Availing education loan? 5 factors to consider while deciding the amount

June 3, 2016

Are you planning to take an education loan for higher studies? Among the questions that would be bothering you is what is the maximum amount of loan you could avail and how much one should avail?

If you are falling hugely short of cash, don't worry. Lenders extend finance for the entire of cost of education, including tuition fees and living expenses. However, the extent of loan would to be sanctioned would depend on a thorough assessment by the lender as well.

"Lenders can finance up to 100 per cent of the cost of education, depending on the course, institute and its location," says Naveen Kukreja - CEO & Co-founder, Paisabazaar.com.

Ajay Bohora, co-founder, MD & CEO of HDFC Credila Financial Services, an HDFC company, advises borrower to undertake a complete assessment of the needs. "An overall evaluation of the costs and the benefits provided by the lender can help in planning the finances well," Bohora said.

Here are a 5 tips from experts to help you decide on the loan amount:

-Assess all likely expenditure: Loans generally over tuition expenses, living expenses and overhead expenses such as cost of traveling, purchasing laptop, equipment and books. So take all of it into account while applying for the loan and not just the tuition fee.

-Factor in currency fluctuation: For Indian students going abroad, currency depreciation further leads to increase in fees. "It has become increasingly important now to factor in an additional 10-30 per cent to the total cost to absorb the impact of depreciating rupee against respective currencies, depending on the length of the course," says Bohora.

-Keep margin money to the minimal: Some lenders do not require margin money (down payment), which helps you get up to 100 per cent of the total cost of education. Do a thorough market study of loans on offer to get the best deal on margin money.

-Minimise future EMI burden: Earning capacity at the beginning of the career is comparatively lower and hence students should opt for longer loan tenure and extends up to 10-12 years, depending on the size of the loan. This helps in easing the repayment burden on the student with relatively smaller EMIs.

-Assess your future earning capacity: Take a loan that you can service with your income after finishing the course. "There is no thumb rule for the quantum of student loan a person should take. A guideline would be to base your income expectation on the lowest offered to students who have cleared the same course from the institute you propose to join. Then consider about 70 per cent of this as the amount you would earn. Remember, besides repaying the loan you also have to sustain yourself," says Anil Rego, CEO & Founder, Right Horizons.