The inflation rate in the education sector is higher than in many other sectors. As a result, rising prices make higher education out of reach for many deserving students, forcing them to opt for student loans to finance their higher education.
Unless proper financial planning and investments are made well in advance, student loans become almost essential for studying abroad.
The Covid-19 pandemic, however, hit the job market hard last year, making it difficult for students to secure a suitable placement to pay off the student loan on time.
“In the last fiscal year, almost 10% of education loans granted by PSUs were classified as bad loans. The rising cost of education paralyzes many dreams. In India, education inflation is 11-12%. It is almost impossible to finance higher education without a loan, ”said Saurabh Jhalaria, Head of SME and Education Lending, InCred.
“If we can’t avoid taking out a loan, we can certainly make a concrete plan to pay one off as soon as possible,” Jhalaria said, while suggesting the steps for paying off your student loan with limited income –
1. Choose a longer loan term, prepay if you have funds
If you opt for a secured student loan, you can benefit from a term of 10 years and more. The longer term reduces the EMI monthly payment and gives you a more comfortable margin to pay off your loan. The borrower can start repaying the loan after the course ends or when they start earning money. This is called a moratorium period. If you can allocate some resources to early repayment of interest, especially during the moratorium period, you could benefit from a lower overall interest rate, thereby reducing your cost of repayment.
Key factors to consider when planning funding for your child’s graduate studies abroad
2. Start a secondary activity or work part-time
Paying off your loan sooner will not only relieve you of a huge burden, but will also free up monetary resources to divert to more productive uses like investing. You should start planning to repay your loan while you are in school. Work according to your study schedule and find time to start a sideline or work part-time, teach a class, sell your art online, offer graphic design services, and more. Everything to increase your income and start paying off your college loan.
3. Live sparingly
Increasing your income is only half the battle – the other half is making sure that the extra income is used to pay off your debt. If your lifestyle swells in tandem with your income, the effort is in vain. At least until you get rid of your loan; you have to live frugally with the basic necessities. Become good at budgeting. Review your necessary expenses (food, rent, clothing, etc.) and eliminate anything that is not essential. Identify your desires and your needs and prioritize them. A new laptop can be essential for your studies and your career and therefore a necessary expense, whereas eating out every day at restaurants is not.
4. Future income
It’s easy to get stuck on a loan for an expensive course that promises to be a trail to a rewarding salary package in the future. Avoid going down this road. Understand what interests you. If your interest leads you to the expensive course, give it a try. There are other factors that must be taken into consideration. You should check if there is / will be a future demand associated with the course you are taking. The rules for working in the country, the legal barriers you must overcome to extend your stay, determining which visas you can apply for, immigration regulations, etc. Make sure you research and plan all of these things before you move. This way, you will have the means to repay your loan, while being happy and satisfied with your job.