Investing in one’s education is buying one’s future, and in India, student loans are available to help finance higher education for millions. With steep tuition costs and limited scholarships, education loans are a necessity for many. Education loans, though, should be used with care to avoid future financial issues.
In this article, we will discuss education loans in India, how to use a student loan, and the most important things to consider to ensure a bright future without an excessive debt load.
Student Loans in India
Before detailing how to use a student loan in India, let’s consider what student loans are. Education loans is a financial “product” provided by banks and institutions to pay for students’ tuition and related expenses, such as, accommodation, study materials, and payments to tutors.
These loans are usually offered for undergraduate along with postgraduate courses studied in India as well as abroad. The interest rates depend on the lender, the course, and if the loan is for domestic or international education. Repayment usually starts after course completion. Most loans give a grace period after which months of payments are due.
Loans for Education in India
There are two broad types of Education loans.
- Domestic Education Loans: Loams of this type are for courses taken in India. If the course is a professional one such as in engineering, medicine, or business, the loan amount is usually larger. Most domestic education loans cover exam fees along with hostel and other costs for the course.
- Foreign Education Loans: These loans are meant for students that want to study in a foreign country. Loans of this type have higher amounts to cater for expensive international tuition fees, travel, and accommodation.
Comparison of Domestic and Foreign Education Loans
| Feature | Domestic Education Loans | Foreign Education Loans |
| Loan Amount | Typically ranges from ₹10 lakh to ₹30 lakh (depends on course and institution) | Can be higher due to international tuition fees (up to ₹50 lakh or more) |
| Interest Rates | 7% to 12% (varies by bank and course) | 9% to 14% (can be higher for foreign education) |
| Repayment Period | 5 to 15 years after course completion | 5 to 10 years after course completion |
| Collateral Required | Typically, collateral is required for loans above ₹7.5 lakh | Collateral may be required for loans over ₹20 lakh |
| Eligibility Criteria | Indian student with confirmed admission | Confirmed admission in a recognized foreign institution |
| Tax Benefits | Yes, under Section 80E of the Income Tax Act | Yes, under Section 80E of the Income Tax Act |
How to Use A Student Loan Wisely `Taking an Education Loan is an Empowering way to make future Investments`
It’s important to plan for the future while being smart with your loan. Here is some advice about how to handle your loan and how to do so without the financial stress in future years:
Section 1: Only take out the funds you require
Students frequently make the error of loaning far too funds. In your case, while it may be overdemanding, you should get a clearer picture of how much funding and how much you must borrow. Because of the interest that accompanies loans, the more you borrow, the more you will have to bring back.
Tip: Make a plan and include the basic costs like tuition, place of residence, meals, travel, learning aids. Always include a backup fund for the unforeseen, but take a loan that is reasonable.
Section 2: Know the loans terms and conditions
Don’t feel pressured to take a loan immediately. This step has specific rules, and they must all be checked and confirmed. Do all of your research, but, for now, you should make sure that you will pay the loan you take on time and that the interest rate is reasonable, and that you will not pay hidden costs on the loan.
Tip: It can be helpful to talk to a financial advisor or someone with experience taking educational loans to understand the processes better. Feel free to ask your bank any questions.
3. Repay loans as soon as possible
Most loans will let you take your education courses before starting your repayments, but consider repayment options and plans ahead of time. More specifically, budget how much you will owe per month after the repayment period starting. It is pivotal to your overall budgeting.
Tip: Examine whether you can take part-time jobs or internships while in school to save on your debt after graduation. If you start repaying sooner, you will save on interest as time goes on.#### 4. Watch For Scholarships and Grants
If you already have taken a loan, you can still search for scholarships and grants for the course you are pursuing. Any scholarship you can get will reduce your expenses and subsequently the loan you will have to pay.
Tip: Universities, both in India and abroad, offer scholarships based on academic performance, financial difficulties, and other talents. Look for these opportunities to apply for to reduce the burden of loans.
5. Be Informed About Your Loan Status
Being in the know about your loan status is crucial. You should know all the details for all of your loans. You have to keep track of payments, re payments, interest, and if any changes are made to your loans. You should always pay your loans on time to avoid any penalties.
Tip: Track your payments on a finance app and set reminders for your payments and your overdue/down payment so you avoid any surprises. Your finance tracking should be and can be a regular thing in your life so you avoid surprises.
What Happens if You Default on Your Education Loan?
Defaulting on an education loan can negatively impact you in several ways. First, it can worsen your credit score. Additionally, defaulting can entail an increase in interest rates, possible legal action, issues with obtaining additional loans in the future, and, in some instances, the loss of any collateral you may have put up.
Note: If you are facing difficulties with making payments on your education loans, you should reach out to your bank or financial institution as soon as possible. Many lenders have education loan restructuring options available that may allow you to stretch out repayment periods or lower the EMI for some time.
Conclusion
Education loans can be a vital opportunity for students to access higher education. However, this financial opportunity must also be handled with care. Borrowing only what is necessary, as well as understanding the terms and conditions, covering the costs with a repayment plan, and applying for scholarships, are all methods of ensuring that an education loan is a beneficial resource and not a weighty responsibility.
Keep in mind that each of the loans you borrow will help you finance your education, and taking the right steps in choosing loans will help you reach your goals academically and career wise. Make sure you choose the right loans, make a budget, and stick with it. If done successfully, you will be able to take your education and finances to the next level.
