It has become much easier for students to get an education loan than it was 5 years ago. The Central Government has actively pushed the spread of NBFCs (Non-Banking Financial Companies) so as to make educational financing a lot more accessible and affordable. From nationalised banks to NBFCs, a student now has an array of education loan platforms to choose from. So, before leaping to take an education loan a student should seriously consider these following points -
The 3Cs - Course, College, Co-borrower
Which course are you planning to study? In which institution?
You can search from a list of MBA colleges with their fees and programs in our college portal section. Once you have taken care of these, select a co-borrower (usually parents or family members) with a good CIBIL score. You should select the co-borrower after serious introspection since he/she would be sharing the loan risk with you.
How much funding do you require?
Take a sum of all the extra money that you can manage for your college education at first. You can invest your personal savings, take some financial help from parents & family or apply for a scholarship program. Then, you can manage the rest of the amount by taking an education loan.
Secured or Unsecured?
Another important question is whether to take a secured loan or an unsecured loan. Taking a secured loan is more viable if you can provide security for collateral such as fixed deposits, certified properties etc. Whereas, if you don't have any certified assets to provide, you can opt for an unsecured loan. Although, a co-applicant is mandatory for both secured and unsecured loan.
A repayment plan that fits your income
Choose a repayment plan that understands-
Your future earning potential
Whether you are comfortable to pay during the study period
Once you’re sure of your needs & requirements, you can go ahead and apply for an education loan. While repaying an education loan, there are certain factors that you should keep in mind.
Selecting the right repayment plan
Student loan repayment options are meant to offer flexibility while repaying the loan taken by students. There are various repayment plans that you can choose from depending on your requirements. Selecting a repayment plan largely depends upon the financial situation, future employability and goals of the student. For example, if you’re looking for a repayment plan where you want to pay the minimum interest rate, then you can go for a standard repayment plan. Otherwise, if you are interested in making lower payments monthly basis, then you can go for an income-based repayment plan.
“Keep in mind that any option that decreases your monthly payments will likely result in you paying more overall”
Making timely payments
Another thing to remember is that making timely repayments will help you build a good credit score. This will also help you in availing more credit options like home-loan, car-loan, credit card in the future. Also, remember missing payments or deferring payments have legal consequences.
Using your moratorium period as per requirement
Moratorium period is a relaxation period offered by banks where you don’t have to make any payments during the study period. But most of the private banks & NBFCs don’t offer moratorium period on their loan products. So, it’s advisable to check with your lender beforehand if they’re offering moratorium or not. This will help you get an idea if you’re liable to repay while in college and then further determine the EMI that you have to pay. Note that for most loans, interest accrues during the moratorium period. You can also choose to pay only interest while in college which prevents your interest from being added to the principal. Also, remember not making any repayment while in moratorium period will result in you paying more overall.
Get ahead by paying extra
Making extra payments will reduce the amount of any future payments. If you’re working while in college or have considerate savings that you can use, it is advisable to make extra payments so as to minimize your future burden. Note that some banks charge a prepayment penalty for prepaying of education loans while some banks don’t.
Understanding tax benefits
Credit borrowers can profit tax reductions on interest paid on their educational loan under Sec 80E of the Income Tax Act. This benefit is accessible over and above Rs. 150,000 deduction permitted under Section 80E. You can avail the tax deduction once the applicant begins paying the interest on the education loan. The principal amount doesn't qualify for tax exemption while the deduction is available for 8 years or until the payment of interest in full, whichever is earlier.
Don’t wait for the right job
Most MBA graduates spend months looking for the right job. Keep in mind you’re not wasting your time looking for the right paying job after graduation because your education loan is accumulating interest irrespective you have a job or not. So the earlier you start repaying the loan, the lesser the interest you end up paying.
Bottom Line -
If you’re looking to get an education loan, then you must check out the repayment plans offered by the lender and choose accordingly. Borrowing is easy, but it also demands constant financial planning. Any defaults on your student loan may hugely impact your CIBIL score which further impacts your future borrowing capabilities. You can also face legal consequences if you’re defaulting on your education loan. So, it is very important to spend some considerable time researching and understanding the repayment process before taking an education loan.