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Why A Student Loan Is Better Than Any Other Loan for Higher Studies

Updated on January 5, 2011

no collateral till 4 lacs

This is significant.

In India if you are availing of a student loan, you do not need to provide any collateral to the bank for a loan amount of INR 4 lacs per year.

Your parents still need to sign on as co-borrowers and the bank may want the financial papers (Income Tax Returns, Assets or even a Chartered Accountant Report) but they cannot ask you or your parents to pledge any assets to the bank as collateral to the loan.

lower rate of interest

 Educartion loans are part of the government program to encourage higher learning in the country.

Such programs are warranted to ensure that the youth are motivated to learn and earn more.

Bank loans provide that opportunity to people who may not be able to otherwise avail of such opportunities.

In keeping with that, the student loan is offered at the lower interest that a personal or commercial loan.  You are therefore served better if you go in for a student loan as you will pay out a lesser interest component.

dont need to start repayment until you find a job

You have to pay a loan you take.

there is no getting away from that.

But a student loan is different.  because of the purpose of the loan, the repayment is only started once you get a job after completing your studies.  Although the interest starts getting accrued as soon as the loan is disbursed, the repayment schedule is generally from 6 months after the course ends.

If you are unable to get a job, you can get an extension from the bank.

can top up for higher studies

If you complete your education successfully you can even top up your education loan for further studies.

Lets say you take a loan for a Bachelors degree study.  Once completed, you can submit your papers (scores, test results, degree etc) and apply for a higher loan.

In most cases if your scores are good, the chances of getting the top up loan is good.

banks are not aggressive on repossession

One reason is that they really have no collateral.

Even if they do, a default on education loan is not considered serious.

You can buy time and leniency pretty easily.

The govt agenda ensures this.

longer payment time/years

The loan can be spread out over 5 to even 7 years.

That is a lot of time you get to repay your loan.

This is not possible in any other type of loan except maybe property.

most banks have a budget/goal to disburse loans

Because a lot of these policies are dictated by the government of the day and these fall in the development projects catergory, Public Sector Banks are mandated to disburse pre-decided amount of student loans.

Student loans are also considered safer than some other category of loans and hence a banker wants these in their portfolio.

In some cases, to encourage the girl child education, banks have to ensure loans are disbursed to the girl child.

govt agenda

Government agenda is what makes all this possible.

The government of the day decides how much it wants to promote education.  The more youth is in colleges the better it is for the country and a growing country like India needs as many qualified youngsters as possible.

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