Student Loans – Expectation vs Reality

Banks offer student loans to enable students to pay for higher education and graduate and postgraduate degrees in India and internationally. Student loans generally cover tuition, student accommodation, and other course-related purchases.

To qualify for the loan, the student must provide proof of enrollment in a university and evidence of collateral payment, such as property documents, fixed deposits, etc.

Student Loans are a reasonably new concept in the world of international education, and it is essential to have complete clarity about the idea of student loans. In this article, we discuss and bust some of the expectations and realities of student loans to understand student loans comprehensively. 

Expectation – The student has to pay the entire amount during the university course 

Reality – This is generally not the case regarding student loans. When a student completes their university course, the repayment period begins. The repayment period typically lasts for 5-7 years. There are several exceptions to this, and they all are bank-dependent. Some of these exceptions include the following:

• Some banks and lending institutions provide a relief period of six months after the course ends for the student to start repayment. 
• Some banks and lending institutions start the repayment period after the student’s employment. 
• The repayment period differs based on the loan amount, interest rates, and the amount of time given for payment after the course ends.

Expectation – I cannot get a loan if my university is not recognised 

Reality: Banks want to ensure that students get good job prospects and employment opportunities after graduation. These employment opportunities are guaranteed by colleges and universities that are well-ranked and prestigious, and banks give special attention to accredited courses that provide high employment rates. Ultimately, the college’s reputation plays a pivotal role in determining the likelihood of receiving a student loan. Finally, if your university is accredited and has a good history, you can be eligible for student loans. 

Expectation – I can only take a student loan for a full-time course 

Reality: You can take student loans for many reasons and courses, like Diplomas, Certificate degrees, training courses, undergraduate degrees, postgraduate degrees, PhDs and many more. Banks recognise the specialised courses that students take up, so the loan borrowing system is very flexible depending on the duration of the course and the college itself. It all boils down to how your job prospects look after you complete your course. 

Expectation – I always need to provide collateral for my student loan.

Reality: Sometimes, when the loan amount is high, the banks may ask for collateral. The loan amount and collateral differ from bank to bank. In India, collateral security for student loans is not needed for amounts up to Rs 4 Lakhs. Factors like borrower’s/co – borrower’s future income and creditworthiness are considered when giving out loans without collateral. Along with that, the interest rates for loans without collateral are generally higher. Apart from that, the objective of student loans is to provide a monetary incentive to students who need backing. The need to present collateral to the bank defeats the purpose of student loan provision, which is why most banks do not ask for collateral or security for loans. 

Expectation – I will be paying my student loan my entire life. 

Reality: Repaying your student loan requires a lot of pre-planning, researching and strategising to find the perfect match in terms of time, interest rate and capability to pay. Loan repayment periods are of three kinds – 

• Standard repayment plan of 10 years to 20 years 
• Graduate repayment plans that start with low payments and gradually increase with higher costs post-employment 
• Extended repayment plan with up to 25 years of repayment window

Expectation – My student loan will affect my credit score 

Reality: A credit score is a numerical analysis and expression of a person’s credit and payment files, determining if your previous payments have been timely and overall creditworthiness. To qualify for a student loan, you must have a credit score of at least 670. Once your course of study is over, you pay back the loan amount based on your repayment period. If you cannot repay or make any delays in repayment, it contributes to a low credit score, thereby affecting the overall credit score. 

Getting a student loan in these times has become very easy, with several banks providing various flexible options to cater to aspiring students.

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Author’s Bio

Madhura Ballal plays many roles- a cat person, a food lover, an avid marketer, and a postgraduate from the National University of Singapore. You can find her painting, doing yoga, and spending time with her friends when she’s not playing one of the most critical roles that she has taken on- writing.