Education Loan schemes offered by banks enable you to pursue higher studies in India or abroad. Banks and NBFCs extend education loan opportunity to promote the importance of education in every sector of society but these very education loans can get hard to repay.
As of February 2015, Indian Banks disbursed 63,500 crores of loans to approximately 3.0 million students, with average loan amounting to INR 2,11,666 taken by each student every year. It was also noticed that at least 13% of the country’s population opt for one education loan every year.
While Education in India is getting expensive with time, students tend to turn to the banks or NBFCs for help. Also, due to the lack of employment opportunities, students find it hard to repay their education loan dues. While the banking sector provides facilities to students, they also fear the NPA’s. In India, nearly 9% of Education Loans turn NPA.
Wondering which education sector has the most number of education loan NPAs? Below is the tabulated data depicting the same.
|Stream||% of educational loans which become NPAs|
According to RBI, 91.2% of Education Loans are taken from the public sector banks as they provide the borrowers with a simplified repayment system in comparison to the private sector banks. Public Sector Banks such as Punjab National Bank offers various schemes under PNB Education Loan to extend customized loan options to students.
Government has even set up the Higher Education Credit Guarantee Fund which facilitated the students to get Education Loan up to INR 7.5 lakh increasing the floor amount from INR 4 lakh. The scheme provides the borrowers with a Moratorium period of up to 1 year.
Since Education Loans might get difficult for students to repay, students must opt for alternative options to lessen the burden. Things that can be undertaken to pay off Education loan are:
Freelance is a booming industry. You can work along with your studies or full-time job and get to polish your skills. Bonus point is that you get extra cash which can help you to meet your expenses and save to repay your education loan.
2. Utilizing Available Funds Efficiently
Investing the smaller amount of funds every year in secure investment schemes will help you in decreasing the pressure imposed by education loan at the time of repayment.
3. Make Lifestyle Changes
Till the time you have the sword of Education Loan hovering over your head, spending funds only over essentials prove to be of great help.
4. Income-Based Repayment
Instead of trying to get rid of the loans in a haste by paying a greater amount of EMI’s, try to pay according to your salary. It might assert additional interest on your loan but it will help you in carrying out your routine smoothly.
5. Try to Find Alternative Options
Always keep alternative college options with an affordable fee structure to avoid taking loads of money through Education loan.
6. Aim for Scholarships
Every college offers certain scholarship programs, they help the students get through the admission process at a much less fee helping them to apply for an amount which is significantly lower.
7. Clear off Variable Rate Loan First
There are two types of loans: one with a fluctuating rate of interest and other, with a fixed rate of interest. The student should always focus upon clearing the loan with a variable rate of interest as it asserts more pressure in comparison to the loan with a fixed rate of interest.
Although Education Loans can prove to be a bit burdening often, they are still better than self-finance option.
Why take Education Loan?
1. Intact Savings
Education loans help the students and their parents, keep their savings intact allowing them to use it at the time of emergency.
2. Preferred Course and College
Many students are not able to pursue their preferred course due to the lack of available funds. Education Loan helps the students get through this trauma and opt for a preferred course and even the Institution.
3. Moratorium Period
Education loans repayment terms are not imposed on the borrower right after the completion of the course. They have a moratorium period attached to it helping the borrower arrange for funds required to repay the loans.
4. Wide Coverage
Education Loans do not singularly cover the tuition fee but it also takes care of all the other expenses the students cater to through the course of the program.
5. Tax Exemption
The tax filed by the borrower every year is reduced in compliance of education loan helping them to have additional funds put forward for other use.
Education Loan is usually the first loan in the life of any student. Timely repayment of the Education Loan helps the student in improving their Credit Score which allows them to avail different other loans in the near future as well.