Education loans can seem like a blessing for deserving students as they provide the money for fees/tuition expenses upfront, come at lower interest rates vs. personal loans, and can be paid-back after you start working. However, getting an education loan or paying it back is not as easy as it seems and there are multiple factors that you need to consider before applying for one. We as a student are vulnerable to committing some of the common mistakes which must be avoided in order to have a smooth loan procedure. So, let us have a look over these mistakes:
Experts suggest that your monthly student loan payment should not be more than 10% of your expected salary. Calculate your EMI based on a 10-year repayment schedule, inclusive of interest, and then calculate the average starting salary for your career choice. Many banks offer loans as high as INR 40 lakhs and ICICI Bank Education Loan can even offer you a loan up to INR 1 crore, but just because it is on offer doesn’t mean you have to take that. You must understand that the money you borrow now, will have to be repaid with interest. You must also calculate all your living expenses and then decide your loan amount.
We must always look for alternatives because we may find a better option. Sometimes, we end up choosing a college with very high tuition fees. We are not asking you to lower your career goals, but you can look for some colleges which offer you quality education but at a comparatively lower price.
Students have a habit of doing unnecessary expenditures. The loan has been given to you for paying your tuition fees, hostel fees and other education-related expenses. Overlook all the expensive gadgets in the market and spend this money judiciously.
Sometimes students think of paying two installments together and skipping one-month installment. Most of the time this is not practically possible because the other month we will end up spending again and we won’t be left with any penny to pay our installment. That’s a big no-no when it comes to your credit score. Every missed payment acts as a deterrent on your credit report, even if you clear your payment or not. If you are unable to manage your EMIs, you should talk to your lender to find a solution before you start jumping payments.
We are always in such a hurry that we tend to forget about reading the details and ignore them. Since many students lack experience in handling personal financial matters, they end up borrowing expensive education loans to only later find that not much is covered under the loan. This adds to their financial burden. Always read the fine print to make sure that if you are buying an expensive student loan, it covers college fees, textbooks, boarding, etc.
There are several banks and NBFCs which offer education loans and their interest rates vary from one lender to another. If you fail to do your research properly, you might miss out on getting a loan at a lower interest rate. So, shop around for the lowest interest rate and do not just settle for the first available option. Compare interest rates and other charges to make sure that you end up with the least repayment amount.
Students never think of repaying the loan early. They are unaware of the fact that early repayment costs them less interest money and consecutively also reduces the total amount.
Make a point that you never lie in your application and are always honest with all the details. There is a possibility that you might get busted as most schools audit all financial aid applications. If such a thing happens, you will not only lose your loan and incur fines, but you might also get charged with fraud and sentenced to prison.
Be practical and remember to look for the placement record of the university you are applying to. Most of the colleges project high placement percentages and huge salaries to entice students. However, in reality, these figures are often inflated and indicative of only the best placement packages and not a representative average. This makes it difficult for you to do the repayment of your loan.
The moratorium period is the period you get to repay the loan after the completion of your course. In some cases, it is one year from the completion of your course, while in others it is 6 months after you get a job. Some of the loans you take may be low rate personal loans but do not allow a good moratorium period. This needs to be kept in mind while taking any kind of education loan.
Education loan can be the ticket to your dream college and career. However, it is wise to consider all the pitfalls and remedial advice before applying.