Why taking an education loan is helpful?

Why taking an education loan is helpful?

Home - Student loan - Why taking an education loan is helpful?
Loan for Education and Career

Education is widely recognized as a critical tool for achieving success in today’s world. It provides individuals with the knowledge, skills, and credentials necessary to increase one’s chances of being accepted into prestigious universities and secures employment with reputable companies. 

However, the high cost of education can be a significant barrier for many students, making it difficult for them to pursue their academic dreams. According to a report by the National Sample Survey Office (NSSO), the average cost of general education in private institutions increased by 175% while the same for technical and professional education rose by 96% between 2008 and 2014. These expenses include course fees, books, transportation and coaching, among other things. 

Student loans can help alleviate this financial burden. These loans are designed specifically to assist students in paying for their college and overall education. They are typically offered by banks, non banking financial companies and other financial institutions. They can be used to cover the cost of tuition, books, housing, and other education-related expenses.

In order to qualify for a student loan, the student and co borrower, such as a parent or guardian, must typically demonstrate financial need and have a good credit history. Your co borrower will be responsible for repaying the loan.

Despite the high cost of education, it should not deter individuals from pursuing their academic dreams. Student loans can be a valuable tool for making this dream a reality. With proper research, planning, and budgeting, it is possible to secure a student loan and achieve a successful future.

What is an Education Loan?

An education loan is a type of financial assistance designed to help students cover the costs associated with their education. These loans are intended to cover tuition fees, books, supplies, and living costs. Government agencies, banks, and other financial institutions offer these loans. It often comes with lower interest rates and flexible repayment terms compared to other types of loans. Typically, payments are postponed while students are in college, and some lenders extend this moratorium for an additional six months after earning a degree. These loans can play an important role in making higher education more accessible to a broader range of students, enabling them to pursue their academic and career goals without the barrier of upfront costs.

What is the Importance of Education Loan in India?

Education is a powerful tool for personal and societal development. However, the cost of higher education can be a significant barrier for many students in India. They bridge the gap between academic aspirations and financial constraints, ensuring that deserving students have the opportunity to pursue higher studies. Here are some key importance of education loans in India:

  • Access to Quality Education: One of the primary benefits of education loans is that they provide students with the financial means to access quality education. In India, the cost of higher education, especially in professional courses like engineering, medicine, and management, can be substantial. Additionally, pursuing education abroad involves even higher costs. Education loans bridge this financial gap, allowing students to enroll in courses and institutions that they might not have been able to afford otherwise.
  • Reduced Financial Burden: Education loans play a pivotal role in reducing the financial burden on families. By allowing students to take responsibility for funding their education, these loans help in distributing the cost over a longer period, which can be more manageable compared to paying upfront fees. This alleviates the immediate financial strain on parents and guardians.
  • Promoting Educational Inclusivity: Education loans are a key instrument in promoting educational inclusivity. They help ensure that students from economically disadvantaged backgrounds have the same opportunities as their more affluent peers. By providing financial support, education loans make higher education accessible to a broader section of society, thus helping to level the playing field. This inclusivity is crucial for the overall progress of the nation
  • Academic and Career Aspirations: Education loans empower students to pursue their academic and career goals without financial constraints. Students can choose courses and institutions that align with their aspirations and potential, rather than being limited by financial considerations. This freedom to pursue one’s dreams leads to better educational outcomes and, subsequently, improved career opportunities.
  • National Development: The availability of education loans has broader implications for national development. A well-educated workforce is essential for the growth and competitiveness of the country. By enabling more students to acquire advanced skills and qualifications, education loans help in creating a more skilled and educated workforce. This, in turn, drives economic growth, innovation, and productivity. 

What are the Benefits of taking an Education Loan?

Taking an education loan offers numerous benefits, which can significantly impact a student’s educational journey and future financial stability. By providing financial support with favorable terms, education loans help students achieve their academic and career goals, foster financial independence, and contribute to building a strong credit history. Here are the key advantages:

  • Access to Quality Education

Education loans provide students with the financial resources needed to attend prestigious institutions and pursue specialized courses that may otherwise be unaffordable. This access can lead to better academic and career opportunities.

  • Financial Independence

By taking an education loan, students take on the responsibility of funding the education of their choice, which can foster a sense of financial independence and accountability. This helps reduce the financial burden on parents and guardians.

  • Lower Interest Rates

Education loans typically offer lower interest rates compared to other types of loans, such as personal loans or credit card debt. This makes borrowing more affordable and manageable in the long term.

  • Tax Benefits

In India, the interest paid on education loans is eligible for tax deductions under specific sections of the Income Tax Act. This can lead to significant savings, reducing the overall cost of the loan.

  • Flexible Repayment Terms

Education loans often come with flexible repayment options, including varying tenure periods and the possibility of restructuring the loan based on the borrower’s financial situation. Some lenders also offer income-based repayment plans, where the monthly repayment amount is tied to the borrower’s income level.

  • Credit History Building

Taking and repaying an education loan can help students build a positive credit history. A good credit score is essential for future financial endeavors, such as applying for home loans, car loans, or even securing better interest rates on other types of credit.

  • Support for Study Abroad

For students aspiring to study abroad, education loans can cover not only tuition fees but also other expenses such as accommodation, travel, and living costs. This makes international education more accessible.

  • No Collateral Requirement for Smaller Amounts

Many education loans, especially those for smaller amounts, do not require collateral. This makes it easier for students to access the funds they need without putting their family’s assets at risk.

Who Should Opt for an Education Loan and Why?

By opting for an education loan, students can access quality education, invest in their future, and contribute to their personal and professional growth without immediate financial constraints. It is a valuable financial tool for many students, but they are particularly beneficial for certain groups. 

Students from Economically Disadvantaged Backgrounds

Those who aspire to pursue higher education but lack sufficient funds. Education loans provide financial support for tuition fees, books, and living expenses.

  • Why:
    • Access to Funds: Students from lower-income families often lack the funds needed for higher education. An education loan can bridge this financial gap, making it possible for them to pursue their academic goals.
    • Equal Opportunities: These loans provide an opportunity to access quality education, enabling students from disadvantaged backgrounds to compete on an equal footing with their peers.

Students Pursuing Expensive Courses

Education loans enable students to choose reputable institutions and programs without compromising on quality. They can pursue courses that align with their career goals.

  • Why:
    • High Tuition Fees: Courses like engineering, medicine, law, and international studies can have prohibitively high tuition fees. Education loans help manage these costs over a more extended period.
    • Comprehensive Coverage: Education loans can cover not only tuition fees but also other expenses such as books, accommodation, and travel.

Students Without Scholarships or Grants

 If you lack the necessary funds to pay for tuition fees, books, or living expenses, an education loan can bridge the financial gap.

  • Why:
    • Alternative Funding: For students who do not qualify for scholarships, grants, or other forms of financial aid, education loans provide an alternative source of funding.
    • Merit-Based Access: Education loans are often more accessible than competitive scholarships, allowing more students to benefit.

Students Who Want to Relieve Family Financial Burden

By securing an education loan, students can alleviate the immediate financial pressure on their families.

  • Why:
    • Shared Responsibility: By taking an education loan, students can share the financial responsibility of their education with their families, reducing immediate financial stress on parents or guardians.
    • Future Earnings: Education loans allow students to invest in their education, which can lead to higher earning potential and the ability to repay the loan comfortably after graduation.

Students Wishing to Focus Fully on Studies

Education loans encourage students to pursue higher education and develop specialized skills without financial constraints. 

  • Why:
    • Reduced Financial Stress: Education loans can cover all educational expenses, allowing students to focus on their studies without worrying about financial issues.
    • Deferred Repayment: The repayment typically starts after the student completes their education and secures a job, providing a stress-free study period.

How to Apply for an Education Loan?

Applying for an education loan involves several steps. Each step requires careful attention to detail to ensure a smooth process. Here’s a detailed pointers on how to apply for an education loan:

Research and Compare Loan Options

  • Identify Lenders: Research different banks and financial institutions that offer education loans. Consider both public and private sector banks.
  • Compare Interest Rates: Look at the interest rates offered by different lenders. Lower interest rates can significantly reduce the total repayment amount.
  • Check Eligibility Criteria: Ensure you meet the eligibility requirements, such as age, academic qualifications, and admission to a recognized institution.
  • Loan Amount and Coverage: Compare the maximum loan amounts and what expenses are covered (tuition fees, accommodation, books, travel, etc.).
  • Repayment Terms: Look at the repayment period, grace period, and any flexible repayment options available.

Gather Required Documents

  • Common Documents Needed:
    • Personal Identification: Passport, Aadhaar card, voter ID, or PAN card.
    • Proof of Admission: Admission letter from the educational institution.
    • Academic Records: Previous academic transcripts and certificates.
    • Cost of Education: Fee structure provided by the institution.
    • Financial Documents: Income proof of parents/guardians (salary slips, IT returns), bank statements.
    • Collateral Documents: For higher loan amounts, collateral documents such as property deeds may be required.
    • Other Documents: Passport-size photographs, co-applicant (parent/guardian) identification, and financial documents.

Apply for the Loan

  • Visit the Bank/Institution: Go to the bank or financial institution’s branch or visit their website if they offer online applications.
  • Fill Out the Application Form: Complete the loan application form with accurate details.
  • Submit Documents: Provide all the required documents along with the application form. Ensure all documents are up-to-date and correctly filled.
  • Meet with a Loan Officer: Discuss the loan terms, interest rates, repayment options, and any other queries with the loan officer.

Loan Processing and Approval

  • Loan Processing: The bank will verify the submitted documents and assess the applicant’s eligibility and creditworthiness. This may involve background checks and credit score evaluation.
  • Sanction Letter: If the loan is approved, you will receive a sanction letter detailing the loan amount, interest rate, repayment terms, and other conditions. Carefully review the terms and conditions before accepting the loan.

Disbursement of the Loan

  • Acceptance of Terms: Sign the loan agreement if you agree with the terms mentioned in the sanction letter.
  • Disbursement Process: The bank will disburse the loan amount directly to the educational institution as per the fee schedule or in installments as required.
  • Use of Funds: Ensure the loan amount is used solely to cover educational expenses.

Repayment

  • Monitor Loan Statements: Keep track of loan disbursements and repayments through periodic loan statements provided by the bank.
  • Start Repayment: Ensure timely repayments to avoid penalties and maintain a good credit score.
  • Consider Prepayment: If possible, make prepayments to reduce the loan principal and overall interest burden.

Additionally, some banks offer online registration through the government’s Vidya Lakshmi portal (VLP). 

Things to Remember While Selecting an Education Loan

  • Your academic record plays a key role in determining the interest rate offered on your loan, so strive to maintain a strong record.
  • Be prepared with all necessary documents, such as proof of residence and your admission letter from the institution, as these will be required for loan approval.
  • Take into account the turnaround time for loan approval, as this can vary among lenders. Plan ahead and allow for at least two months for loan disbursement.
  • Research and compare loan options from different lenders. Consider the cost, interest rate, and repayment terms before making a decision.
  • Remember that timely repayment of your loan is crucial in order to maintain good credit and secure loans in the future.

Also Read: Student Education Loan in India: Pros and Cons

Reasons Why Student Loans are Essential for Your Education and Career

A student loan not only helps you pay for your higher education, but it also has a number of other advantages. Here are some reasons why student loans are essential for your education and career:

1. Affordability

One of the primary reasons for the importance of student loans is that they make higher education more affordable. The cost of attending college or university has risen dramatically in recent years, and without student loans, many students like you wouldn’t be able to afford the cost of tuition and other expenses.

2. Expense Covered

Student loan not only covers the cost of the course but also pays nearly the entire cost of education. It will cover the following expenses:

  • Tuition fees and hostel expenses
  • Exam, library, and lab fees if applicable
  • Any refundable fees paid to the institute
  • Cost of uniforms, books and other essentials
  • Travel expenses

3. Career Opportunities

Another important reason why student loans are essential is that they provide you with access to higher-paying and more rewarding career opportunities. A college or university degree is often a prerequisite for many jobs, and without the ability to obtain a loan, many students like you would be unable to pursue these opportunities.

4. Investing in Yourself

A student loan is an investment in yourself, your education and your future career, rather than a consumable expense. It allows you to acquire the knowledge and skills necessary to pursue a successful and fulfilling career, which in turn can lead to greater earning potential.

5. Best Interest Rates

Education loan interest rates are a crucial factor to consider when making the decision to take out a loan. Student loans typically offer competitive interest rates, particularly when obtained through public sector banks in India. This makes repayment of the loan more manageable and helps keep the overall cost of the loan low. 

Bonus

Repaying student loans on time can help you build a good credit history, which can be beneficial when you need to take out a loan in the future for buying a car, house, or starting a business. It also can open you more opportunities in rental, credit card and employment applications

Eligibility Criteria

Every bank or NBFC has its own set of eligibility criteria for student loans, but here are a few that are common-

  • The applicant must be of Indian origin.
  • The applicant must have the documents confirming admission with them at the time of application.
  • The applicant should be between the ages of 16 and 35.

What are the Documentation Requirements for an Education Loan?

  • Two passport size photograph
  • Age proof
  • Identity proof
  • Residence proof
  • Bank account statement for past 6 months
  • Papers pertaining to the applicant’s eligibility for any scholarships, as well as an admission confirmation letter
  • Expense for the course
  • Mark sheet of test
  • Foreign exchange permit copy

Why Taking an Education Loan is Helpful?

Education loan offers benefits that extend beyond mere academic financial support. It enables you to completely focus on your academic and future career goals without the worry of paying immediate upfront tuition fees or other accommodation costs from your pocket. Additionally, it offers flexible repayment options, which give you the freedom to manage and plan your future financial investments upon graduation. By being responsible with your loan repayment, you also avail yourself the chance to build a positive credit history that will help in the purchase of financial endeavors such as purchasing a home or owning a car. Finally, an education loan is a long-term investment that has a high earning potential for your career and lays the foundation for your future success.

Read More: Know How an Education Loan Helps in the Career Development of Students

Conclusion

In conclusion, student loans play a vital role in making higher education accessible to students from all backgrounds and income levels, and in providing aspirants like you with the necessary tools to pursue rewarding career opportunities. It is an investment that is well worth the cost in the long run, as it provides many benefits that will help you in both your education and career. If you’re considering taking out a student loan, Varthana is certainly the right choice!  

Varthana loans cover the cost of studies and other expenses. However, before you even get approval for the amount, try and ensure that you have at least a rough plan and strategy in place for repaying your loan. Apply now to get access to Varthana education loan benefits.

FAQs:

1. What is the importance of an education loan?

Education loans are important because they provide financial help for your studies without immediate payment pressure.

2. How to benefit from an education loan?

Education loans cover your tuition and living expenses, allowing you to focus on your education without financial worries.

3. Is education loan difficult?

Education loans can be challenging due to repayment responsibilities, but careful planning can help you manage them effectively.

4. Who is responsible for education loans?

You are responsible for repaying education loans once you finish your studies, so make sure to pay on time to avoid any default issues.

5. Is taking loan for education good?

Education loans serve as an investment in your future career aspirations, enabling you to pursue your chosen path without financial worries. Varthana can be your reliable partner in supporting your career journey at any stage, offering convenient repayment options for PUC (1+2), graduation, vocational, or skill enhancement courses.

6. How education loan is an investment?

Education loans are like investments because they help you pay for your education, which may result in higher employment opportunities and a strong financial future.

7. What is the benefit of a study loan?

The benefit of having a study loan is that it helps you pursue your academics without any financial constraints, allowing you to focus on your studies and career goals.

8. Is an education loan necessary?

While not usually important, education loans can be a precious choice for those who need financial assistance to get the right of entry to a better education and invest in their future success. If you’re looking to pursue your higher education with the right financial support and flexible repayment options without any collateral, Varthana can be your partner in your career journey.

9. Why do you need an education loan?

Education loans are often necessary to cover the costs of higher education like

  • Tuition Fees
  • Living Expenses
  • Course-Specific Costs
  • Study Abroad
  • Flexible repayment options

10. How to take a benefit of education loan?

By researching various lenders to find the most favorable terms and interest rates. Understand the loan’s repayment options, including grace periods and flexibility in installment payments. Utilize the loan amount solely for educational expenses like tuition fees, books, accommodation, and other essentials. Maintain a disciplined approach to budgeting and spending to ensure the loan covers all necessary costs throughout the academic journey. Prioritize timely repayments after completing studies to build a positive credit history and avoid penalties

11. Is taking loan for education good?

Taking an education loan can be beneficial, but it’s essential to consider both the pros and cons: 

Pros:

  • Access to Higher Education: Loans enable students to pursue higher education, even if they lack immediate funds.
  • Flexible Repayment: Most education loans offer a grace period after graduation before repayment begins.
  • Tax Benefits: In India, you can claim tax deductions on the interest paid under Section 80E of the Income Tax Act.
  • Builds Credit History: Responsible repayment helps build a positive credit history.

Cons:

  • Debt Burden: Loans come with interest, and repaying them can be challenging, especially if job prospects are uncertain.
  • Interest Accumulation: Interest accrues during the study period, increasing the overall cost.
  • Risk of Default: Failing to repay can negatively impact credit scores and future financial stability.

It’s crucial to borrow responsibly, ensuring that the loan amount is manageable and aligns with future career prospects to avoid excessive debt burden post-graduation.

12. Which type of education loan is best?

One of the best types of education loans in India is typically those offered by government banks or financial institutions that provide competitive interest rates, flexible repayment options, and favorable terms like grace periods post-graduation. These loans often come with additional benefits such as interest subsidies for economically weaker sections, making them highly advantageous for students seeking financial assistance for higher education.

13. Can poor students get education loan?

Yes, poor students can also get education loans in India. While eligibility criteria may vary among lenders, some factors considered include academic performance, course selection, and family income. Government schemes and certain banks offer special provisions for economically disadvantaged students.

Share: