Pros and Cons of Education Loan?

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Higher education is desired by everyone. An excellent college and university degree somewhat assures a good              career and resultant financial well-being for the future.

Despite inherent advantages of superior education, a growing number of students find themselves stonewalled due to lack of finances. Shortage of funds to pursue higher studies usually occurs due to economic stature of a student’s family.

     Amount of education loan

The sum of money you can borrow to fund education ranges between Rs.50,000 and Rs.1,000,000 for studies in           India. For studies abroad, you can borrow up to a maximum of Rs.5,000,000. Amount disbursed varies per bank.

Educational loans come with a payment moratorium. Repayment is by Equated Monthly Instalments (EMIs)                 commences after the course is completed. Loans are of five to seven years duration, but can be extended at the             bank’s discretion.

Interest rates vary from 7.5 percent to 10 percent per annum. Some lenders credit the loan amount to the                       borrower’s bank account. Others pay the educational institute directly, during span of the study.

  • Loans below Rs.400,000: No guarantor
  • Loans between Rs.400,000 and Rs.1,000,000: Guarantor/s required. Guarantors should have sound credit record.
  • Loans above Rs.10,00,000: Guarantor required. Borrowers are also required to furnish collaterals such as plot of land, house or jewellery or other items accepted by banks.

Terms and conditions to avail education loan, amounts given differ with banks. It is advisable to check with your           preferred bank/ lender about their rules governing education loans.

    Who should avail an education loan

A loan is money spent before earning. Education loan is no different. It is an amount of money borrowed by a               student. Parents are co-borrowers or guarantors. The loan is repaid with an interest, which makes the repaid                   amount  higher.

For example, you will pay EMI Rs. 21,370 on education loan of Rs.1,000,000 for a duration of five years with            10.25 percent interest and two percent service fees. Meaning, you will pay a total Rs.1,302,215 to lender. Bigger           loans require tangible collaterals. Opting for education loan is thus advisable for’

  • Students whose parents can easily afford the EMI.
  • Parents who can offer ‘tangible’ collateral specified by the bank such as land or house that are not mortgaged to any other entity and gold, among others.
  • Students hopeful of earning monthly income in excess of EMI.

Staying within these parameters is vital. Students will usually experience waiting period from graduation to                  earning. Freshly employed graduates might not immediately earn incomes that can bear the education loan burden.

June 23, 2017

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