Will I Get Loan for Son's Higher Education in MIT?

Ans: It's great to hear about your interest in pursuing a BTech in Computer Science and Engineering at Bennett University. Since you're considering taking an education loan to cover the expenses, it's important to explore your options carefully.

Given your family's income and the absence of collateral, you may be eligible for loans under the government's various education loan schemes, such as:

Central Government Interest Subsidy Scheme (CSIS): Under this scheme, students from economically weaker sections can avail interest subsidy during the moratorium period (course duration plus one year) on education loans taken for professional courses in recognized institutions in India. The subsidy is available for full-time courses in engineering, technology, and management.

Pradhan Mantri Vidya Lakshmi Scheme: This is a portal that provides a single-window for students to access information about various loan schemes and facilitates the application process.

State Government Education Loan Schemes: Many state governments offer education loan schemes with subsidies and benefits for students from economically weaker sections. You can check with your state's educational department for details.

Public Sector Banks: Banks like State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), etc., offer education loans with attractive interest rates and repayment terms. They often have special schemes for students pursuing higher education.

When approaching banks for an education loan, it's advisable to compare the interest rates, processing fees, repayment terms, and other associated charges. You can directly inquire with these banks or visit their websites to learn about their education loan offerings.

Additionally, it might be beneficial to explore scholarships, grants, and other forms of financial aid that you may be eligible for, as they can help reduce the overall financial burden.

Lastly, make sure to thoroughly read and understand the terms and conditions of any loan agreement before signing, and consider seeking guidance from a financial advisor if needed. Good luck with your studies!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Evaluating Your Options

You have three educational options:

Electrical and Computer Engineering at Thapar Institute.
Computer Science Engineering at Amrita Amaravati.
Information Technology at IEM Kolkata.
Let’s break down the financial aspects of each option to help you make an informed decision.

Cost Analysis

Thapar Institute:

Annual Cost: Rs 5.4 lakhs
Total for Four Years: Rs 21.6 lakhs
Amrita Amaravati:

Annual Tuition Fee: Rs 3 lakhs
Total for Four Years (including other expenses): Rs 12-15 lakhs
IEM Kolkata:

Total for Four Years: Rs 7-8 lakhs
Budgeting Considerations

Thapar Institute:

High Cost: The total cost of Rs 21.6 lakhs is significant.
Loan Requirement: Given the high cost, you might need to take a substantial loan, especially if the budget exceeds Rs 10 lakhs.
Amrita Amaravati:

Moderate Cost: Total cost is around Rs 12-15 lakhs, more manageable.
Potential Loan: You might need a smaller loan, making repayment easier.
IEM Kolkata:

Low Cost: Total cost is the most economical at Rs 7-8 lakhs.
Minimal Loan: If at all required, the loan amount would be minimal.
Personal Finance Impact

Parental Contribution vs. Loan

Thapar Institute: Requires a significant financial outlay or loan, impacting your family's finances. If a loan is taken, ensure that the interest rates and repayment terms are favorable.

Amrita Amaravati: More balanced in terms of cost. You might need a smaller loan, which would be easier to manage and repay.

IEM Kolkata: Least financial burden. If you prefer to minimize your family's financial stress, this is the best option.

Long-term Financial Planning

Return on Investment (ROI)

Thapar Institute: High ROI potential due to its strong reputation and placement record. However, the high initial cost needs to be justified by future earnings.

Amrita Amaravati: Good ROI with moderate costs. As it aligns with your preferred field (CSE), it offers a balanced investment with potentially good returns.

IEM Kolkata: Economical with good placement opportunities. Offers a favorable ROI with the least financial burden.

Loan Repayment

Thapar Institute: Higher loan amount means higher EMIs. Ensure you have a clear repayment plan based on your expected starting salary.

Amrita Amaravati: Moderate loan amount results in manageable EMIs. Easier to handle with a decent starting salary.

IEM Kolkata: Minimal loan requirement, if any. Loan repayment will be the least stressful.

Emergency Fund and Savings

Regardless of your choice, maintain an emergency fund for unforeseen expenses.

Plan to save a portion of your income post-graduation to build a financial cushion.

Final Insights

From a personal finance and budgeting perspective:

Amrita Amaravati strikes a balance between cost and your preferred field, making it a prudent choice with manageable financial implications.

Thapar Institute is a significant investment with potentially high returns but requires careful financial planning due to the higher costs involved.

IEM Kolkata offers the least financial strain and is a good option if minimizing costs is a priority.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You are in the 30% tax slab. The choice between taking a loan or using your fixed deposit depends on multiple factors. Let’s evaluate both options from a financial and strategic perspective.

Benefits of Taking an Education Loan
Tax Benefits on Interest Paid

The interest paid on an education loan qualifies for a tax deduction under Section 80E. This benefit is available for up to eight years.

Since you fall in the 30% tax slab, this deduction can help reduce your taxable income.

Liquidity Retention

Keeping your fixed deposit intact ensures liquidity for emergencies and other financial goals.

Unexpected medical expenses or job loss can impact cash flow. A loan helps you maintain financial security.

Low-Interest Rates Compared to Other Loans

Education loans usually have lower interest rates than personal loans. Some banks also provide a moratorium period, during which repayment starts after course completion.

Credit Score Improvement

Timely repayment of the loan will improve your credit score. This can help in the future if you need to take another loan.

Disadvantages of Taking an Education Loan
Interest Outflow

Even though the tax benefit reduces the burden, you will still pay more than the actual loan amount due to interest.

If you can afford the expenses without affecting other goals, avoiding interest payments is better.

Loan Repayment Burden

If your son does not secure a high-paying job immediately, the repayment can become stressful.

You may have to step in to make EMI payments, affecting your retirement plans.

Benefits of Using Fixed Deposits
No Interest Outflow

By using your own funds, you avoid paying interest to the bank. The actual cost of education remains lower.

Peace of Mind

Without a loan, you won’t have to worry about monthly EMI payments. This ensures financial stability and mental peace.

Better Financial Freedom for Your Son

If you fund the education yourself, your son starts his career debt-free. This gives him more flexibility in career choices.

Disadvantages of Using Fixed Deposits
Loss of Liquidity

Using the fixed deposit will reduce your emergency funds. If another major expense arises, you may struggle to arrange funds quickly.

Impact on Other Financial Goals

If this fixed deposit was set aside for another financial goal, using it for education may delay that goal.

You need to evaluate whether this will affect your retirement or home purchase plans.

Tax on Fixed Deposit Interest

The interest earned on fixed deposits is fully taxable as per your slab. Since you are in the 30% slab, this reduces your net return.

Key Factors to Consider Before Deciding
Cash Flow Stability

If your monthly income and investments provide enough financial security, paying from the fixed deposit is a good option.

If not, an education loan can help manage cash flow better.

Alternative Investment Options

If your fixed deposit is earning lower returns than the loan interest rate, it makes sense to use it instead of taking a loan.

If your investments are growing at a higher rate than the loan interest, taking a loan is financially better.

Risk Tolerance

If you are comfortable managing debt and can benefit from the tax deduction, a loan can be a strategic decision.

If you prefer a risk-free approach, using your fixed deposit is the better choice.

Optimal Approach for You
Since you are in the 30% tax slab, an education loan can provide tax benefits.

However, if your fixed deposit is earning a lower return than the loan interest, using it can be financially smarter.

If liquidity is not a concern and your retirement plans remain unaffected, funding education yourself is a good choice.

A balanced approach is also possible. You can take a partial loan and use some of your fixed deposit. This way, you reduce the loan burden while keeping some liquidity.

Finally
Taking an education loan has tax benefits and keeps liquidity intact. However, it comes with interest costs and repayment obligations.

Using your fixed deposit saves interest but reduces liquidity and may impact other financial goals.

The decision depends on your financial stability, investment returns, and long-term goals.

A Certified Financial Planner can help structure your finances in the most tax-efficient way.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment