The parents’ guide to education loans helps to make sense of the loan process and understand how they can mold the terms and conditions to suit their specific needs and requirements.
If you ask an Indian parent about his priority then the obvious answer will be providing a good education for his children. With education inflation at 11% – 12% and expenses escalating consistently, it is no longer a reality without the help of education loans.
Even after creating a sizable education corpus for their children, parents can fall short of the money. Taking out an education loan can bridge the shortfall, provide quality education, and offer tax benefits.
What is an Education loan?
An education loan is a loan taken out for completing the studies. It can be either for studying in the home country or abroad at a foreign university.
The education loan includes tuition fees, caution deposit, travel expenses, cost of books, uniform if applicable, laptop if required, hostel fees, food expenses, and in some cases traveling and other miscellaneous expenses.
Guidelines for Parents Taking Education Loans
Parents often worry about the burden of repaying the education loan at the beginning of their children’s careers but in reality, it is a good thing. Repaying the loan amount on time will create good credit scores and instill financial discipline in the students.
Let us go through some of the important things that parents taking education loans need to look for beforehand.
1. Loan interest
How much interest you have to pay on the education loan matters a lot and this is the first thing parents should find out. Private lenders, banks, and NBFCs are the perfect choices for an education loan hence parents should shortlist three to five lenders with the minimum loan interest.
If the student has exceptional grades or has been admitted to a STEM course in a reputed and ranking university then parents can talk to the financial institution of their choice because banks often reduce 1% interest in such cases.
Choose from the multiple banks and NBFC partners at the Edufund App for higher loan amounts and lower interest rates.
2. Time or duration of the loan
The lenders have extended the duration period from 7 years to 15 years. This means a minimum EMI which is easy to repay even if the initial salary of the applicant is low.
Parents can choose the longest possible loan repayment duration as there is no penalty.
3. Collateral for the loan
Defaults are very common in education loans hence financial institutions or lenders insist on the collateral if the loan amount exceeds INR 7.5 lakhs. The collateral can be fixed deposits or houses etc. Collateral often reduces interest costs.
Take an education loan through the Edufund App as the hassle-free loan process does not require collateral for an amount up to INR 75 lakhs.
4. Co-applicant
Financial institutions insist on a co-applicant or guarantor so that the risk is divided in case of late payment or default. Parents, guardians, or elder siblings working in a reputed company should serve as guarantors or co-applicant as it will help in reducing the interest cost.
5. Margin money
The margin money often depends upon the loan amount and the place where the university is located. It is better to know beforehand the contribution of the lender and how much margin money the parents will have to pay.
Banks often charge 5% for loan amounts above INR 4 lakhs for studying in India and 15% for overseas studies.
Parents need not pay the margin money if they take out an education loan from the Edufund App.
6. Moratorium period
The moratorium period lies between 6 – 12 months after the course study and it is important for parents to sort out beforehand that if the interest is paid in this period then the EMI will be based only on the principal amount and if not then it will be added up and EMI will be loan plus additional interest.
7. Documentation
The parent’s guide to education loans emphasizes proper documentation. It is necessary to submit all the related papers and check the details with an expert to avoid any discrepancies.
8. Start the process as early as possible
The loan application process takes time whereas the universities will give you little time to deposit the fees. Parents should start the process as early as possible to avoid any mishaps later on.
Conclusion
Quality education ensures breaking the shackles of poverty with the help of a good job but it comes at a cost. The parent’s guide to education loans refers to the guidelines that encourage parents to take the necessary steps and apply for the loan.
Parents can apply for education loans through the Edufund App. Use the education calculator on the site to know about the required loan amount and talk to the counselors to compare loan offers and get a clear picture of why taking the loan makes sense. The best thing is that parents will not have to pay any fees for the consultation.
