Kalvimalar

Many Indian students prefer education loans to zealously chase their academic aspirations by financing their higher studies independently without depending on their parents. However, several education loan-related myths create confusion among the student fraternity. Since students are usually first-time borrowers, diving deep into this subject is imperative to understand education loans better. 

Debunking one myth at a time:

1. Liquidating assets is better than opting for an education loan: When financing expensive education, some parents prefer utilising their savings rather than taking up an education loan. However, self-financing will exhaust the savings corpus, which might be required during emergencies. If a student opts for an education loan, their savings and investments can continue to be a haven, they can turn to during contingencies.

2. Education loans require collateral: Collateral is optional when taking a loan. Students also have the option to avail of a non-collateral loan. Many education-focused financial institutions provide students with unsecured loans, wherein there is no collateral needed. Applicants must decide between secured and unsecured loans based on their financial requirements and preferences. 

3. No credit history means no loan approval: Students are usually first-time borrowers, which means they either have a low credit score or no credit history. Most applicants often believe that without a credit history, a loan will not be approved. Many financial institutions take a student-centric approach wherein they evaluate the student profile to determine employability potential. Some important factors to gauge employability are academic scores, entrance exam scores, the pedigree of the university, etc. In addition to this, they also evaluate the co-borrowers credit history for loan approvals.

4. Education loans only cover tuition fees: Many education-focused financers offer student loans that cover the holistic cost of education, such as tuition fees, accommodation costs, study material expenses, equipment costs, travel expenses and more. 

5. Debt out of sight and out of mind till graduation: While taking a loan, students often believe they need not start repayment of loans until they finish their education. Although a moratorium period is available, the student fraternity must plan to make small contributions towards repayment of the student loans by paying simple interest/partial interest during the grace period, as it is not an interest-free period.

6. Education loans are only for higher education: To be career-ready, many students opt for skilling programs in addition to mainstream education. Financial institutions provide solutions to meet the need of the hour by providing student loans for skilling, reskilling, upskilling and vocational study programs. Certain NBFCs also provide solutions, such as school fee financing, to make education accessible to every Indian student.

7. Education financing solutions remain the same for every student:  Financiers profile students basis their coursework, study destination, future career prospects, academic scores, entrance exam scores and more to offer hyper-personalised solutions. Since every student has a unique financial requirement, the education loan is customised basis their preference and student profile.

8. Education loan doesn�t need a co-borrower: A co-borrower is of utmost importance to act as a guarantor for the financial institution to approve the loan application. Co-applicant should be a parent, legal guardian, sibling or other blood relative.

9. Lengthy process: With digitally agile processes, new-age lenders can evaluate applicants� profiles and disburse loans quickly. Students don�t have to worry about missing their university fee deadline if they meet their financier�s criteria.  

10. Repayment terms are fixed and rigid: Education-focused financial institutions offer flexibility while setting the repayment terms for the loan. Most of them discuss the terms with the applicant to understand how they will manage to pay off their loans, whether they want to start contributing during the course or post or if they want to repay the simple interest. 

The easy availability of student loans from education-focused financial institutions enables a smooth journey for both students and parents. However, students must conduct thorough research to understand the nitty-gritty related to education loans. 

This will not only debunk all the misconceptions related to student loans but also allow students to choose the best possible financing solution to pursue their education.

--By Rajesh Kachave, Chief Business Officer � Student Lending & Insurance Business, Avanse Financial services