Applying for education loan? Here are 9 things to keep in mind

Studying abroad develops a global outlook and can be a life-changing experience that will open an array of promising and globally interconnected career opportunities for young aspirants. Therefore, despite various challenges such as the pandemic, inflation, and rupee depreciation, Indian students are unlikely to dissuade from pursuing their foreign education plans as the return on investment remains attractive.

A research report by a consulting firm estimates that the number of Indian students opting for higher education abroad is set to grow to roughly 1.8 million by 2024. Moreover, countries like the US have observed a 19% increase in the number of Indian students, year over year. Since education is a non-discretionary expense, inflation fails to deter students from pursuing higher education at premier universities and popular destinations.

Students conduct thorough research while selecting a destination, keeping in mind all the costs and expenses to be incurred. However, aspirants prioritise quality education and are reluctant to settle for an unrecognised course/university or lesser-known destination. Since studying abroad is an expensive affair due to the escalating cost of education, they prefer education loans to achieve their academic aspirations independently.

Education Loans: How they are bridging the financing gap

Various education consultants have witnessed that the number of students going to study abroad has doubled due to the removal of travel restrictions, led by pent-up demand. The learners can fulfil their aspirations even in challenging times due to the easy availability of education loans from financial institutions.

Education-focused NBFCs consider several parameters impacting the overall cost to design hyper-personalised education financing solutions. In addition to access to quality education, these NBFCs also help students preserve their family savings while allowing them to earn a self-made badge.

Things to keep in mind while taking up a loan

Analyse the cost of education: A student needs to estimate the total expenditure that will be incurred before taking an education loan. Employing a robust research mechanism will shed light on the same. Some lenders also offer certain online tools, like a college course calculator, that will assist in estimating the cost of education.

Awareness of the process is crucial: Students should research online and talk to friends and family members who have opted for similar loans before. Some NBFCs have subject matter experts who can help students understand all about student loans and processes. Learning about the eligibility criteria, application process and documents required before applying for loans is imperative.

Student loans should cover the holistic cost of education: One of the criteria that students should consider before opting for an education loan is that it should cover the ancillary expenses. Student-centric lenders often offer student loans that cover the holistic cost of education, including tuition fees, travel expenses, cost of learning devices, accommodation costs, study material costs and other education-related expenses.

Choose the right lender: Considering the lender’s domain expertise in managing education loans and unique selling propositions is essential. One of the most common mistakes that students make while selecting a financier is that they look at only one parameter, i.e., interest rates. It is advised to consider several other aspects, such as customer testimonials, student loan features, costs covered and overall benefits.

Financial Institution tie-ups with universities and colleges: Students must also research to understand if their choice of college/university has partnerships with lenders. Such tie-ups enable a hassle-free education loan journey.

Select the right repayment strategy: It is essential to plan the right repayment strategy to ensure a seamless education loan repayment experience. Students should discuss all the components of a loan, such as loan amount, tenure, repayment options and EMI, with the lender to design the best repayment strategy that suits the student’s journey ahead.

It is advisable that the student fraternity should make contributions in the form of simple interest/partial interest during the moratorium period. Since this is not an interest-free period, the interest starts to accrue soon after taking an education loan.

Make provisions for interest rate fluctuations: Various macroeconomic factors and regulatory reforms have the potential to impact the rate of interest. Hence, students are encouraged to create a corpus to cover their student debt. Spending judiciously to set aside some funds to ensure continuity in the repayment of the education loan instils financially prudent habits and prevents default of EMIs.

International work experience to be future-ready: The right course, university and destination will unlock a great range of lucrative jobs. Highly acclaimed study programs and well-ranked universities will lead to career success. Furthermore, students can consider countries offering attractive post-study work opportunities while planning their higher education.

For instance, the US provides Curricular Practical Training (CPT) and Optional Practical Training (OPT) to find employment opportunities. Also, the UK is known for its post-study Graduate visa that allows students to stay in the UK for two to three years to work or explore job opportunities. Such opportunities provide global exposure and industry experience, allowing an easy transition to a professional career.

Work while learning: Working part-time during the study period as per the permissible limits can reduce overall expenses. Countries such as the US, and the UK, allow international students to work for up to 20 hours per week. With part-time jobs, students will not only support their lifestyle abroad but also learn some new life skills.

A well-designed plan based on thorough research is the key to achieving academic aspirations. Hence, following the process mentioned above while availing of an education loan will help young aspirants find the best suitable education financing solution to set out on their study abroad quest.

Amit Gainda is the MD and CEO at Avanse Financial Services.