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In today's era, where the cost of education is skyrocketing, education loan is the only way for many students to fulfill their dreams. This loan ensures good education, saves tax and teaches you financial planning. However, it also has some disadvantages. In such a situation, whether we look at its benefits or worry about the disadvantages, how to understand how right an education loan is for us?

In today's time, higher education has become very expensive. The fees for professional courses like engineering, medical or MBA are in lakhs, which is not possible for everyone to pay. In such a situation, 'education loan' works to give wings to the dreams of many promising students. But on hearing the name of the loan, a fear also comes in the mind that it may become a lifelong burden. So the question arises whether taking an education loan is really a good decision? Come, let's know about it.

Benefits of Education Loan

Education loan is a loan that banks or financial institutions give to students to bear the expenses of their studies. This can include college tuition fees, hostel expenses, books and even laptop expenses. Know in which cases it is beneficial!

The biggest advantage is that lack of money does not come in the way of your talent. You can fulfill your dream of studying in top colleges of the country and abroad.

The interest you pay on the education loan is eligible for tax exemption under Section 80E of the Income Tax Act. There is no upper limit on this exemption, that is, you can claim tax deduction on the entire amount of interest you pay.

Paying the loan EMI on time brings financial discipline in you. This also improves your credit score, which helps in taking a home loan or car loan in the future.

By taking a loan, the burden of your studies does not fall directly on your parents. This is the first step towards becoming self-reliant.

The biggest advantage of an education loan is its moratorium period. This means that you do not have to pay the loan EMI for 6 months to 1 year after the completion of the course. This gives you enough time to find a job and settle down.

Disadvantages of education loan

The biggest disadvantage of an education loan is that as soon as your studies are over, you are responsible for paying a large amount, which can create mental pressure.

The period for repaying an education loan can be up to 15 years. This means that a part of your earnings will continue to go into EMIs for a long time.

If you do not get a job with an expected salary after completing your studies, then repaying the EMI can be very difficult.

If you are unable to repay the EMI on time, your credit score can deteriorate, which will make it almost impossible to take any loan in the future.

Is it a profitable deal? (Return on Investment - ROI)

The best way to decide whether taking an education loan is right or not is to calculate its ROI. That is, will you be able to earn more in the future than what you are spending on your studies? Let us understand this with some examples.

(Note: The figures given here are averages and can vary depending on the college, city and experience. The interest rate is assumed to be 9% on average and the loan repayment period is 7 years.)

Case Study 1: MBA

Average course fees: ₹10 lakh to ₹15 lakh.

Loan taken: ₹12 lakh

Total repayment in 7 years (at 9% interest): Approximately ₹16.85 lakh

Average starting salary of an MBA fresher: ₹7 lakh to ₹9 lakh per annum.

Here, you can repay your entire loan in the first 2-3 years itself. The average salary of an MBA from top IIMs is above ₹20 lakh, making this decision even more lucrative. In such a situation, taking a loan for MBA is a very good investment.

Case Study 2: B.Tech (Engineering)

Average course fees (private colleges): ₹8 lakh to ₹12 lakh

Loan taken: ₹10 lakh

Total repayment in 7 years (at 9% interest): Approximately ₹14.04 lakh

Average starting salary of a B.Tech fresher: ₹4 lakh to ₹6 lakh per annum.

It may take 4-5 years to repay the loan. However, the salary is much higher if you study from IITs or top NITs. If you are pursuing engineering from a normal college, you should take a careful decision.

Case Study 3: MBBS (Medical)

Average course fees (private colleges): ₹50 lakh to ₹1 crore

Loan taken: ₹60 lakh

Total repayment in 7 years (at 9% interest): Approximately ₹84.26 lakh

Starting salary after MBBS (junior resident): ₹60,000 to ₹90,000 per month (₹7.2 lakh to ₹10.8 lakh per annum).

Medical education is very expensive. The loan amount is very high and the starting salary can be low accordingly. However, after doing specialisation (MD/MS), the salary increases significantly. Here, a loan is a necessity, but it will require a long and solid planning to repay it.

The final decision: To take a loan or not?

Education loan cannot be called good or bad. This is a tool, the right use of which can improve your future and wrong use can trap you in a debt trap. Before taking a decision, definitely consider these things:

Choose courses and colleges that have a good placement record.

Before taking a loan, calculate the course fees and the possible salary you will get after that.

Compare the interest rates and terms of different banks.

Take a loan of only that amount which is really needed.

If you take an education loan with complete research and planning, then it can prove to be the best investment that will give a new height to your career.

Frequently Asked Questions (FAQs)

Q1. Who can take an education loan?

Any Indian student who has passed 12th and has taken admission in a recognized institute in India or abroad can apply for the loan. The student is the main applicant and the parents or a relative becomes the co-applicant.

Q2. What expenses are covered in an education loan?

It mainly includes tuition fees, examination fees, hostel and mess expenses, books etc. and travel expenses for studies abroad.

Q3. How much can be availed as an education loan?

This depends on your course, institute and bank. Banks can provide loans of ₹50 lakh or more for studies in India and ₹1 crore or more for studies abroad.

Q4. Can a collateral education loan be availed?

Yes, most banks provide loans up to ₹7.5 lakh without any security or guarantee. For an amount more than this, you may have to mortgage your property or any other asset.

Q5. What if you do not get a job immediately after studies?

Education loans have a moratorium period, which can be up to 1 year after the completion of the course. During this time, you do not have to pay EMI, which gives you enough time to find a job.

Disclaimer

The information given here is for general information and educational purposes only. It should not be taken as professional financial advice in any way. The figures mentioned in the article, such as course fees, interest rates, and salaries, are only estimated and indicative. These figures may change according to time, place, institute and bank policies.

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