of education. The quantum of finances that students can have access, exceeds the amount they or their parents could have saved. Limited savings also lead to restricted spending which could most likely make the dream of higher education unfulfilled.
So, it can be a prudent decision to obtain an education loan instead of using parents’ personal savings. Education loan rates being lower down for a longer period of time, it provides a chance for eligible borrowers to have a loan of big  amount and not be anxious about interest at this point. The family chooses to ask for bank financing or self-finance with their own funds. However, the current environment allows the student a chance to get financing cheaply. This would let the family’s funds to keep invested for higher returns for attaining  their wealth creation goals. Finding the correct balance between self financing and bank financing would be perfect so that they get the best of both worlds.
Likewise, education loans are eligible for dual tax benefits. Interest paid on education loans is entirely deductible under Section 80E of the Income Tax Act, 1961. The applicant/co-applicant can enjoy this exemption for a maximum of eight years, and there is no cap on the deduction amount. The another  advantage is a reduced tax collected at source (TCS) on overseas education loans; Under current laws, if the foreign exchange transactions of a student exceed  Rs 7 lakh in a financial year, any payment above Rs. 7 lakh made abroad attracts TCS (Tax Collected at Source) of 5%. So, if a student is studying abroad, and she self-finances the course, she will have to pay 5% TCS. However, if the student avails an education loan from a financial institution in India to finance their studies abroad are eligible for a concession and then the tax collected at source (TCS) is only 0.5%.
Moreover, education loans provide students with a moratorium period which means that the applicant does not have to pay his/her education loan during the moratorium period. Students from economically weaker sections can take the loan under the government’s 'Subsidy on Interest' scheme for a long moratorium period. The lender charges simple interest during the study period which will be  added with the equated monthly instalments (EMIs). The process facilitates students lessen the financial burden that the lender won’t compel them to pay off while studying. Unlike personal loan, education loans give room to the students to decide when they are stable enough to start repaying the loan.  It can help in saving funds and retaining liquidity in the family; parents don't have to liquidate their funds to finance their dependents’ education ,thus   easing the financial yoke on the family.
An education loan helps instill financial discipline from an early age, as the student has to start repaying the loan immediately after working indicating the first step in the journey towards financial independence. Besides, regular repayment of the loan also helps the student build a credit history, which is essential when one wants to take a home loan or an auto loan in future.
While taking an education loan, students have the responsibility to repay the loan to the lenders after their education which undoubtedly guarantees that the student is entirely devoting his time towards his studies and focusing on his career.
Students must at this moment be responsive of the benefits of education loans and how they can dodge exhausting their savings. Those times have gone when students had to sacrifice their higher education due to financial constrictions. Educational Loans have emerged as a windfall, helping different students of diverse backgrounds to accomplish their dreams of further education and provide great financial support. These are predominantly boons for the families who cannot support their children financially for pursuing their studies further. Hence, education loans have unambiguous advantages over using personal finance.

Sikkim at a Glance

  • Area: 7096 Sq Kms
  • Capital: Gangtok
  • Altitude: 5,840 ft
  • Population: 6.10 Lakhs
  • Topography: Hilly terrain elevation from 600 to over 28,509 ft above sea level
  • Climate:
  • Summer: Min- 13°C - Max 21°C
  • Winter: Min- 0.48°C - Max 13°C
  • Rainfall: 325 cms per annum
  • Language Spoken: Nepali, Bhutia, Lepcha, Tibetan, English, Hindi