Three Mistakes to avoid when taking an Education Loan

✓ Estimation of Total Loan Amount

✓ Decision Without Proper Research

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If you’ve landed on this page then probably you're planning for an education loan to fund your education abroad. Education loans give opportunities to students with restrained financial backgrounds to pursue their desired courses abroad and thus get job opportunities that wouldn't have been possible otherwise. But there are certain minute student loan mistakes that people tend to make and are unavoidable in nature. To know a few of such mistakes to avoid while taking an education loan, read this article till the end. 

So, there are steps involved when it comes to studying abroad like preparing for a test, applying for admission, arranging funds, and then going for a visa. Ironically, the least attention given to a factor that makes or breaks students' dreams is arranging funds, since the majority of students who drop their plan to study abroad are because of lack of funds.

The reason behind this could be, as there are test centers that help students in scoring good marks on tests like GRE, IELTS, TOEFL, etc. There are admission counselors who help students with the admission process and there are visa counselors helping students with the visa process preparation but we doubt there are that many organizations helping students with the loan process and aware of education loan mistakes, so students assume getting an education loan must be simple, all you gotta do is visit banks and get the loan done, and that's where they go wrong and make mistakes in education loan.

In this article, we'll take a closer look at some of the common mistakes students make while taking an education loan which can be easily avoided. Besides, you can also watch our video on the said topic embedded below, which is the 9th episode of our LoanFlix series on youtube.

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1. Wrong estimation of expenses

This is a very common thought among students planning to study abroad that once landed abroad they'll get part-time jobs there, and so students apply for lesser loan amounts than actually required, eg if a student is going abroad for a two-year program and the tuition fees for two-years are 35 lakhs, and the living expenses for two years are 20 lakhs which sum up to 55 lakhs as a total loan requirement which means this student is eligible to get a loan up to 55 lakhs but since student assumes he'll get a part-time job and will manage for the second year,  the student only applies for some 25 to 30 lakhs, though they don't have the remaining amount with them.

It could be very risky just applying for half the amount instead of the total eligible loan amount because it is not guaranteed that students will get part-time jobs, this year there were so many students who couldn't get part-time jobs because of the pandemic.

So ideally, students should apply for their total loan requirement, for eg, if the total loan requirement is coming up to 55 lakhs then apply for 55 lakhs, later if students get part-time jobs and don't want to disburse the remaining amount from the sanctioned loan amount, lenders will be fine with that. And most importantly you only pay interest on the disbursed amount, not the sanctioned amount.

2. Last-minute rush

Yes, there are banks that can process education loans within 5 days but their rates of interest are very high from around 10% to 14%. And banks with lower rates of interest of around 8% to 9% take longer to process an education loan. 

So, as we know that there are two types of loans students can get for their education i.e collateralized loans where mortgaging a house, flat, and non-agricultural land requires legal and valuation by the bank's assigned lawyer which may take weeks, and months for the entire loan process. And to get a non-collateral education loan students don't need to have collateral but a good financial co-applicant with a stable earning source. 

Taking an education loan on collateral may take time but their rates of interest are low and this is where students make education loan mistakes by not starting their loan process early, waiting till the deadline arrives, and then panicking and accepting offers by private lenders at much higher rates of interest. A difference of even 0.5 % in ROI can make a huge difference in the long run. 

You can apply via WeMakeScholars as we can speed up the loan process by effectively coordinating with the bank's loan processing department.

Don't let finances hold you back. WMS can help you get the education loan you need to achieve your dreams

3. Relying on just one lender

The students who fall for this mistake are mostly those whose parents are in charge of arranging the loan. So, parents may have an acquaintance with some bank's branch manager and so they completely rely on just that bank because of the manager. Also, students from rural areas where not many banks are present leave them with just a few options. 

It is a bad plan to just stick with one lender because what if for some reason lender rejects your loan application at the last moment? Plus when taking an education loan with just one lender, students didn’t get the better options, like 9 out of 10 students in such cases could get a better deal in terms of the ROI with other lenders. These are a few mistakes to avoid while taking an education loan that can make a huge difference in the entire education loan process experience. 

These are the 3 most common student loan mistakes which can be easily avoided and students should take help from WeMakeScholars as we work with 14+ banks and NBFCs, and we try our best to get students the best deal they can get. So do reach out to our financial officers by requesting a callback. Our team of financial officers assists you with the entire education loan process until sanction, disbursement, and beyond. 

Note: WeMakeScholars is an organization funded and supported by the Government of India that focuses on International Education finance. We are associated with 14+ public/Pvt banks/ NBFCs in India and help you get the best abroad education loan matching your profile. As this initiative is under the Digital India campaign, it's free of cost. The organization has vast experience dealing with students going to various abroad education destinations like the USCanadaUKAustraliaGermanySweden, ItalyChina, and France among others.

Education Loan FAQs

  • What is the most common mistake that students make while taking an education loan?

    The most common mistake that students make while taking an education loan is underestimating the total cost of education, including living expenses, and borrowing less than required. It's crucial to factor in all the costs involved, such as tuition fees, accommodation fees, food, travel expenses, and other miscellaneous expenses. It's advisable to consult with the WeMakeScholars experts and get a clear idea of the total cost of education before applying for a loan.

  • Can students avail of tax benefits on education loans in India?

    Yes, students can avail of tax benefits on education loans under Section 80E of the Income Tax Act. The interest paid on the loan is deductible for up to eight years from the year of the first repayment. Students should retain the loan documents and interest certificates to claim the tax benefits.

  • Should students rely on just one lender while taking an education loan?

    No, students should research and compare the terms and conditions offered by different lenders before finalizing an education loan. Relying on just one lender may result in missing out on better deals and benefits offered by other lenders. It's advisable to explore multiple options and choose the one that offers the best terms and conditions. WeMakeScholar is impaneled with 14+ public and private banks. We provide support to find the best possible option with the lowest interest rate possible for the applicants based on their profile.

  • Is it advisable to opt for a longer repayment period while taking an education loan?

    Opting for a longer repayment period may result in lower monthly repayments, but it also means paying more interest over the loan's lifetime. Students should choose a repayment period that balances their financial goals and affordability. A shorter repayment period may result in higher monthly repayments but may help save on interest payments.

  • is it a good idea to apply for an education loan at the last minute?

    No, it's not a good idea to apply for an education loan at the last minute. It may result in missing out on better deals and lead to unnecessary stress and delays. Students should plan and apply for an education loan well in advance to avoid any last-minute rush and ensure the timely disbursement of funds. Applying via WeMakeScholars will definitely speed up your education loan process. but we advise our students not to wait until the last minute to apply for a loan.