Do you think education loans are only for prestigious universities like Ivy Leagues or Oxford and IITs? Do you think the moratorium period is interest-free or you can only get an education loan if you are going to study specific courses? Then you need to read this blog!
It’s time to dispel the myths about education loans and help you plan for your higher education smartly with all the facts in check!
The moratorium period is interest-free
A myth about education loans is that the moratorium period wherein the borrower is not obligated to make payments is interest-free.
This is not true; the moratorium period is a time when it is not compulsory for the borrower to start making payments to the bank. The interest accumulated during this period is added to your next installment and not waived.
Banks generally calculate the interest generated during the moratorium period and add it to the principal repayment amount.
Most banks offer a moratorium period for education loans. During this time horizon, the borrower must figure out their expenses and work on a financial repayment plan for the loan.
Education loans are only for foreign universities
Education loans are offered for Indian and foreign universities. The myth about education loans and lenders is that education loans are only given to students planning to go abroad and for huge amounts like Rs. 50 lakhs or more.
This is incorrect, parents who wish to educate their children in India can avail of education loans starting at Rs. 50,000 and more.
They have the flexibility to choose their lender and figure out the best interest rate and the most favorable loan requirements for their child’s education.
In fact, most banks allow students to take on a personal loan to take online courses and even online master’s programs to upskill and aim for better job opportunities.
Yet seeking an education loan for an online degree is not an option at the moment.
Education Loan Process
Self-financing is better!
Using savings is better than taking a loan is another misnomer and myth about education loans. While it is ideal to have an education fund that can sponsor your education, it may not be possible for everyone.
In fact, 60% of Indian parents regret not saving for their child’s education but that should not stop you. Neither should you opt for selling assets or borrowing informally, education loans offer flexibility and can be a good alternative for children who are in need of immediate funds from trusted institutions.
Taking an education loan means you won’t have to sell your assets, you will have time to start the repayment process and the stress of paying immediately will be lifted off your shoulders.
Taking a loan can also help you in the long run with credit building and other expenses.
Education loan is only for Ivy League
Another myth about education loans is that only students going to Ivy League colleges can opt for them. Education loans are given to candidates who have a good application and are applying to a recognized university.
You do not have to go for an Ivy League to apply for an education loan, all you need is a good course and a recognized university so that your application can be processed and verified!
Education loans only cover tuition fees
Education loans cover a number of expenses including tuition fees, accommodation, application fees, flights and books, and more.
It helps you sponsor your education and not just tuition fees. It gives you the flexibility to decide how you spend your money and how much you need to comfortably settle into your new life as a student.
Applications without collateral are rejected
Applications without collateral are not rejected; in fact, many education loans are collateral-free. Collateral-free means you don’t have to pledge an asset (like land, house, or FDs) to avail of an education loan.
Education loans are designed to make education more affordable and accessible for the general public which is why some education loans do not have a collateral clause as well.
You can only finance your education with a loan
No! There is ‘n’ a number of ways to finance your education and a loan is just one of them. You can sponsor your education with scholarships, grants, bursaries, and an education fund your parents may have saved up for you.
As a parent, you can help your child fund their education through SIP in mutual funds, by investing in US stocks, and by exploring different investment options.
An education loan is also a great alternative to help you finance your dream college and career, it helps you with big expenses like tuition fees, accommodation as well and visa applications where you have to show proof of funds in order to fly to a study abroad destination.
You can finance your study abroad or higher education dreams in combination. If you have some savings and lack the rest of the funds then an education loan is the right way forward.
We hope this article helped you break all the myths about education loans! If you are looking for the right education loan for your child then look no further, contact our savings experts to get the best loan at attractive interest rates.
FAQs
Is taking an education loan a good idea?
Student loans are a great way to build credit. With the increasing credit score, your child will be qualified for future loans of this nature. It will instill self-belief in them regarding their capacity to be self-sufficient. With education loans, you get to borrow money at relatively lower interest rates.
What will happen if I don’t pay education loan?
Non-repayment of an education loan is a legal offense. An education loan is a legally binding contract given to the applicant on the condition that they will repay the lender/bank in a timely duration. It is not a scholarship or donation. Students must beware that the bank can take legal action against them and their co-applicant if the loan is not repaid according to the two parties’ agreed-upon repayment process. In fact, the lender is within their right to confiscate any collateral pledged as security against the loan taken.
What are the disadvantages of education loans?
One of the disadvantages of education loans is that they can be stressful. They are like an albatross around your neck throughout your college days, and once you start a new job, a majority of your income is contributed to their repayment. The repayment cycle can also be long and tenuous—it can go up to 15 years.
Is self-financing better than taking an education loan?
If you or your parents have limited savings, an education loan is better than self-financing. Education loans allow you to be independent and not depend on your parents’ savings to sponsor your higher education. There are also tax benefits of education loans that you and your parents can reap.
