Higher education has become a need rather than a choice in recent years. People dream to do courses from premier institutes that guarantee a high paying job and a good career growth in future. But the cost of these courses is so high, that not every person can pay for them from his own pocket. Education loans come to the rescue for such individuals as it helps meet the shortfall. These loans can be repaid when one starts earning after the completion of the course. There are some other ways to finance higher education, like savings, borrowings from family and friends, selling assets like gold, taking personal loans etc. But there are many key reasons why an education loan is a preferred choice. Education loans require careful management otherwise they can become a burden too. Let’s find out whether it is worth taking an education loan.
Taking own responsibility
Students who want to preserve their family’s savings and take up the financial responsibility of their own education can easily do so with the help of education loans.
A large number of banks and other financial institutions offer education loans to students that not only cover the tuition fees but also the living expenses, cost of books etc. They have a simple application process and easy eligibility criteria. Lenders just want to make sure that the person is doing the course from a reputed institute and will easily get a job after completing the course. You can easily apply for this loan online by following a few simple steps. Some banks even offer door to door service to give you complete information regarding the application process.
Lenders offer these loans upto an amount of Rs. 4 lakhs without any collateral. This is a boon to many students whose college fees fall within this range.
Lower rate of interest
Education loans provide for funds at a comparatively lower rate of interest than the personal loans. Even people who can afford the cost of education go in for an education loan, as they find it to be more economical. They prefer investing their savings and earning better returns.
The loan tenure usually ranges between 5 to 7 years. For loans of higher amount this tenure may even go up to 15 years. Longer loan tenure makes it easier for borrowers to repay the loan. Although the interest pay-out will be more in case of longer tenure, lesser EMI amount makes it easy on one’s pocket.
Moratorium period is that time during the loan tenure when the borrower is not required to make any loan instalments. In case of personal loans there is no such period, as repayment of EMIs start immediately after the loan is disbursed. The repayment of education loans however doesn’t start until 6 months after the completion of course, or till the person gets a job. This gives students a sense of relief and they do not have to worry about loan repayments while they are studying.
Building credit history
Taking an education loan at a younger age is a good opportunity for people to start building their credit score. By the time the moratorium period gets over, the person usually earns sufficient income to make the monthly repayment. Regular monthly repayments helps in building a positive credit history that is good for one’s credit score.
Income tax benefit
Under section 80E of Income Tax Act you can avail a tax rebate on the interest amount when you start repaying the education loan. This reduces the overall cost of education loan. Personal loans do not offer such tax benefits.
Hence a high tuition fee no longer hinders students from accessing quality education. Affordable education loans enable students to arrange for sufficient funds to get admission in their dream college and achieve their career goals. However if one doesn’t land up with a good job, the EMIs may put a strain on one’s cash flows. Late or missed payments can have a negative effect on one’s credit score. So have a contingency plan in place, so that you are able to honour your EMI repayments.