Education Loan Interest Deduction under Section 80E: Does It Improve Access to Higher Education?

This paper examines how the effectiveness of Section 80E of the Income Tax Act 1961, which legislatively allows a deduction of tax on interest charged on education loans, to boost access to higher education in India. Even though the provision has an unlimited deductible interest up to eight consecutive fiscal years, its real-life effects on education levels especially those among the economically disadvantaged groups are unclear. Using a mixed-methods design that combines quantitative measures of education-loan data, enrolment statistics and qualitative measures of policy effectiveness, the study questions the substantive expansion of access to higher education that is provided by the Section 80E or a policy favouring families with middle and upper income levels who would like to continue their studies at a higher level. Results demonstrate that although Section 80E provides significant tax relief to borrowers, the scope of its access plays out amidst structural hurdles such as lending process, collateral requirements and absence of awareness that limits its accessibility to the economically disadvantaged segments. The research shows that the regressive nature of the deduction brings disproportionately more benefits to the higher-income borrowers and that results in a paradox in which wealthier borrowers are offering the most subsidies. The paper ends with policy suggestions to increase the effectiveness of the provision, such as changing it to a refundable tax credit, combining it with the new tax system, harmonizing incentives with loan guarantee programmes, and use of specific financial-literacy programmes.