When I did my MBA, just over a decade ago, the tuition cost of doing it, from what was considered one of India’s best business schools, was under Rs 3 lakhs. Adding living expenses and the cost of textbooks and other things, it was still possible to complete one’s education in under Rs 6 lakhs, even less if you already lived in Mumbai. Today, the cost of tuition alone runs into close to Rs 15 lakhs.
As for overseas education, while it has never been cheap, foreign Universities have consistently been increasing their fees for International students in an attempt to keep the costs reasonable for the locals. The total expenditure of fees and cost of living can easily range from Rs 50 lakhs to 1 crore and more, and it is the students who have bear the brunt of this.
The solution to these financial woes is, of course, the Education Loan. These are loans specifically designed for students, and are disbursed to cover the cost of education. They usually also come with a moratorium clause, which means that the person taking the loan does not have to start paying EMI’s for the duration of the educational course being pursued.
However, there are a few things we recommend you keep in mind before opting to avail of this loan, summarised below:
Education loans have become costlier
A spate of defaults over the last few years have made Banks increase the rates from what they were. Where earlier education loans were given at a rate below the Bank’s prime lending rate, they now tend to come at a premium. This means that the amount you will have to pay as EMI has increased, and the onus is on the student to find the banks that charge a relatively lower rate.
Evaluate the commercial viability of the course and institution you intend to pursue:
In an ideal world, education and commerce would not be interlinked, and we would be free to pursue the courses that interest us the most. However, when opting for an expensive loan, with an interest cost attached to it, it has become important to evaluate just how long it will take the pay the loan back. In this context, it needs to be pointed out that a degree in medicine, management or engineering is far more likely to lead to a high-paying job than one in the liberal arts. So before committing to a large EMI, do look at whether the course you pursue is likely to yield enough income to pay it.
Track the placement record of the college you are applying to:
In the heady days of the stock boom of the 2000’s, it was not unusual for B-school graduates to make salaries that were much more than their course fees. This meant that the EMI itself was rarely more than one-fifth of the monthly take-home salary, and easily paid off, becoming little more than a minor item of expenditure by the time most of us had received our first promotion. This is no longer the case, with the increase in starting salaries not having kept pace with the increase in fees. So do ensure you have carefully evaluated the placement track record of the college you are applying to.
Your education loan affects your credit history
For most of us, the education loan will be the first loan we take. So it should not come as a surprise that it, and how regularly we pay it, become an important component of our lifetime credit record. Missing instalments on your education loan can make it difficult for you to get a credit card, auto loan or home loan later.
Prefer banks to other avenues for loans
In order the avail the tax benefit under section 80E for education loans, it is a pre-requisite that the loan be taken from a government schedule bank or authorised financial institution.
Interest is charged from the day amount id disbursed
While banks offer a moratorium period during the time the student is still studying, keep in mind, that the interest applicable continues to accumulate during this time as well. Also, interest is charged on the amount disbursed, so if your college allows you to pay the fees spread out over the course of the study period, it makes sense to pay it in instalments and take the loan disbursement accordingly. You should also consider starting your payments early if you have resources, as this will reduce the EMI burden later.
In conclusion, Education loans are necessary for most of us who wish to pursue higher education, but it is vitally important to enter into the loan agreements with our eyes open and consider all factors that will affect ability to pay in future.
