With growing competition and race to at the top institutes, education has become an expensive affair. If one requires the best quality education, despite huge savings from parents, it is still not enough to fund a child’s education. According to a study, education loans are amongst one of the primary lending categories. These loans can be funded by jobs students get after completing the course. But, educational loans can be a big burden if it they are not managed well.
Here are few tips to help you manage your further studies and your loan and help you pay it off with ease:
Choosing your course:
Don’t let what the rest of the world is doing blind you from pursuing something that you would excel at. Choose a course that you are interested in and that you would be dedicated to turn it into a career. Let’s take for instance a student who is forced to study engineering may not do so well or even complete the course. But the same student might have been interested in law and might have made a great lawyer which would’ve led to a successful career and a more content life. You should also look at career options after your course is complete, and if you would be able to land a job to pay off the loan.
Choosing your institution:
Research about the institution is very important when applying for a course. Some universities may have a good name, but may not have a good placement strategy. When applying for courses abroad especially, the right institution would make a big difference. Choosing a university that has been blacklisted will most definitely mean you have wasted your time and a lot of money.
Choosing to apply on your own or through an overseas consultancy:
When you choose to apply on your own, there are a lot of procedures to be completed. You will also need to do extensive research and apply to colleges when seeking a loan, you will have to approach the bank by yourself and find out what you are eligible for. If you choose to go through a consultancy, they will take care of a lot of the details for you and help you with the process. But whichever option you choose, be sure to educate yourself on the country’s laws and requirements. Also, carefully pick your college, course, loan and placement after thorough research. A good student will research every detail including how could the professors are.
Choosing your bank:
A number of banks offer educational loans for different courses in India and abroad. They offer unsecured loans for small amounts. Security is required for loans that are required to fund expensive courses. Choose a bank that will provide you with the best moratorium period, interest rate and terms to pay back the loan. Also make sure you have the option of repaying the loan early. Check if you are allowed to pay EMIs in advance or make part payments towards the loan. Know about all the service charges that are applicable on your loan. Pre-payments and part payments might carry a penalty.
- Know your stuff: Whether you are planning to study in India or abroad, you should know the details of your further studies and the loan you have taken. If you are entering another country, a VISA makes you eligible to enter the country but is not an all-access pass. You could face interviews at the airport about your purpose and details of entering. You should be prepared to answer all question relating to your course, institutions, professors, cost of the course, loan amount, repayment schedule, interest rates, and so on. You should also be aware of your personal details and your family details that includes date of births, addresses, educational qualifications, employment and so on.
- Total cost over EMI: Some people opt to take the loan for a longer duration because the EMI will be lesser. But in this situation, the cost of the loan and the interest paid will be much higher. For example, Rs. 10 lakhs taken for 5 years at 9% interest p.a. will result in an EMI of Rs. 20,758 and the total cost of the loan will be Rs. 12, 45,501. The same loan taken for 10 years will have an EMI of Rs. 12,668, but the total cost of the loan will Rs. 15, 20,109. You will pay Rs. 2, 74,608 more for the extended tenure. So, if you have good prospects of a well-paying job after the course, you can opt for a shorter loan tenure. Though your EMI is higher, your loan will be cheaper and you will also finish it faster.
- Pay before you have to: Moratorium periods are holiday periods which is usually the duration of the course, plus 1 year after the course, or 6 months after being employed, whichever is earlier. During this period, you do not have to make payments on your loan, but interest will accumulate throughout this period. You are allowed to pay off the interest during the moratorium period. This will help lessen the burden of the loan. It will also make the loan cost less when you finally have to start paying your EMIs.
- Take the loan in installments: Banks charge interest on the amount of money disbursed. Usually, you are required to pay for the course each semester or each year. So it would be smarter to take the loan as and when required. This way the interest accumulated will be much lesser. Rather than the amount being sanctioned in one lump sum, make sure the amount is disbursed as and when required.
- Have a plan for repayment: Budgeting will be important when you have a loan in your name or your parent’s name. Once you start earning, you need to strategize to pay back the loan. You should be prepared to cut costs on unimportant things and focus on repaying the loan as quickly as you can. Loans become burdensome after a while so it’s better to clear it before you feel the toll. Use extra cash or bonuses to make part payments on the loan. You will save on a lot of interest.
- Tax Benefits: You can avail of tax benefits under Section 80E of the Income Tax Act on the interest you pay on your educational loan. To be eligible for this deduction, your loan should be taken from an Indian scheduled bank or a gazetted financial institution. The deductions are available only for the initial assessment years and seven years after, or till you pay off all the interest, whichever is earlier. So, the maximum tax deduction period is 8 years. Opting for a longer loan therefore means that you will get the tax benefit only for the first 8 years.
- Defaults and Extensions: If you are unable to land a job due to macroeconomic reasons that are genuine, banks maybe understanding. Do not default on paying your educational loan. If your parents a co-borrowers, it will hamper future credit opportunities for them and yourself. If you have offered collateral, that will also be at stake if you are unable to repay the loan. So before you take a loan, research well and plan properly to ensure that you can pay it back.
Finally, if you are planning to study further, have a clear plan in mind but with room to adapt. No plan is fool-proof as the world can throw us many curve balls. Before taking a loan to fund your education, you should know the implications of it. Be prepared for the best and the worst. This will help you manage your educational loan and pay it off without much burden.
(Edvantage Point is India’s go-to platform for related products and services. We are into admissions management for schools, career advice and counselling services for students as well as recruitment services).