Imagine these two situations:
a) You are in the final year of your graduation and after graduation, you want to acquire an MBA from a good international educational institution. You gather lots of information on the MBA courses in leading universities and when you find out about the fee structure, you wonder how you will be able to get that MBA degree you so desperately want, without burdening your parents.
b) After years of working in a top-notch company, you decide that an MBA degree can help you carve a more successful career path. After thorough due diligence, you shortlist some of the best colleges that can help you grow faster in your career. However, education in a foreign country will cost you the big bucks and breaking into your financial nest is not something you are comfortable with
What can you do in either of the situations? How about a personal loan for your education?
Yes, many banks and NBFCs such as Tata Capital can help you fund your education through their personal loans. Why a personal loan, you ask? One of the best things about a personal loan for education is that the government has promoted education loans to students like you with incentives such as lower interest rates, a moratorium on commencement of repayment period, simple interest during the period of study, 7-year tenure to repay loan and tax benefits.
When you finally convince yourself to avail of that loan, to your surprise you find that there are a lot of myths floating on the market on education loans for MBA courses, abroad. When you delve deeper, you find that these are just myths and these can be overcome by studying the education loan process more carefully and taking steps to overcome them.
Without much ado, let’s look at some of the myths that swirl around student loans.
- Loans are only for STEM subjects: This is not true as more and more students are now turning to subjects other than STEM (Science, Technology, Engineering, and Mathematics) courses. MBA course tops the list followed by other courses which are yet to establish a sound base in India.
- Interest on education loan charged on sanctioned amount: This is an unfounded myth as lenders charge interest on amount utilized and not sanctioned. For instance, you obtain an education loan sanction for a two-year MBA course and your university allows you to pay tuition fees for each year at the beginning of that year. So, the lender will charge you interest on the amount you utilize for paying the first year’s fee and not the sanctioned amount. The lender will charge you interest on the amount you utilize only when you pay at the beginning of the second year.
- There is no margin money required: This myth is partially true because as per government’s directive, education loans up to Rs 4 lakh do not require margin money from you. However, for personal loans for education above Rs 4 lakh, you will need to find the margin money which could vary from 5% to 15% of the loan amount. This could be higher for larger loan amounts.
- No loans for low grades: Though good grades add to strengthening your case for availing a student loan, low grades should not hinder if you can prove you have the credentials to repay the loan. Often, lenders can consider your education loan application if you can provide a higher margin and good collateral security.
- Good university means low-interest rate: This is not necessarily true as interest rates are common for all education loans. However, lenders can consider your creditworthiness and offer you the lowest interest possible in the category.
- Good grades means a sure loan: This is again a myth. While good grades can help you get scholarships, they may not be the sufficient condition for getting a loan sanctioned. You will have to prove your creditworthiness to obtain a loan sanction.
- Loan eligibility reduced by the amount of scholarship: Lenders consider scholarships as strengthening your loan application and use it only to assess your credibility. They don’t deduct the scholarship amount while calculating your eligibility. But, it makes sense for you to utilize only the amounts required for completing your studies and not splurge just because you have a higher sanctioned amount. After all, you have to repay the loan and that too with interest.
- Don’t need collateral: You will need a collateral for education loan that amounts above Rs 4 lakh. Typically, lenders seek collateral in the form of property, life insurance policies and other movable and immovable assets.
- Don’t need CIBIL score: Lenders look for your creditworthiness and your ability to repay the loan. Therefore, they want to check your credit score to make sure that you have a good CIBIL score. The CIBIL score is a record of all your credit history as declared by an independent credit bureau. A high credit score means low risk for the lender.
- Only tuition fee is covered: This is a myth as other expenses incurred on exams, lab and library, caution deposit, travel, books and equipment, projects, study tours computer time and living expenses are also included in determining the eligibility.
From the above, it is clear that availing a student loan is rather not that complicated and you can obtain sanction for the loan as long as you have an admission letter from a university on the approved list of the lender and you can prove your creditworthiness to the lender. Remember that lenders treat education loans as personal loans and hence you must look for education loans under the personal loan category.