Everything you need to tell your child about education loan
In the previous article, we discussed how to plan for your child’s bachelor’s in Australia? In this article, we will talk about what to tell your child about education loan
It is quite interesting how one day students go from choosing their study course to choosing a student loan for their higher studies. Many students choose to take an education loan and end up struggling with it. It is mainly because they don’t have clarity about how education loans work.
So, it only makes sense to step in as a parent to have a serious conversation regarding an education loan with their kids. It’s never too late or early to talk to your child about the cost of college. Moreover, if you haven’t saved much for your child, you can always start doing it now. Bear in mind that every penny counts.
What should your child know before taking an education loan?
1. They need to repay the loan with interest
When one takes a loan, they must repay all of it, including interest. No other time can be best for you to explain this to your kid. Tell them how the loan-taking procedure works. You will also come across certain student loans which do not add up the interest when your kid is in college.
Nevertheless, repaying it with interest is a must for all other loans. The interest levied on private and government student loans work similarly to auto loans or home mortgages.
2. There are different types of loans
While you talk to your child about taking an education loan, ensure that they understand the difference between the different types of loans. So, when it’s the right time, fill out the loan application form with your child. It will give them a better understanding of the loan procedure.
You will come across various education loans that cater to the requirements of different education programmes. You may apply for a loan based on the type of education course like diploma and certificate courses, skill-based courses and studying abroad loans.
Regardless of the course, two main categories of student loans are:
- Domestic education loan: Those who want to pursue their education courses in their own country can apply for a domestic education loan. Your child must meet the eligibility criteria and obtain approval from the lenders.
- Study abroad education loan: This loan is beneficial for those who wish to study in a country different from theirs. The student has to secure a seat in an institution among the eligible list of colleges/universities to get their loan approved.
3. Courses that get loan preference
Usually, engineering, medical and management courses get faster approvals for a student loan. Financial institutions provide a loan based on the course type you select, such as:
- Graduate student loan: This loan is applicable for those who want to continue studying in institutions in their own country. It is specifically for students who plan to pursue postgraduate degrees after completing their undergraduate programs.
- Undergraduate education loans: These loans are available for those students who want to pursue their undergraduate degree courses.
- Professional education loans: Many banking institutions offer loans to students who want to go for career education.
The most important factor of a loan provider is the applicant’s repayment capacity. Therefore, it makes sense to apply for a loan for courses that have a higher chance of giving you better job placements and offers a high-income generation.
4. High-amount loans require a third-party guarantor
Student education loan amounts may vary from Rs 1 lakh to Rs 30 lakh. For loan amounts up to 4 lakhs, you need not provide any third-party guarantor or collateral. Nevertheless, for loan amounts above 4 lakhs, providing a third-party guarantor is a must.
Almost all banking institutions will ask you to provide a co-applicant or a guarantor when applying for an educational loan. This is because when the applicant is unable to repay the loan, their guarantor has to take care of it.
5. The repayment period starts as soon as the course ends
Help your kids understand the loan repayment procedure. The applicant is responsible for repaying the loan. It is highly recommended that the applicant starts repaying their loan as soon as they can. The repayment period will start at the end of the course.
Certain banks may offer a relief period of 6 months after the student’s course ends. The repayment period can be between five to seven years depending on various factors such as the value of the loan, interest, EMI etc.
Educate your kids about the process of applying for a student loan. Also, make them aware of the consequences of not repaying the loan. This will only make them more responsible for each step they take while applying for a student loan.