What Are The Challenges With Traditional Education Loans?

With skyrocketing costs, higher education is beginning to seem like a far-fetched dream for many aspiring students. Even if, for a moment, we put studying abroad aside, securing admission in leading educational institutions within our home country itself has become very expensive. Due to these cost challenges, students find themselves struggling to pay for their college education.

During the desperate need of college money, education loans have proven to be a great source of support for students. Not surprisingly, as a last resort, a large number of students prefer to apply for education loan to cover expenses on higher education.

Education Loans in India

In India, education Loans were made available to the public back in the year 2001 by the central government. The government of India launched the scheme after consulting with the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA). Since then, lending almost 95% of the total student loans of the country, public sector banks have been the dominating players in the education loan sector.

As per the guidelines prescribed by the RBI, students studying within the country can avail maximum ₹10 lakhs as education loan. While for those who go abroad for their education, the maximum limit is ₹20 lakhs. Furthermore, through its guidelines, RBI also establishes that an amount of up to ₹4 lakhs can be sanctioned to education loan seekers without requiring them to put any collateral. However, any amount exceeding the ₹4 lakhs limit would require a third-party guarantor and collateral security. 

The Challenges with Traditional Education Loans

Student loans are indeed helpful in securing funds for studying within the home country or abroad. However, getting an education loan might not be as easy as you think. While you can easily apply for personal loan scheme available, to have your loan approved can include numerous hurdles. Another important thing to consider is education loan interest rate that is generally very high compared to other types of loan.  

These are not the only problems with education loans. Here are some major challenges faced with traditional education loans:

Collateral

As mentioned above, only educational loans of up to ₹4 lakhs can be sanctioned without needing a collateral and guarantee. However, education costs have become so high that students seeking admission in premier institutions would need more than ₹4 lakhs. This compels students to apply for education loan amounting higher than ₹4 lakhs limit. In such cases, students are required to present a guarantor or put up something as collateral, and complying with these conditions is not feasible for every parent or student.

Highly Riskier for Both Parties

Education loans involve high risk for both lenders and borrowers. Student loans are full of uncertainty than any other loans because repayment of education loans is highly dependent on the likelihood of students completing the course and securing a job. If students don’t finish the course or get a job on time, lenders may face loan default while students get bad remarks on their credit profile. On the other hand, high interest rates on education loans put a lot of pressure on students and may affect their repayment capacity.

Insufficient Loan Amounts

Students applying for education loans often complain that lenders are not sanctioning the required amount or the sanctioned amount is insufficient to cover other expenses. However, lenders are also not in the wrong here. When giving education loans, lenders face a high possibility of defaults so to lower the risk, lenders often sanction the amount that they deem reasonable in given circumstances.

New Opportunities

While it may not be possible for you to get higher education without student loans, traditional lenders are not the only place where you can apply for education loans. Due to a large number of loan defaults, bakers are becoming more cautious in giving education loans. With instant loan apps like Fibe (Formerly EarlySalary) offering options such as School FeEs, it’s certainly far easier for parents and students to adequately power their education. 

In addition to addressing the multiple challenges above – such as the lack of collateral, risks, and more – School FeES goes a step ahead and truly works as a modern credit offering of its time. With direct partnerships with educational institutions, it is possible to have your school fees paid directly to them in the form of EMIs. Borrowers can get access to up Rs 5 lakhs, and select their own flexible repayment options.

In short – you can get the best student loan deal at reasonable interest rates. All you must do is you apply for the education loan and have it sanctioned in a seamless process.