With the cost of education skyrocketing, educational loans have come to play a pivotal role in many people’s lives. These loans help anyone who wants to pursue higher education. They are most useful when it comes to courses at premier institutions that cost a lot. Parents can afford to send their children for higher education and students can also pay for their own education.
These loans can be funded by jobs that they get after completing the course. But educational loans can be a significant burden if they are not managed well. Here are few tips to help you manage your further studies, loans and help you pay them off with ease.
Choosing your course – Your purpose in taking a loan should not just be to go abroad. You should choose a course that interests you and turn it into a career. Don’t let what the rest of the world is doing blind you from pursuing something that you would excel at. For instance, a student who is forced to study engineering may not do so well or even complete the course. But if the same student is interested in law, he would make a great lawyer which would have led to a successful career and a more content life. Therefore, a good piece of advice is to find your passion by doing your research on what the course entails before deciding on it. 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 of utmost importance 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, the right institution would make a big difference. Recent headlines have been about students being deported and denied access to fly to America. The top most reason for this was because the university they selected was under investigation or blacklisted. Choosing a university that has been blacklisted will most definitely mean you have wasted your time and a lot of money. These universities are under scrutiny because they accept students without academic credentials to make money from the high fees they charge.
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 be sure to be knowledgeable on your college, course, loan and placement and so on. 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. 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. It is advisable to select a bank that offers you the best loan terms rather than the most finance. Also, check if you are allowed to pay EMIs in advance or make part payments towards the loan. Learn about all the service charges that are applicable on your loan. Prepayments 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 a foreign country, a VISA makes you eligible to ente but it 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 questions 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 include the date of births, addresses, educational qualifications, employment and so on.
- Total cost over EMI:
Some people opt to take a 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 lakh taken for five 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 be Rs.15,20,10. 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 repay it faster.
- Pay before you have to:
Moratorium periods are holiday periods that are usually the duration of the course, plus 1 year after the course, or 6 months after being employed. 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 which will lessen the burden of the loan as well as 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 may be understanding. Though they may be hard to persuade, if it is a true and exceptional situation, banks may extend your repayment or moratorium period. For any other event beyond your control that renders you unable to complete your course on time, the banks may also extend your repayment tenure. You should understand that this is only in truly exceptional cases where banks might consider different options. But never default on paying your educational loan. If your parents are 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 and proper planning are required 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.