Rajiv Raj of creditvidya.com stresses on the need to pay heed to the importance of education loan. He discusses on how efficiently should one manage this loan to maintain a good CIBIL credit score.
With the cut off percentage of getting admitted to professional courses becoming stiffer, students are finding it hard to aspire and make it to such courses. Rising cut offs are increasing the cost of education; making it a tiring journey for most of the students. Off late, the depreciating rupee has added to the woes of students who are keen to pursue a course overseas.
Due to the fall in rupee against the US dollar, the effective fees in rupee terms have gone up by 40 percent in the last two years. Those who make it but cannot afford to pay for the education invariably opt for education loans.
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There are many banks offering education loans and there is not much product differentiation. An education loan, in its traditional form, comes with a moratorium period. It coincides with the course term and the student is expected to repay the education loan after he completes the course.
Education loans can be taken for both – courses offered by Indian and foreign universities. One can apply for an education loan up to Rs 30 lakh and the rate of interest payable is between 11.5 percent and 17 percent. One enjoys tax shelter under section 80E, where the interest paid on the education loan gets deducted from taxable income.
Getting an education loan may not be too difficult; as long as you are enrolling in a course that is approved by regulatory bodies such as AICTE, UGC, IMC. It may also be in a course offered by an overseas university having high reputation. However, the peculiar part of the drill begins after getting the loan.
In India, many students do not repay their education loans. It is one of the major non performing assets in retail asset portfolio for banks. According to industry estimates around 6 percent of the total education loans go bad in comparison with the average of 2 percent of the overall loan portfolio. This is rather disturbing.
There are genuine cases of students not getting a job immediately after completing the course and there are cases of wilful defaulters too. But in both the cases, banks can do little and end up putting a ‘defaulter’ tag against the borrower’s name.
This spoils the CIBIL report of the student when he is about to start the career. Such individuals do not get a loan from any banks. Their worse fears come true when they apply for a home loan or a business loan, after committing their own money.
If you sense such a situation of not getting a job, it is better to approach the bank and speak the truth. It is understandable that such a situation would pop up in a slow-growing economy like India. Try your level best to secure a job and start repaying the bank.
Get rid of the loans in full and keep your credit score positive and above acceptable limits. There are many who go overseas and take up good jobs and then conveniently forget that they have to pay off their education loans.
For them, their jobs are overseas and they have plans to settle overseas. But they do forget that by not paying a small education loan, they end up closing doors of the Indian financial system for themselves.
Hence, be prudent and pay off the education loan and make a healthy start to the process of building a healthy credit profile.
The author is the co-founder and director of www.creditvidya.com