Education Loan: Advantages and Disadvantages
| September 15,2010 05:04 pm IST
With the mounting fee structure of educational institutions it has become really difficult for students, belonging to average pool of society, to enroll themselves for higher studies due to cash crunch. However, if obstacle is cash, an education loan is at rescue.
Education loans are loans offered to students to enable them to meet the costs of a professional program viz. MBA. The loans not only cover the cost of the tuition fee but also almost all the expenses involved in the pursuit of higher education. Education loans are getting increasingly popular among public due to extensive marketing of benefits of this loan by authorized financial bodies. Such popularity of these loans is also an outcome of students’ expectations to fetch high salaries at the end of their professional training and likely to be in a position to repay these loans comfortably over a period.
The image may seem rosy at the very onset; however, the stark realities may mar the impact. Student loans undeniably have varied advantages, but in many cases, the borrowers may end up being caught in a bigger trap than what they had imagined. This is because the advantages of loan are always highlighted in a very large manner but the disadvantages are often swept under the carpet. Team CoolAvenues attempts to delve a layer deeper and bring some advantages as well as disadvantages of education loans to the table.
Advantages of education loan
A dignified education can change the entire life of a person, leading him towards a successful life and financial independence. Education loan enables you to meet the financial demands of a reputed MBA program or any such professional course. The best part of these loans is that once you complete your objective and achieve financial freedom, you can pay back them easily. Hence, the commitment involved with such loans is very reasonable and appealing.
Financial institutions have made an education loan an easygoing task for the applicants. One can apply for the loan by visiting the bank in person or through website of the bank. Majority of the banks provide online application forms and detailed relevant information for applicants’ convenience.
Student loans are great alternatives as compared to conventional loans. They not only offer lucrative interest rates but also have easier terms and conditions. Majority of the nationalized banks generally do not ask for any security and charge no margins for a loan amount up to Rs. 4 Lacs.
Another key benefit of these loans is the deferment of re-payments. The borrower is not required to repay the loans while studying as the re-payment process commences after completion of the said course and attaining a job within a stipulated span of time. Student loans also show considerable flexibility towards loaner in terms of repayment schedule.
The best advantage of education loan is that it not only satisfies the financial need to proceed with higher education but helps in saving income tax also while repayment. Tax benefits on education loan end up reducing overall cost of the loan.
Disadvantages of education loan
Education loans are definitely a boon for students aspiring for higher studies and aid them financially but in most cases, the choice is driven by the aggressive and forceful marketing strategies done by banks offering these loans. More than aiding a student, the stake of the financial institutions lies in, increasing the profitability of their business. They stand out as a prudent product for the banks to sell and achieve margins.
Students get trapped in the web of unsuitable education loans due to lack of proper knowledge and understanding about the loan procedures and banks’ terms and conditions. In many cases, bank disclosures for securities (viz. mortgages, guarantee) are not adequate or presented in a very complex manner for applicants to understand, given their limited understanding of credit market. Due to such complexity, applicants are not fully acquainted with the schemes and risks involved in availing the credit. Hence, when re-payment process starts, borrowers have to deal with unexpected problems which leave them helpless.
It’s very important for borrowers to analyze the long run suitability of the loan beforehand so that debt does not lead to an unmanageable situation. In case a candidate is not able to repay the loan as per schedule due to some unavoidable situations, he has to suffer great hassles owing to the bank’s mounting pressure for repayments.
Majority of the banks are unable to provide proper assistance to the borrowers who are facing a tough time during repayments. Loaners are not ensured any rights and remedies by the banks if caught in unaffordable loans. Loans may go into default very soon after missed payment.
Generally in the beginning banks, do not inform adequately about workout and cancellation procedures and later start putting late fee, and other charges for delayed payments, further increasing the overall cost of loan. Although most of the banks try to co-operate and show considerable flexibility in terms of payment schedule, they usually turn out to be inflexible in granting long- term repayment relief for borrowers.
Undoubtedly, today, when higher education is costlier than ever, education loans are the most welcomed antidote by aspiring candidates. Certainly, these loans are the best answer to financial shortage for a successful career if chosen wisely; else, they become a burden and lead the borrower to a disastrous situation.