With the number of students opting for a foreign education increasing by the day, education loans for paying college tuition fee have become very common and easy to avail too. Education loan disbursals from banks and various financial institutions to Indian students, studying in India and abroad increased to 92,711 Crores this year from 90,345 Crores last year1. However, this data hides an important issue – the number of students who are not paying their education loans back has also been increasing. Banks have reported 7-9% loans as bad loans over the past few years, by Indian students studying in India and abroad.
Such a high amount of non-repayment is being attributed to a general economic slowdown, changes in immigration policies by various countries and a supply-demand mismatch in the candidate skills and jobs available. Not repaying an education loan can get students into many problems – and we are not talking about only the legal issues. Here are some quotes from students who have completed their education and now are struggling to decrease their loan burden.
While education loans have been the answer to many an Indian middle-class family to pursue their dreams in education, since they are easily available from banks and other financial institutions, they are not the best solution. The rising costs of education have made loan-taking a decision fraught with concerns. Even payment for an average school abroad can set you back by 40-50 lakhs, if you include your cost of living in that country. Quite a few colleges in India have also become very expensive over the years2. This is quite obvious considering that college tuition fees have seen a steep rise compared to anything else – be it homes, vehicles or computers – adjusting for inflation that happens in prices year on year. And this, when salaries/wages have seen only a nominal increase.
Scholarships and grants are one other way that allow students to afford an expensive education. However, the sheer number of students who are aspiring to study in a young country like India make it a formidable task to be eligible for a scholarship.3
With loans being the only option in many cases to achieve a good education, fresh graduates are taking up jobs not matching their skillsets and with less promise, when good jobs are not on offer. The job of their dreams, can wait while the loan is repaid first. The EMIs to be paid also make them less eager to spend on a house and postpone many important purchase decisions. So how do we make education accessible to a vast number of students without them staring at a huge debt burden on graduation.
A little bit of planning, a few years before the time comes to apply for college is all it takes to avoid huge loans. Put away savings for education that you can use for paying for college. These savings should be such that the money grows, while your child grows. While education goals may vary as your child grows and his/her interests change, the fact that he needs a good education will not change.
The EduFund app allows you to plan for your child based on future goals. We have the right questions that can help you in understanding the financial goals you need to set to send your child to any college abroad or in India. Our college savings calculator is comprehensive and includes tuition and staying expenses in a particular city too. Investing in SIP mutual funds is recommended to ensure good returns in the long-term. So, starting early adds a lot of value to your fund.
With this education fund corpus, you can ensure that your child doesn’t start his future career with the worry of paying back a loan. This will be the gift your child will always remember and treasure.
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