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Households typically spend about 7 per cent of their income on education but Government spending on the same was just 3.5 per cent of GDP. In the last decade, the share of household education spending increased at about 20 per cent a year, while Government spending increased at 3 per cent a year.
Extending limit on CEA
The tax laws, however, haven’t recognised the increase in education spending. Income tax laws limit the Children’s Education Allowance granted by the employer (offered primarily by State and Union Governments) to Rs 100 per child per month (for a maximum of two children). The limit was set in the year 2000 and is expected to be increased substantially in the Budget.
Separating Fees from 80C Deduction
Related to this, section 80C of the Income Tax Act allows an income earner to deduct fees paid for the education of dependents under the Rs 1 lakh limit. However, the education expenses are clubbed with a lot of other deductions — ranging from pension savings to life insurance. Keeping in view the increasing cost of education, many parents are hoping that fees be eligible for a separate deduction.
Credit Fund for Education Loans
With the cost of education, especially higher education, on the rise, more people are looking to fund education through bank loans. Section 80E allows for deduction of interest on loans taken for higher education of family members, without any limit from one’s income.
However, only 7 per cent of the nearly 1.5 crore students enrolled in higher education courses avail educational loans, due to the reluctance of banks to offer education loans. Repayments have been an issue and education loans currently feature a high proportion of non-performing assets for banks. Additionally, students who pursue vocational education do not have access to bank loans.
To assuage the fears of banks and increase the number of beneficiaries, a Credit Guarantee Fund Trust (CGFT) for Higher and Vocational Education was announced in last year’s Budget. The trust fund would provide credit guarantee to banks for education loans (to the extent of 75 per cent of the amount defaulted) through its corpus of Rs 2,500 crore. This will be used for providing collateral free loans of up to Rs 7.5 lakh (higher amount under special waivers) to students with annual family income below Rs 4.5 lakh. The measure is awaiting Cabinet approval.
The education loans portfolio is currently about Rs 50,000 crore, with State Bank of India leading with a 33 per cent market share. Recently, NBFCs such as Dewan Housing Finance have entered the space with the launch of Avanse Education Loans.
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