A Student’s Guide To An Education Loan

Here are the factors students must consider before taking the plunge to obtain an education loan

In India education is everything. Rightly so, since it brings with it the promise of a good job, a wealthy lifestyle, security and a good life. That being said, a good educational background has become increasingly expensive to the point where most students today are considering taking a loan to pay for their degrees after class 10 and 12. While most students are eligible for education loans, the steps to acquiring one can be tricky and tedious. To make the process easy, we list some factors you must consider before applying for the loan.

Eligibility

Before application, knowing if you are eligible for a loan is important. Eligibility can be verified by means of online eligibility calculators set up by banks. Most banks offer loans to students aged between 16 and 26 years. But often, the eligibility varies from one bank to the other.

Research affiliations between universities and banks

Most universities and colleges, both national and international, have associations with banks, or financial or educational loan institutes. These
associations translate to subsidised rates of interest and longer repayment periods for students. Benefits such as these are always welcome in the student community since it gives time to the student to secure a proper job after their studies to afford repayment.

Analyse the status of your current funds

Before opting for an education loan, the first thing to do is to assess your current available funds. Funding through scholarships, for example, would reduce your upfront loan burden considerably. Once you have shortlisted your choice of programme and university, speak to the Institute on the scholarship options that you can avail.

Assess your loan repayment capacity

Carry out a thorough research of your course, the job offers that follow and your starting salary. Many student loan providers allow a student approximately 10 years to repay the loan taken.  The faster the loan is repaid, the more money a student will save as at the end of 10 years the loan amount only doubles due to change in interest rates if not paid during the stipulated time frame. Hence, look up your course details, contact teachers and inquire about the salary growth of earlier students and then decide if you will be able to repay the loan amount.

Identify loan providing institutes

While looking for loans, you will come across a number of student loan providers. From the sea of banks and other institutes, choosing one that best works for you is extremely important. Along the way you might also stumble upon bogus institutes that lure naïve students with their low rates of interests and other facilities that seem too good to be true. Putting rates of interests, eligibility and margins of one bank against others helps in giving a student a clear outline of the available options for a loan.

Is your loan amount sufficient?

The loan amount that you have applied for must be sufficient and must encompass all your costs. The cost of books and uniforms (if applicable), travel expenses, hostel rent, food and even a personal laptop – if need be – must be covered with your loan amount. Also, make sure that you do not borrow more than you need as it will cause problems during repayment.

Consider a co-applicant

A bank or a specialised loan institute requires any one parent to be a co-borrower or a co-applicant while seeking an education loan. However, siblings or relatives with salaried incomes are also acceptable by most institutes. The grant of a loan is directly tied to the co-applicants earning capacity as in the event of a student’s inability to repay the loan, the responsibility of covering it passes on to the co-applicant.

Have adequate ancillary security

In order to take a student loan, you must make sure you have sufficient collateral security available. This can be in the form of property, shares or fixed deposits. These forms of security also help in getting a better rate of interest.

Have all your documents in place

Have all the required documents in place before a loan application. Ask your loan provider for a list of documents you will require during the process of acquiring a loan. Some of the more common documents are identity, age and address proof, co-applicant’s relationship proof, address proof and income proof. An admission letter with the fee structure from your educational institution is also required. If you are going to study abroad, visa approval papers, GMAT, SAT, GRE scores, etc are additionally required to support your loan application.

Explore all your repayment options

Decide the repayment option in consultation with your parents. That is, if you want to start EMI, or simple interest or want to go for a moratorium. If you start simple interest payment or Monthly Instalments, it will reduce the burden once you graduate. It is advised not to go for moratorium unless required since it adds to the burden.

“Compare not only the rate of interest of the education finance but also other benefits like easy repayment options, flexibility to pay from abroad, online customer services, etc from your loan provider. Non-bank financial companies  (NBFCs) and dedicated education loan institutions provide flexibility on all these counts.” – Neeraj Saxena, CEO, Avanse Education Loans

DEFAULT ON PAYMENTS

It is important to know and understand that any default in EMI payments reflect in your credit report, lowering your credit score for any future borrowings. Another important point to remember is that if parents co-sign on the loans, they are liable for the loan.