Interest paid on student loans is eligible for tax deduction.

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I am looking to study abroad (Germany) and for this I may need a student loan. I have a master’s degree in biotechnology from a reputed institution and a persistent GPA of 8+. How can you apply for a student loan for a doctoral degree in Germany?

—Gurlin Singh

You need to contact your bank or any financial institution for a student loan. You can apply for a loan for pre-approval even before you apply to the desired university. The loan is provided and repayable in Indian Rupees only. Your application must be submitted with an earning co-applicant who will also be required to provide collateral to protect the loan and who will also be the guarantor of the loan. The co-applicant’s income will be a criterion when deciding on the approved loan amount.

Interest paid on the loan is deducted in accordance with section 80E of the Income Tax Act. The deduction can be claimed for eight years from the maturity date.

I want to get an education loan to continue my Master’s degree in the USA. I have two options. The first one is to use my fixed deposit (FD) and use an overdraft on it. The bank agreed to a 1% overdraft rate (OD). The current FD rate is close to 5.5%. The second option is an education loan, which will charge me about a 9.5% reduced rate. I am leaning towards the first option, but I want to be sure that there are no caveats for using the OD limit, for example, net interest payments are higher than traditional loans, because unlike a regular education loan, interest accrual starts from the date of the first withdrawal of funds. and the consequences of tax exemptions on interest payments. Good advice.

– Shashank

The key factor for you is the cost of borrowing and the convenience in comparing both options, i.e. overdraft and student loan. The overdraft cost is 6.5% (5.5% + 1%). And in the case of a loan for education – 9.5%. Since interest is allowed as a deduction under section 80E of the Income Tax Act, the tax credit will reduce the cost of borrowing. Assuming the tax rate is 30%, the net borrowing cost is 6.65%. In case both are more or less equal, you need to pay attention to convenience. An education loan requires an earning co-applicant and collateral, while the overdraft is simplified and does not require a second applicant.

Surya Bhatia is the managing partner of Asset Managers.

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