Congratulations, you just got accepted to the university you always dreamt of going to. But wait, you didn’t get any scholarships. What comes next is student loans, it is a loan acquired from the government or a private lender in order to pay for college.
Here’s the thing about student loans: Not all students understand how they really work and how they might affect their future goals and plans. Let’s be clear about one thing: Student loans are different from scholarships and grants. Loans always have to be paid back with interest, unlike scholarships and grants which don’t need to be paid back.
For most students, student loans are a reality they must face, and it is better to know what you are getting into. Most of the student loans available in India are granted at a relatively low rate of interest and students are usually granted a period of time before they start making repayments. These loans can be used to cover expenses such as tuition fees, books, living expenses, and other such expenses as transportation costs, etc.
Most of the people reading this blog are still studying and hence a co-signer may be required to avail a student loan. This co-signer has to be an eligible adult such as a parent or a relative. The loan repayment must be done once the student has completed his/her education.
Types of Loans based on Location
Domestic Student Loan: These loans are for students who wish to pursue their education in Indian educational institutions. There are a lot of eligibility criteria that the lender has and the loan will only be approved if you have gotten admission to the desired institute.
Study Abroad Student Loan: These loans are for students who wish to pursue education abroad. Like domestic loans, these loans also have eligibility criteria that need to be fulfilled and you should have secured admission to the desired institute.
Types of Loans based on Collateral Type
Loan against Property: An asset that is immovable such as land, residential flat, house, etc has to be pledged to the lender
Loan against Deposits: The loan can be availed against fixed deposits or gold deposits
Loan against Securities: The loan can be availed against bonds or equity shares.
Is it worth taking a student loan?
The process of getting a student loan has become very easy and transparent over the years. This makes a student loan an alluring option for a student. However, there are multiple things you must consider before going for a student loan.
First of all, you should not make vague expectations about your future salary and keep your salary expectations real. Taking the maximum loan available, irrespective of your repayment capacity is a big mistake.
Moreover, the interest rates of a student loan are relatively high as there is a high default rate among students. This makes it imperative to conduct a cost-benefit analysis before taking out a loan. You should only consider taking a loan if the opportunity cost of taking the loan is lower than the expected return and your calculations hint that your returns outweigh your costs.
Although a student loan helps give a kick-start to a student’s career, one must consider all the drawbacks and do a thorough cost-benefit analysis while considering taking a student loan.
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