Educational Loans…Is it a liability????


Education is very important priority in the human life and they will utilize each opportunity related to this for moving forward. As there is considerable growth being shown in the global economy, the aspirants are exposed to more and more choices.  Now selecting a course from a massive range of courses is becoming a challenge for most of them. When we do retrospection and look into the earlier days, the choices were limited to them and so were the challenges. Nowadays you can feel the competition at the entry level by observing the nature of the competitive exams and the number of people writing the same.The modern age has not only changed the face of the education system but also the cost of undergoing the same has also gone up considerably. Now the educational costs eat-up the major portion of the family income.  The education has become so expensive that people of the middle class and upper middle class are finding to difficult to meet the costs and the condition of the aspirants from the lower economic class is even more worse.

The talented students from these economically backward sections find it difficult to pursue a dream of a higher education. It is not at all good for a developing country like India. We need to be self-sufficient in each sector so as to meet the global demand for a developed nation. Education and Development is directly related because only an educated society can contribute to the development sector.

Understanding this scenario, by the initiation from Government, the Banks introduced education loan for the higher studies. Most of the students are opting for the higher studies in abroad and such decisions were supported by the education loan. But now it seems a liability on the students. The high interest rates and shorter repayment period is acting as a major stumbling block in a professional’s life. The students prefer the education loan with cheaper rates.

What is so special in US Edu-loans????

The education loan is found to be feasible for students in US.  A report from Institutes of International Education says that United States is the most preferable destination for the students from India to do their higher education.

Last year around 104,897 students from India chose US for their higher courses. What makes such a mass group to opt America as a destination for the courses from the large options available?

The institutes in US only demand the fee after joining in the institutes. The students are given time to take the loan from the country and they are provided enough time to pay the fee. This is not the case of New Zealand, Britain, and Australia etc. They demand the half or the complete payment at the time of Visa issue. Therefore the students need to avail loan from India itself and the higher interest rate becomes a threat for the higher study aspiration of the students.

The US also offers another option, the Garner funds. If they have a Guarantor, either a citizen of America or a green card holder, the students can directly contacts the bank there for loans before the final admission process.  In some cases the Universities in States acts as a Guarantor for the students.

Another feature that attracts the students to US is most of the universities have tie-up with the banks like Citibank and institutes like Sallie Mae, which also support the loan process.

Education Loan- US and India
What is the real difference between Indian bank and that of US in the Education loan scenario? It mainly is the low interest rate of these loans. The present rate for the education loan in India varies from 12% to 15%, depend on the bank opted for. But when it comes to America, the banks charge an interest rate of only 7% of the initial amount for education purpose.  The loan repayment period is also longer in US banks. The institute and universities offer 20 years to 30 years as the repayment period. If one is directly availing the loan through bank then the students will get 15 years as repayment time.
Mostly the US banks offer the loan amount depending upon the course that the borrower is opting for. The lender can fix the amount according to his/her course. The amount will go up to Rs.50lakhs. The students can repay the amount with a minimum installment of Rs.1laks after the completion of the course, only if they offered to a job supporting the installment amount. Otherwise they can go for the longer period for repay. This is not the case with the Indian banks. The banks will offer maximum Rs.20lakhs for any course and the repayment period is limited to 7-8 years. The longest repayment period is offered by HDFC bank and it is 10 years.
The Guarantee….
In Indian scenario, the banks ask for the guarantors and co-borrowers as a security in the case of educational loans. The students and parents need to complete a lot of formalities to get the educational loans. In some case the application will be rejected if they are not submitting enough securities. The security is mainly asked for the loans if the amount exceeds Rs 7.5lakhs.  Our Government and Banks are not ready to take any risk as they don’t want any other recession like what happened in 2008.
The recession also made some impact on the loan policy of the US banks. Now the US banks look for the credit history of the sponsor before issuing the loan. If the lender is discontinuing his/her course the sponsor will liable for that until they repay the amount.
Don’t make the Loan a Burden on you…..

If you want to lesser the loan burden you can do one thing. Once you get your job you can start the repayment of the loan amount after six months.  It may happen that you will not be offered a high salary in your first job. So it is not necessary to repay the original amount, but you can contribute to the interest amount. It will reduce the total amount and so your liabilities.

One thing that is good about the education loans is that the banks whether it is in US or in India during the course period banks charge the interest component in a simple interest ratio. You need not pay this amount while studying. But there is no harm in doing so since it will lower your burden once you start the original repayment. But one thing you need to take care is that after the course gets over the banks will charge the interest in a compound ratio and you will need a large amount for settlement. So don’t make your studies a liability, chose the loans carefully after a complete calculation. Perform well in the course so you can find a better career which supports your needs and means.



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