Rani had always dreamed of pursuing an MBA at a prestigious institution. However, due to her family’s financial circumstances, that dream seemed beyond reach. Whenever she suggested taking up an education loan, her family was reluctant. “Loans are a lifelong burden and the interest will keep piling up. You will regret this!”, said her father. Once firm in her opinions, Rani felt uncertain about her decisions. Was she falling for common misconceptions? Not wanting to give up on her dream, she researched to find the truth. After speaking with experts, experienced students and loan providers, what she discovered shocked her. Most of the fears surrounding educational loans were nothing more than myths! As she debunked these misconceptions, she uncovered real facts that could empower students to chase their dreams without fear.
Myths Vs Facts
Similarly to Rani, many scholars are hesitant to pursue their education loan plans due to misconceptions surrounding them. However, unlike her, these scholars often fail to investigate these myths further, allowing them to be misled. This hesitation can lead them to abandon their dreams. To help overcome this, here are some common myths along with the actual real facts that can empower scholars to pursue their aspirations.
| Myths | Facts |
|---|---|
| Education loans are only for higher studies. | While education loans are mainly intended for higher studies, some banks and financial institutions also provide funding for vocational courses, skill development programs and professional certifications. Additionally, loan schemes like Baroda Vidya cater to school students as well. |
| An education loan with a low interest rate is the best one. | Education loans with low interest rates are undoubtedly preferred, but labelling it as the best option is debatable. Factors like cost covered, turnaround time, features, customer service and benefits from the loan needs to be highlighted. After comparing all options, the suitable deal should be considered. Additionally, interest rates can either be fixed or floating. In the case of floating interest rates, the interest starts off low but might build up overtime. |
| Only the Tuition Fee is Covered by Education Loans. | The coverage of an education loan depends on the specific loan you apply for. While some loans only cover tuition fees, others also include living expenses, travel, study materials, and food. IDFC FIRST Bank Education Loan is a prime example of education loans that cover extra expenses. Eligibility criteria must be met to qualify for such comprehensive loans. |
| Everyone is eligible for an education loan. | Not everyone qualifies for an education loan. To secure one, you must meet all the specific eligibility criteria set by the lender. One of the most common requirements is an age limit, typically ranging between 16 and 35 years. |
| Private loans are always better than federal loans. | This depends on individual preferences, but federal loans generally provide advantages such as lower interest rates, flexible repayment options and borrower protections like deferment, income-driven repayment plans and loan forgiveness programs. Private loans, on the other hand, are credit-based, may have higher interest rates and typically lack such benefits. Many top banks in India offer education loans with favourable terms. |
| Education loans are only for students from low-income backgrounds. | Education loans are not only for students from low-income backgrounds but are available to students from all financial backgrounds. While education loans specifically made for low-income families do exist, there is a range of student loans that are particularly on the basis of location, course of education and security of collaterals. These loans are open to everyone as long as they meet the criteria. |
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I won’t be able to take an education loan if I apply for a scholarship and vice-versa.
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Many students assume scholarship and education loan cannot be availed for simultaneously. But they are wrong, as in fact, they complement each other. Scholarships can significantly reduce the financial burden and education loans can cover the remaining expenses. |
| If you drop out of school, you won’t have to pay back your student loan. | Many assume that withdrawing from studies means that the loan is forgiven. Well, they are mistaken as the loan still needs to be repaid. In these cases, the repayment begins six months after this occurrence but it can vary according to the loan you have applied for. |
| Can you avoid repaying your student loan? | No, repaying a student loan cannot be avoided. If there is a failure in repaying the loans, it will negatively impact your CIBIL score, which will affect the ability to apply for a new loan. The only case where a student loan is forgiven and can be avoided is if the applicant becomes permanently disabled, ill or passes away. |
| Education loans are only available for mainstream courses. | No, education loans are not only available for mainstream courses. From STEM and MBA to music production courses, education loans are available for everyone. |
FAQs
Is it wise to take an educational loan?
Unlike other loans, education loans often come with affordable interest rates, repayment holidays, longer tenure and tax benefits. It ensures access to education without the depletion of your savings, but you have to be confident about the potential of paying it back. Also, thorough research is advised.
Can I use the funds from my education loan for expenses beyond tuition fees?
Yes, you can use funds from your education loan for expenses beyond fees. Many loans cover extra expenses.
What does employment verification mean in the context of an education loan?
It is the verification of employment records of the co-signer. It is done to check the validity of employment.
What is the average tenure of an education loan?
The average tenure of an education loan is between 7 to 10 years.
How long does it take for a bank to communicate its decision?
A bank takes about 15 working days after the application submission to provide a decision regarding the loan.