The rate of inflation in the education sector is higher than many other sectors. As a result, the price rise makes higher education out of reach for many meritorious students, forcing them to opt for education loans to finance their higher studies.
Unless proper financial planning and investments are done well in advance, education loans almost become indispensable for studying abroad.
The Covid-19 pandemic, however, hit the job market hard last year, making it difficult for the students to get proper placement to repay the education loan on time.
“Last fiscal, nearly 10 per cent of educational loans extended by PSUs were categorised as bad loans. The rising cost of education is crippling many dreams. In India, education inflation stands at 11-12 per cent. It’s nearly impossible to finance higher education without a loan,” said Saurabh Jhalaria – Head of SME and Education Lending, InCred.
“If we can’t circumvent taking a loan, we can definitely make a concrete plan for repaying one as soon as possible,” said Jhalaria, while suggesting the steps to pay off your education loan with limited income –
1. Choose a higher loan tenure, pre-pay if you have funds
If you opt for a secured education loan, you can avail a tenure of 10 years and above. The longer tenure reduces the monthly EMI installment and gives you a more comfortable margin to repay your loan. The borrower can start the loan repayment after completion of the course or when they start earning. This is known as a moratorium period. If you can allocate some resources towards prepaying the interest, especially during the moratorium period, you could benefit from a lower overall interest rate, thus reducing your cost of repayment.
2. Start a side hustle or work part-time
Repaying your loan sooner will not only take a huge burden off your shoulder, it will also free up monetary resources to be diverted towards more productive uses like investing. You should start planning to pay-off your loan while studying. Work around your study schedule and find time for starting a side-hustle, or working part-time, teaching a course, selling your art online, offering graphic design services, etc. Anything to increase your income and begin paying your loan when in college.
3. Live frugally
Increasing your income is only half the battle- the other half is ensuring that the supplementary income is utilised toward your debt. If your lifestyle inflates in tandem with your income, the effort is in vain. At least till you get rid of your loan; you need to live frugally with basic necessities. Get good at budgeting. Review what your necessary expenses are-eg food, rent, clothing, etc, and eliminate anything else that isn’t essential. Distinguish between your wants and needs and prioritise the latter. A new laptop might be essential for your studies and career and therefore a necessary expenditure, while eating out daily is not.
4. Future income
It’s easy to straddle yourself with a loan for an expensive course that promises to be a runway to a rewarding salary package in the future. Avoid going down that path. Understand what interests you. If your interest leads you to the expensive course, give it a shot. There are other factors that need to be considered. You need to ascertain whether there Is/will be a demand in future associated with the course you are doing. The rules for working in the country, the legal barriers you have to overcome to extend your stay, determining the visas you can apply for, immigration regulations etc. Ensure that you research and plan about all these things before making the move. This way, you will have the means to pay back your loan, while being happy and satisfied with your profession.