Paying for education can be a tricky affair. Cost of education in some of the top colleges in the world are starting to become out of reach for the common people, and it is not too different in India as well. In fact, fellow students of my college pay upto 20 lakhs for a four year engineering degree.
Higher education can become out of reach for many families. This is where student loans come into the picture. Banks tend to offer generous loans to students taking up courses in highly reputed colleges, as these students can also be expected to pay back the loans much more easily.
However, student loans have a dreaded image in the minds of many, with the United States of America in $2.1 trillion of outstanding student loan debt. So in this article, we are covering the process of taking a student loan in India carefully and wisely.
What is a student loan?
A student loan is an amount borrowed by a student or his/her parent/guardian to pay for the education of the student with interest, usually for higher studies like undergraduate and postgraduate programs. Typically, these loans are taken by students willing to take on financial responsibility or parents unable to provide the finances for the school/university fees. The maximum amount offered to domestic and overseas courses varies from bank to bank.
These loans can be taken for various fields like engineering, medicine, management, architecture, etc and can be for part-time or full-time.
What are the requirements for getting an student loan?
To be eligible to apply for a education (student) loan, you have to be a citizen of India, and should have secured admission into a legally recognized college, like UGC or AICTE in India. He/she should have also completed higher secondary level education and should be confirmed admitted in the said college.
Documents required for education (student) loan
- Admit letter from the college
- Fully filled and signed application form
- 2 passport size photographs
- Copy of 10th and 12th mark sheets of 10th/12th
- Statement of cost of study
- Copy of Aadhaar Card of the student and the parents/guardian
- Copy of Pan Card of the student and parents/guardian.
Advantages of taking an student loan
Apart from being able to attend your education despite lack of temporary funds and taking responsibility yourself, additional benefits include
Protectition of your savings:
Education loan allows your parents/guardian to continue with their savings plans instead of having to spend on your education. This will make it easier for them to achieve their long-term financial goals like building a sizeable retirement corpus or buying a house without having to depend on your future earnings for their survival.
Most education loans cover not only your tuition fee, but also cover some of your other course expenses like hostel, exam fees, lab fees, book fees,etc. This helps in further reducing your parents' financial burden by a large amount.
If you are prudent enough, you could cover the entire interest of the student loan qualify by income tax deduction under the Section 80E of the Income Tax Act, a deduction can be claimed for up to eight years.
Unlike most other loans, you will not be required to pay the student loan immediately after you graduate. You will be given a moratorium period (i.e. a relaxation or a holiday period) from 6 months to 1 year from the date of completion of your degree, giving you plenty of time to find a good enough job to begin repaying your loan.
Arguably the biggest benefit of taking up a student loan, you are likely to earn a positive and high credit score if you can repay your loan within time. This will help you with your credit cards and qualification for car loans and house loans much more easily in the future.
Points to remember before taking a loan
There are many things that can go wrong while taking a loan. Be very careful and keep an eye out for these behaviours of yours.
Borrowing more than needed:
You may be able to get a loan of around 20 to 40 lakhs, all expenses combined. However, try reducing the amount you may have to borrow as much as possible, as the higher your loan capital, the higher you’ll have to return in interest. Do not include unnecessary and extravagant expenditures in your student loan that you may be capable of providing for yourself.
Becoming too relaxed:
Now that you have the responsibility to pay off the loan yourself, take up more responsibility and seriousness in your academics. Ensure you can make it as easy as possible to pay off the loan for your future self. Take up a course that genuinely has scope for you to pay back the loan. If possible, find a part-time job as well to pay for your non-academic expenditure instead of using your loan amount. (adding to the first point). Don’t make the same mistakes our American counterparts do.
Not researching and exploring all options:
Ensure that you evaluate all loan offers available before finalizing on one. Go for the banks that have the best settlement periods and interest rates.
Choosing long-term repayment over short-term repayment:
Long-term repayment, where you will be require to pay a small instalment every month over a long duration, while more comfortable, can be a long-term debt problem for you compared to short-term repayment. Aim to clear your debt quickly and not let the interest of the loans accumulate for too long. If you’re not careful enough, you may end up paying more in interest than your original fees.
Not reading the fine print:
Ensure that you don’t end up choosing an education loan that doesn’t even cover your necessary expenses. If you are not well-versed enough in finance to figure out if the deal is good enough for you or not, do reach out for professional advice. This one time expenditure will save you a lot of money and trouble down the line.