Funding Higher Education – Self Funding vs Education Loans

Planning for higher education abroad? How about higher studies at a premier institute within India? Quality education is expensive! No two ways about it.

Of course, there are many ways of providing for an expensive education. The two most common ways students fund their higher education is through self-funding or Education Loan.

With self-funding, the full fees have to be paid upfront. Additionally, the living costs are separate which also have to be provided for.

Sometimes, the living expenses may be almost as high as 50 percent of the educational costs.

In addition to the tuition fees, and education loan will take care of your living expenses as well. After you complete your course, you can start repaying the loan.

Furthermore, lenders allow borrowers up to 6 months of moratorium after the completion of their courses.

If you are self-financing your education, you pay the whole amount in one shot. No EMIs!

Contrast that with your education loan. Almost all banks offer easy repayment options in terms of EMIs. Some even allow their borrowers to repay the amount over a decade.

When self-funding, you have to dig deep into your savings. This, in turn, could erode your investment opportunities or worse, emergency contingencies.

With an education loan, you have it covered.

Challenges Faced During Higher Education

In India, the challenges to finance higher education are myriad –

  • Personal finances: We may be one of the fastest-growing economies in the world. We may even be one of the biggest economies in the world.
    All said and done, there is still a significant population in our country that does not have access to even primary education, much less higher studies.
    Financially challenged, a vast majority of our youth cannot afford quality education because they hail from impoverished backgrounds.
  • Eligibility for education loans: Conventional banking institutions lend money to borrowers against collaterals.
    With a large section of the population unable to put up the commensurate assets to be eligible for a loan, students are unable to avail financial aid to secure a good higher education.
  • Over-expenditure: Sometimes, even after personal finance and financial aid kick in, it’s not enough. A student may get through a University that does not grant him or her a full scholarship.
    Pupils may simply lack the financial background to be able to afford the balance amount. Banks or other financial institutions may be unwilling to provide the requisite support needed to make up the deficit.

Tackling The Financial Challenges To Higher Education

Fortunately, there are avenues where meritorious students can seek financial aid in order to fulfill their dreams of higher education –

  • Government grants: More often than not, governments run schemes that help gifted students secure a berth for higher education.
    These schemes are customized to suit the unique needs of the ones seeking financial aid. This includes special cases such as government employees, single parents, etc.
  • Scholarships: Scholarships are financial incentives that are merit-based. They enable gifted students to pursue higher studies.
    Scholarships are tailormade to each course within an academic institution. One of the most attractive attributes of scholarships is that they are not geography-specific.
  • Student loans: In the event that a student does not secure a scholarship or grant, he or she can always seek a student loan. Banks offer student loans at acceptable interest rates.
    What’s more, financial advisors will guide you every step of the way in order to ensure that you make the most informed decision.

Self-Funding Or Education Loans

Over and above the pros and cons of taking an education loan vs self-financing one’s higher education that has already been discussed at the beginning of this article, there are additional benefits to taking an education loan –

  • Tax exemption: When you avail of an education loan, the complete interest on the loan is exempted from tax – an enviable attraction you cannot avail of when self-funding.
  • Timely payments: If you are paying for your higher education yourself, you have to keep a constant eye out for those deadlines to the installment payments.
    Contrast this with an education loan where the bank takes care of these formalities.
  • Credit History: Anybody who has ever paid a loan on time knows that timely payments positively affect your credit score.
    This, in turn, helps you to procure more loans in the future for a car, house, etc.

An education loan will take care of your larger expenses such as college tuition and living expenses. Unfortunately, it may not always help in meeting daily or petty expenses. What if you were in need of some stationaries? Or pay for your gym membership?

At mPokket, we understand the importance of loans to meet emergencies, even if they are short-term. This is why we offer loans, not just to college students but to young professionals as well.

Simply download and install the app, register with a handful of documents, and apply for a loan. Once approved, up to Rs.20,000 will be instantly credited to your bank or Paytm account.

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