Obtaining a higher education is increasingly essential in today’s world, but the cost of a college degree can be exorbitant. Consequently, parents often find themselves allocating a significant portion of their earnings or savings to finance their children’s higher education. In some cases, parents become financially burdened by the high college fee structure, resorting to tapping into their retirement funds or making unplanned withdrawals from fixed deposits, all in order to fulfill their child’s dream of attending a prestigious college.
To avoid such situations, it is crucial to explore alternative ways of funding higher education that do not strain parents’ finances. Two options worth considering are student loans and personal loans.
Student Loan:
A student loan is the most common financial tool used by millions of students to fund their higher education. As the name suggests, this loan is specifically designed for students and comes with affordable interest rates. One of the advantages of a student loan is that repayment does not commence immediately after borrowing. Students are typically provided with a time frame that depends on their enrolled course, and repayment begins either upon course completion or upon securing employment. However, it’s important to note that approval for a student loan is not guaranteed, as it is offered only to those admitted to reputable colleges or those with high rankings.
Personal Loan:
Opting for a personal loan to finance higher education is a sensible choice if the required amount is not substantial. Borrowing within one’s repayment capacity without burdening parents’ finances is always a prudent approach. Moreover, personal loans offer multiple options at pocket-friendly interest rates. The eligibility criteria for a personal loan are minimal, as it does not necessitate admission to a top-tier or highly prestigious college.
Some banks even provide additional incentives to encourage personal loan uptake for education. For instance, you can avail of a personal loan at a low-interest rate, with the EMIs taken care of by your parents. This way, your parents’ savings remain untouched, and your fees and other expenses are covered by the personal loan. Once you secure employment, you can easily contribute to your parents’ finances and help them repay the loan EMIs.
An additional advantage is that your parents can claim tax benefits since the loan is used for educational purposes. As per Section 80C of the Income Tax Act, a deduction of ₹1.5 lakhs can be claimed for this purpose. It’s important to note that several other investments also fall under Section 80C.
A Brief Comparison between Student Loans and Personal Loans:
- If you require funding for a substantial tuition fee, you may not qualify for a personal loan, but the probability of qualifying for a student loan is higher.
- Student loans come with built-in protections such as deferment or forbearance programs that offer relief if you face difficulties making payments after graduation. Personal loans do not offer such options.
- Student loans often provide income-based repayment options, allowing you to adjust payments based on your budget. After completing your higher education, there is typically a grace period of six months to one year before payments start. Personal loans, on the other hand, require immediate repayment without such flexibility.
- Qualifying for a personal loan is relatively easier as there are no specific restrictions on its use, whereas qualifying for a student loan can be challenging if your college is not well-regarded.
- Personal loans offer instant funding, while obtaining funding from a student loan may take some time.
Ultimately, the choice between a student loan and a personal loan depends on your specific financial circumstances and educational requirements. Assessing the pros and cons of each option will help you make an informed decision.