Top 5 must-knows for education loan tax deduction

Education plays a crucial role in the economic development of all societies. While there is a universal acknowledgement to the need for public funding of primary and secondary education, public funding of higher education in a developing country like India is not feasible.

Thus, recognising the importance of higher education and the role of institutional funding to deal with rising cost of higher education, the policymakers came out with tax deduction on education loans under Section 80E.

The objective was to relieve interest burden from education loan borrowers through tax incentives. However, to claim the tax deduction, the borrowers have to meet certain conditions.

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Here is a list of ‘must-knows’ regarding tax deduction on education loans:

Principal component does not qualify for tax deduction:

Borrowers often misunderstand tax exemption provisions available on education loan. This stems from tax exemptions available on home loan where both principal and interest components of EMIs qualify for tax deductions under Section 80C and 24b, respectively.

However, in the case of education loans, the repayment of principal amount does not qualify for tax deduction. Only the interest component of education loan EMI qualifies for tax deduction under Section 80E.

The lack of tax deduction for principal repayment in education loan has been somewhat compensated by the absence of an upper cap on claiming tax deduction on interest payment. You can claim the entire interest component for tax deduction.

Not all education loans qualify for tax deduction:

The tax deduction available under Section 80E is applies only to education loans availed from banks, financial institutions notified under the Income Tax Act and approved charitable institutions. You cannot claim tax deduction on funds borrowed from family members or friends for higher education.

Similarly, not all NBFC education loans will qualify for tax deduction. Only those education loans availed from non-banking financial companies (NBFCs) notified by the central government through official Gazette as a ‘Financial Institution’ for the purpose of education loan tax deduction will qualify for the deduction.

This is especially relevant as banks are increasingly getting cautious with education loans due to the rising non-performing assets in the segment. Since the NBFCs are aggressively pushing to fill in this gap, students may get education loans from NBFCs with relative ease. Hence, to ensure that you do not miss out on the Section 80E tax deduction later, check out whether that NBFC has been notified as such through the official Gazette.

Tax deduction period is capped for 8 years:

Tenures of education loan can go up to 15 years. However, the period of availing tax deduction under Section 80E has been capped at 8 years. You can claim the tax deduction from the year of the commencement of your repayment period.

For example, even if you complete the repayment of your education loan within 12 years, the tax deduction under Section 80E can only be claimed for the interest repaid within 8 years of the commencement of your repayment period.

Only loans taken for higher studies qualify for tax deduction:

Tax deduction under Section 80E is only available for loans taken for pursuing higher education. Section 80E defines ‘higher education’ as any full-time course pursued after passing the Senior Secondary Examination or its equivalent from any educational institutes, board or universities recognised by the government or local authorities.

Even vocational studies and courses pursued outside India would qualify for deduction under Section 80E. However, the courses need to be post-senior secondary education.

Education loans taken for certain relationships will qualify for tax deduction:

Education loan taken for pursuing higher studies for self, children, spouse or for a student for whom one is a legal guardian would qualify for tax deduction.

Thus, parents and legal guardians are eligible to claim the deduction for the interest component paid by them.

However, one cannot claim this deduction for education loans taken for his sibling or other relatives. Moreover, only the borrower who has availed the education loan can claim the tax deduction.

For example, if a person takes an education loan for his child, spouse or his legal ward, only he can claim the tax deduction. The student, i.e. the child, spouse or his legal ward, cannot claim the deduction even if the loan is repaid from his funds after the completion of his studies.

However, if the loan is taken in the joint names of parent/legal guardian and child/legal ward, then both of them will have the flexibility to claim the tax deduction based on their tax liability.


Student loans: Low risk, attractive yield

Vince Passione

A college education continues to be one of the best investments a young person can make in terms of their earning potential, especially as it has become more of a requirement for the workplace.

The percentage of men and women with college degrees is at an all-time high, according to Statista 2017, and the number of Gen Z students going to college will continue to rise over the next several years, the National Center for Education Studies reports.

However, outcomes matter, and parents and students need to think more deliberately about what career the student will be pursuing and if that career justifies the investment.

Due to rising costs associated with attending college, education lending, including education refinancing and private, in-school student loans, will continue to grow.

We’ve also seen rising rates contribute to the increase of graduates refinancing their student loans to fixed-rate student loans to either reduce how much interest they’re paying or to lower their monthly payments.

We’ve also seen rising rates contribute to the increase of graduates refinancing their student loans to fixed-rate student loans to either reduce how much interest they’re paying or to lower their monthly payments.

The cost of education sets the standard for the amount of loans needed, and as schools continue to raise their tuition rates above the rate of inflation, demand for education loans has continued to increase.

Since federal loans are capped in terms of loan amount, private in-school student loans are a solution for students who have run out of financing options. These students look to their community for assistance, and this is where credit unions come into play.

Student loan refinancing is pitted against rising interest rates. The rise in rates is driving more students with variable interest rate loans to refinance their student loans at a lower fixed rate.

Eighty-percent of LendKey’s student loan refinancings are fixed-rate loans. The opportunity to capture these highly educated borrowers at the beginning of their credit journeys can lead to additional lending opportunities as their needs evolve over time.

Credit unions have started to enter these asset classes with vigor, but only a few are deploying more than 1-2% of their capital into this expansive asset class. Default rates have been low historically, and more credit unions will continue to invest in these growing asset classes to appeal to younger generations, as well as get attractive yield returns relative to other options.


AG Beshear calls on federal authorities to discharge for-profit college student loans when schools close

Attorney General Andy Beshear has called on federal authorities to immediately discharge the loans of Kentucky students who attended for-profit colleges that closed down while students were enrolled mid-program.

Beshear and a coalition of attorneys general are urging U.S. Education Department Secretary Betsy DeVos to fulfill her obligation under federal law to provide immediate and automatic loan relief to borrowers after a recent federal court ruling.


On Oct. 16, the department’s 2016 “borrower defense” regulations went into effect after a federal court held that the department’s repeated delay attempts were unlawful.

Under the department’s automatic closed-school discharge regulations, eligible students are those who attended a school when it closed on or after Nov. 1, 2013, and who did not subsequently re-enroll in an eligible program within three years from the date the school closed.

It is estimated that under federal law, tens of thousands of students nationwide who attended any of the 1,400 schools that closed in 2014 and 2015 – including Corinthian Colleges – are eligible for approximately $400 million in automatic debt relief.

Beshear said the regulations sensibly address the problem by automatically discharging eligible borrowers.

“In Kentucky students attending schools that closed have been left with no degree or benefit and substantial student loan debt, and they are entitled to have their loans discharged with no further action on their part,” Beshear said. “My office will continue to fight for all Kentuckians as consumers but more importantly as students who want to better themselves and their families.”

Among the 42 campuses in Kentucky that have closed since Nov. 1, 2013, are ITT Tech that closed its Louisville and Lexington campuses, and Daymar College that closed 10 campuses in Kentucky. Daymar’s campus in Bowling Green remains open.

Beshear’s office is committed to holding for-profit colleges accountable in Kentucky and is working to help defrauded students.

Earlier this year, The Office of Attorney General won its case against American National University, (formerly known as National College) in Fayette Circuit Court alleging that National College violated the Kentucky Consumer Protection Act by advertising false and misleading employment rates for its graduates.

Separate from school closures, students defrauded or cheated by their school may also be eligible for loan relief based on a federal program known as “defense to repayment.” This program gives victimized students the opportunity to have their federal student loans forgiven. When students submit a borrower-defense claim, they can request to have their loans placed in forbearance and to halt collection attempts, even on defaulted loans, Beshear said.

In 2017, Beshear secured federal debt relief for approximately 2,000 Kentuckians, many of them veterans, who were victimized by predatory practices by Corinthian Colleges Inc.

In 2016, Beshear announced nearly 3,500 former students of Daymar College’s Kentucky campuses and online programs would receive restitution checks totaling $1.2 million. The payments were pursuant to a settlement agreement the Office of the Attorney General entered into with Daymar in 2015 resolving a consumer protection lawsuit.


SOS: Bills return after student loans paid off

Student loan debt

Garrett Hansen wonders if most people who have already paid off tens of thousands of dollars in student loans would even think twice about paying an unexpected, but comparatively small, $779.55 bill from their student loan servicer.

It made Hansen think, though, and more than twice. Then it took him and SOS two months to get it zeroed out.

Hansen, 33, of Milwaukee, contacted SOS in August with a story that sounds a lot like the kind of recurring nightmare a deeply indebted recent college grad might have: He had a letter from March 2017 showing his loans were paid off, but then in June of this year started getting bills from Madison-based student loan servicer Great Lakes Higher Education Corp.

Hansen estimates he spent dozens of hours on the phone with multiple people from Great Lakes, the U.S. Department of Education, and a Pennsylvania loan servicer to which he was referred. Why Pennsylvania? He doesn’t know. He’s never attended college in the Keystone State.

After all that about the most he could say was that “the charge regards a ‘manual adjusted interest cap subsidy’ from the DOE” prior to when he consolidated his loans in November 2012.

“I have been told by multiple people at Great Lakes (GL) that they have never seen one go back this far and be charged this much,” he said via email on Aug. 29. “I have also been told ‘unofficially’ by GL that they were going to eat the cost but no one will confirm or anything. I have also been told (by GL) … that I need to pay it because I ‘owe’ it without any further information as to why, which just seems ludicrous to me.”

Great Lakes was less talkative when contacted by SOS, with spokesman Brett Lindquist saying that due to “privacy rules,” he couldn’t share any information about Hansen’s case but would pass it along to “our Borrower Services team,” which was to contact Hansen directly.

A DOE spokesman, who didn’t want to be identified by name, wouldn’t talk until he got a release-of-information form from Hansen, which SOS emailed to Hansen, Hansen signed and snail-mailed to SOS, and SOS snail-mailed to the spokesman.

Then the spokesman informed SOS that the $779.55 stemmed from information Hansen’s prior servicer had shared with the feds, and reflected “interest that had not been properly capitalized on his loan.”

In other words, someone involved in making sure Hansen paid back his loans, plus interest, didn’t count the beans correctly.

Now the DOE “has determined that the amount billed to Mr. Hansen will be considered as a part of the original paid in full payment,” the spokesman said, as “Mr. Hansen paid his account in full according to the information that he had received from the servicer.”

On Oct. 27, Hansen got a letter from Great Lakes saying much the same thing, and wiping out what was now — after interest had accrued — an $858.41 bill. He says he’ll be keeping the letter, as evidence, for a long time.


Know Your Student Loan Consumer Rights

College girl with money in class

While many new college undergraduates borrow money to pay for college, not all of their debt comes from federal student loans.

In fact, borrowers owed a combined total of $118.17 billion in private student loans in the first quarter of this year, according to a report released by MeasureOne. The semi-annual report includes information from six student loan lenders, such as Citizens Bank, Discover Bank, Navient Inc., PNC Bank, Sallie Mae Bank and Wells Fargo & Co.

The main difference between the two loan categories is federal student loans are backed by the U.S. Department of Education while private loans are funded by private organizations, such as credit unions, banks, online lenders and state-affiliated organizations. This sometimes raises questions about the differences in borrowers’ rights for federal and private student loans.

In addition to the proposed 2015 Student Loan Borrower Bill of Rights that failed to gain traction in a Republican-controlled Congress, there have been recent amendments to revive the effort to expand protections for private student loan borrowers.

Currently, there are several consumer protections in place for federal and private student loan borrowers. The Student Loan Ranger will explore these rights and how these protections relate to different stages of the borrowing and repayment process.

[Read: 6 Tips to Make Extra Student Loan Payments Correctly.]

Borrowers are protected under several federal laws. The Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Federal Trade Commission Act and the Consumer Financial Protection Act all provide a level of protection for private student loan borrowers. The same applies to federal student loans; however, the borrowing process does not require an assessment of a person’s financial capacity or a review of credit history for most federal loans, with the exception of Parent and Graduate PLUS loans.

All borrowers have a right to a full disclosure of terms before signing a loan agreement.

Consumers have debt collection rights. While you may have the benefit of different options for affordable repayment of your private student loans, access to special programs is not a protected right. For that reason, it may be necessary to consider restructuring your loans when it becomes difficult to maintain on-time payments.

Restructuring a private loan may include refinancing a single loan or consolidating multiple loans into one. For short-term affordable repayment solutions, borrowers may choose deferment or forbearance. Debt forgiveness is not a right or guarantee, but there are cases of extreme hardship that may qualify for a loan discharge. The same considerations are true for federal student loans with the additional options associated with income-driven repayment programs, like the Pay As You Earn Plan, known as PAYE, or the Income-Based Repayment Plan, often called IBR.

[Read:What Student Loan Borrowers Should Know About Robocalls.]

Collection of federal and nonfederal student loan debt is regulated by the Fair Debt Collection Practices Act. The FDCPA protects borrowers from being misled, harassed or subject to abusive practices by debt collectors. Similar to collecting an outstanding credit card balance, a debt collector may not threaten legal action unless they are going to follow through, they cannot misrepresent the amount owed or lie about how and when the debt can be collected.

Federal loans offer guaranteed repayment options, so if a debt collector makes any false or misleading statements about those choices, it could be a violation of the law. The same is true if a collector discusses a federal student loan debt with a third party without consent of the borrower.

Complaints can be filed at the federal level and in some states. Borrowers have the right to file a dispute if they are eligible for a discharge, the loan amount is incorrect or they’re experiencing a financial hardship. In the case of fraud, borrowers have the right to dispute a student loan balance if they can prove the loan was a direct result of identity theft. Record-keeping errors on the part of the lender are also within your right to dispute.

Borrowers defrauded by a higher education institution may also be eligible for a loan discharge. Earlier this month, a federal judge ordered the implementation of the Obama-era Borrower Defense rules, which protects borrowers who have been defrauded by a college or university. Borrowers who think they may qualify can file a borrower defense claim at

[Read: How Overhauling the Gainful Employment Rule May Affect Student Loan Borrowers.]

Apart from federal protections, there are several states that have introduced new legislation to protect student loan borrowers. This is a steadily evolving situation as new bills are introduced each year. California, Connecticut, the District of Columbia, Illinois and Washington, to name a few, have already passed consumer protection laws for student loan borrowers.

If you feel that your rights have been violated at any stage of the process, it is important to file a report immediately. A complaint can be submitted online through the Consumer Financial Protection Bureau. If the complaint involves any threats of violence, a report should be filed with local law enforcement.

The Student Loan Ranger advises borrowers to consider the role of officials in their states. It can be helpful to report suspected violations to your state’s attorney general.


New study: Almost half of borrowers will default on student loans in coming years

If you feel like you may never pay off your student loans, you’re not alone — over 1 million people default on their student loans every year.

According to studies from research groups Urban Institute and the Brookings Institute, by 2023, 40 percent of borrowers may default on their student loans, by not making payments for nine months or more.

The average time it takes for someone to pay off their student loans is 19.4 years, and according to an Urban Institute study, student loans are the second largest debt category in the U.S., ranking behind mortgages.

Defaults are actually higher among those who borrow smaller amounts and those who never finished college.

“It’s not surprising that those who go to a for-profit university had the most debt, and even those who don’t finish have high amounts of debt,” said University of North Dakota economics Professor David Flynn.

Flynn said stagnant incomes could be a reason for student loan debt.

“We’re still dealing with the fallout from the financial crisis (of 2009, 2010),” Flynn said. “Income has remained stagnant; not all incomes have recovered since the crisis.”

In addition, a factor in college graduates increasingly defaulting on their student loans may be that more people are going to college, Flynn said.

“More people are viewing college as a way to get the career and earnings that they want,” he said.

These issues have been around for a long time, Flynn said, but are just now coming to a head because of a bigger underlying issue — the rising cost of attending college.

“Eventually all major players are going to have to have a reckoning on what we’re doing,” Flynn said. “Why is this necessary? Are we sending too many people to college?”

Taking on a reasonable amount of debt can help when it comes time to start paying off student loans, Flynn said. The first step in knowing how much to take out is for borrowers to have a realistic expectation for what their income will be after graduation. Borrowers often have higher expectations for their future income, according to Flynn.

Income growth is uneven, Flynn said. Some fields are seeing increases, like computer-based jobs, programming and finance, but others are stagnant. College graduates should be aware of those things, Flynn said, so that they can borrow accordingly.

“Generally, the idea is that a college degree pays for itself, but if you’re borrowing way more than you’re projected to make, that’s not going to be the case,” Flynn said.

Grand Forks native and UND graduate, Alicia Kellebrew, paid her own way through college but still came out in debt. When Kellebrew graduated in 2012, she had about $20,000 in student loan debt.

“Even when you’re making a normal person income, it can get hard to pay student loans and make a car payment at the same time,” Kellebrew said. “And I’m lucky that I didn’t dig myself such a big hole.”

Kellebrew thinks that society has normalized debt, and that people are getting too comfortable taking on more debt than they can handle.

Kellebrew is also a certified financial counselor, and she said that about half of all the people she sees want to talk about their student loan debt. Kellebrew is not shocked by the studies that point to a high number of people defaulting on their student loans by 2023. She talks to a lot of people who have.

“You shouldn’t need an attorney to figure out what you need to do to pay off your student loans,” Kellebrew said.

When they graduated from the University of Jamestown, Annika Caldwell and her husband, Logan, had a combined debt of $97,000, about $40,000 of it student loans.

They have been debt free since March 2017. One of the ways they did this is living on only 15 percent of their income and putting the rest toward their debt.

“I will be totally honest with you it was not fun while we were doing it,” Caldwell said. “But it was so worth it.”

Now, Caldwell is a stay-at-home mom and has dedicated her days to writing a book, “23 and Debt Free,” and becoming a financial coach. Her book will be available on Amazon and Barnes and Noble’s website starting Oct. 23.

Her advice to those struggling is to make a budget.

“If you’re not budgeting and just swiping the card, hoping the numbers come out right at the end of the month, you’re not aware of that spending and you’re going to spend more than you need to,” Caldwell said.

Caldwell and her husband use an Excel spreadsheet to budget, but when they were first married, they had a budget on paper. There are also budgeting apps that can be useful, Caldwell said, such as EveryDollar and Mint.