Higher education has become expensive and as more students are choosing to go abroad for higher studies, it has contributed to high demand in education loans. Education loans have made it easier for students to pursue higher education in Indian and abroad.
Student loans can be considered good debt because the money you’re borrowing to attend school is your ticket to earning a degree and getting hired at a well-paying job. But there are a few mistakes which students make when it comes to their education loans.
Lying on your student loan application is the first blunder you can make. There is all the possibility you might get busted, as most schools audit all financial aid applications and if that happens, you will not only lose your loan and incur fines, but you may be charged with fraud and sentenced to prison.
Students must remember that loan money is to furnish education and thus be used for college fee and textbooks and your basic daily expenditure. It is always a good idea to fund your living expenses by earning through a part-time job or other savings. This helps lower your education loan amount and in turn, will lower the debt you owe. Forgo the latest IPhones or gadgets which will just add extra expenditure to your debt. Try to buy groceries, not takeout, budget for books, not booze.
There are several banks, NBFCs and which offer education loans and their interest rates varies 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 and do not just settle for the first available option. Compare interest rate and other charges to make sure that you end up with least repayment amount.
Experts suggest that your monthly student loan payment should not be more than 10% of your expected salary. Calculate your monthly loan payments 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 Rs. 40 lakhs, 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, and this is not something you want. If your course costs you Rs. 25 lakhs, you must also calculate boarding and other living expenses and then decide your loan amount.
Often students bounce a payment with the idea of paying double the next month. 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.
Before getting an education loan, students must read the fine print of the document. Students must go through the details of the expenses that will be covered under the loan. Since many students lack experience in handling personal financial matters, they end up borrowing expensive 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 students loan, it covers college fee, textbook, boarding etc.
Though a student loan is often the first large sum of money a young adult learns to manage themselves, avoiding common money mistakes when it comes to financing your college education is crucial.