We come from a country that highly values education—and that is often what makes the entire world seek Indian talent. Whether you are choosing to pursue higher studies in India or seeking opportunities abroad, education can cost you a lot. Many of us do not have that kind of money to make a one-time payment to cover the fees. Education loans can help us pursue our goals in such a scenario.
While education loans have become greatly popular as youngsters are opting for these to fulfil their dreams, these shouldn’t be taken without thoroughly thinking it through. It can take you several years to repay loans and you should ensure you know what you are getting into.
Meghna Jaisingh, a chartered accountant and financial advisor, shares insights on what factors you should consider before going for an education loan.
1) Research thoroughly about your course and institute
“An education loan is a long-term, legally-binding commitment that you cannot disappear from,” Jaisingh points out. “Make sure you are 100 per cent sure of the course you want to pursue. Research well and apply to a university that has a good placement cell or is known to have a good post-graduation hiring rate. You need to have a repayment plan, analysing the average salary you’d be offered once you finish the course,” Jaisingh explains. It’s also better to seek financial aid and sponsorships to make things easier for you.
2) The moratorium period
The moratorium period is the length in which you do not have to repay the loan, such as the duration of your course and a breather after being employed. “Every bank offers a different moratorium period, say extending up to one year or six months after being employed. Choose one that seems the most feasible according to your repayment plan,” Jaisingh suggests. “But remember, interest will continue to accumulate in the moratorium period and you are allowed to pay it off during that period,” Jaisingh adds.
3) The total cost of your loan
The total cost of your loan is the amount you borrowed plus the interest you incurred. “Many people opt for a longer repayment period, to lower the EMI amount. However, this ends up significantly increasing the total cost of the loan due to the interest incurred,” Jaisingh explains. She advises one to repay the loan as soon as possible to reduce the total cost, depending on how big of an EMI amount is feasible.
4) Bank’s policy on pre-payment
Pre-payments of loans can significantly lower the total cost of your loan, working to your advantage. “Before opting for an education loan, it is essential to check if your bank allows pre-payments and part payments. Many people use bonuses and savings to repay their loans in chunks, as and when their earning capacity increases. However, there are financial institutions that penalise borrowers for pre-payments so one should be aware of their bank’s policy before taking the education loan,” Jaisingh explains.
5) Default and extensions
One must never default on their education loan. “If you have a genuine reason beyond your control, due to which you are unable to pay the EMI or need an extension, you should be able to approach your bank for a solution,” Jaisingh explains. “Ask the financial institution for their policies on the same but ensure that you do not fail to pay your EMIs on time. It can hamper your as well as your co-borrower’s credit score, making it difficult for loan applications to get approvals in the future,” Jaisingh says.
Also Read: 7 Tips You Should Add To Your Finance Checklist For 2022