Do's and dont's while taking education loan

Saving for the little one's higher education, further studies more often than not features among the most important financial goals for many. It is also no surprise that this cost is heavy and can eat a large portion of your corpus. Spiralling costs of higher education is not the only reason that parents may fail to accumulate adequate money for their children’s education. A shortfall can occur because of a change in the nature of the goal too.

Parents can start to save for their child’s education immediately after the birth of the child. This way, they would have 18 years to save for graduation and 21 for higher studies. However, despite starting early, one can still fall short of the required corpus. This is where education loans come in. They are gathering favour among many.

Therefore, before you decide to take an education loan to help finance your child's higher education, take a look at some of the do's and dont's:


Dos

• Choose course with care

An additional degree may not mean better job prospects. Selecting the right course is critical. Instead of any course, the student should concentrate on courses with good job potential. Since job opportunities are more for those studying science, technology, engineering and maths (STEM) in foreign countries, there is a clear trend towards these streams when applying for foreign education loans.

• Keep future salary expectations real

Taking the maximum loan available, irrespective of the repayment capacity, is the next mistake. Students should only take loans that can be repaid by their future salary. Else, the co-applicant, which is the parent in most cases, will be forced to pay the remaining. “While computing expected salary, keep expectations reasonable,” says Prashant Bhonsle, CEO-Students Loans, InCred.

Also read: Guide for parents taking education loan for kids

Don'ts

• Opt for course just because loan is available

Joining a course just because the institute has tied up with some financial institutions and a loan is easily available is a mistake. By doing so, you may fall victim of the education mafia. Several institutes, which offer poor quality education, try to attract students by showcasing their tie-up with banks. Students should decide the institute and course based on their appetite and ability.

• Take top-up loans

Some students take an education loan for graduation and then avail of the top-up facility to complete their post-graduation. “Taking a top up on education loan is bad, because it will increase the liability further. It is better to finish the first education loan before taking the second one,” says C. S. Sudheer, CEO and Founder, IndianMoney.com.

Education goal Vs retirement planning - what should you do?
A dilemma faced by many Indian parents is whether to save for their children’s higher education or their own retirement. Should they use the money accumulated for their retirement goals to fund a shortfall in higher education goals? No, say experts. “Kids can take education loans, but parents can’t take loans for retirement. So, retirement planning goal should supersede higher education goals,” says Amol Joshi, Founder, PlanRupee Investment Services.