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Simply Save | Students & parents must check their financial preparedness while obtaining educations loans

Students can obtain education loans once they secure admission letters is one of the biggest misconceptions, Arindam Sengupta of Edufund tells Preeti Kulkarni

July 05, 2022 / 09:01 PM IST

Many overseas-bound Indian students will be heading to universities abroad - the US, UK, Canada and Europe - in August or September.

Starting July, the period is bound to be hectic for students and their parents, as they scramble to complete admission and travel-related paperwork, besides arranging funds for travelling to, studying and living on university campuses or elsewhere in their destination countries.

To guide such students and also those who are planning to pursue education overseas in the medium to long-term, we, at Moneycontrol, have put together a special series centred around popular courses, top universities, the right approach to investing for children's education as also applying for scholarships and education loans.

To understand how parents can invest towards their children's higher education expenses and jointly plan taking education loans to make good any shortfall, Moneycontrol's Preeti Kulkarni spoke to Arindam Sengupta, Co-founder, Edufund, a SEBI-registered investment advisory firm that provides education counselling, besides advice on investing for children's education overseas and applying for education loans.

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Here are the key takeaways:

"Unlike earlier, students today have many options in the form of public sector and private banks, non-banking financial companies (NBFCs) and now fintechs, too, that are now active in the education loan space."

"Most lenders' list of pre-requisites include collateral, co-signer (usually, parents), and I have observed that typically they seem to prefer students who would be pursuing Masters courses abroad."

"While short-listing lenders, compare interest rates, keep an eye on hidden charges and find out if there is a prepayment penalty, among other things."

"Most students always assume that they will land a job once they complete their course, but this is not always the case. What if the economic conditions take a turn for the worse by the time you finish your course? Find out if your lender is willing to give a soft loan for 6-8 months."

"Lenders evaluate borrowers' applications on the basis of their ability to repay the loan. They typically look at collateral and co-signer's credentials. Many parents invest in real estate for their children's education, but do remember that a plot of land is not treated as collateral."

"However, if you have secured admissions in, say any of the top 10 or 20 universities, some lenders could give you a zero collateral loan."

"A big misconception some applicants have is that they assume that they will get a loan once they have an admission letter. Only later do they realise that their parents' income is too low or that their families are already servicing large house or car loans (which bring down loan eligibility)."

"Many students and parents start preparing academically up to three years prior, but check their financial preparedness only six months before admission. But planning for education expenses is not like buying something on an e-commerce portal. Whether you are planning to study in India or abroad, you ought to do a financial check at least 2-3 years before and plan accordingly."
Preeti Kulkarni is a financial journalist with over 13 years of experience. Based in Mumbai, she covers the personal finance beat for Moneycontrol. She focusses primarily on insurance, banking, taxation and financial planning
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