Myths of Educational Loan debunked for students

Myths of Educational Loan debunked for students

The potential of the education space has been realized by the government. Thus, fund allocation has been increased for the education sector in the Union Budget by around 8.2% over the last year. However, several other factors such as education inflation and rupee depreciation are creating a financial hurdle among students.

Quality education must be accessible to every individual. This will enable the imparting of expert knowledge and critical skills and help in building a successful career. Education empowers the youth and influences them to develop a robust economy. This is considered the fundamental criterion for nation-building.

The potential of the education space has been realized by the government. Thus, fund allocation has been increased for the education sector in the Union Budget by around 8.2% over the last year. However, several other factors such as education inflation and rupee depreciation are creating a financial hurdle among students.

Therefore, Indian students are preferring loans in order to chase their academic aspirations. This will help them finance their higher studies independently without depending on their parents. However, confusion is created among students with regard to several education loan myths. Students are usually first-time borrowers. Therefore, it is imperative to dive deep into this subject in order to be able to understand education loans better.

Below are 10 major education loan myths that have been debunked with facts under each case:

1. Instead of opting for an education loan, Liquidation of Assets is better

Parents prefer utilizing their savings rather than taking up an educational loan when financing expensive education. However, self-financing will exhaust the corpus of savings that can serve as a requirement during emergencies. The savings and investments of students can continue to be a reserve to which they can turn during contingencies if they opt for an education loan.

2. Collateral Requirement for Educational Loan

The second myth is the compulsory requirement for educational loans. Collateral is, however, optional when taking a loan. The option to avail of a non-collateral loan is also given to students. Students are provided with unsecured loans by many education-focused financial institutions. Under this, no collateral is needed. Based on their financial requirements and preferences, applicants must decide between secured and unsecured loans.

3. No Loan Approval under the condition of no credit approval

Generally, students are first-time borrowers. Therefore, they either have a low credit score or no credit history. It is generally believed by most applicants that a loan will not be approved without a credit history. A student-centric approach is taken by many financial institutions. Thus, in order to determine employability potential, they evaluate the student profile. Other important factors that help in assessing employability are entrance exam scores, academic scores, the pedigree of the university, etc. Also, co-borrowers are evaluated for loan approvals for credit history.

4. Only Tuition Fees are covered under education loans

Education loans do not only cover tuition fees. Many financiers focused on education offer student loans that cover the holistic cost of education. Such costs include tuition fees, study material expenses, accommodation costs, travel expenses, equipment costs, and more.

5. Out of Sight and Out of Mind Debt till Graduation

Students often believe that until they finish their education they need not start repayment of loans while availing themselves of an education loan. The Moratorium period is definitely available. However, students must effectively plan to make small contributions towards repayment of their student loans. During the grace period, they can pay simple interest/partial interest as it is not considered an interest-free period.

6. Only Higher Education can be funded through Education Loans

Many students, in recent years, have been opting for various skilling programs in addition to mainstream education in order to be career-ready. Currently, financial institutions are providing solutions to meet the need of the hour. Therefore, they provide student loans for reskilling, skilling, upskilling, and vocational study programs. Solutions are also provided by certain NBFCs, such as school fee financing.

7. Education Financing Solutions are the same for every student

Students are profiled by the financers on the basis of their coursework, future career prospects, study destination, entrance exam scores, academic scores, and more. This will help the financers to offer hyper-personalized solutions. The education loan is customized as every student has a unique financial requirement. This will depend on their preference and student profile.

8. A Co-Borrower is not needed to opt for an education loan

In order to act as a guarantor, a co-borrower is of the utmost importance. With the surety of the guarantor, the financial institution approves the loan application. The co-applicant should either be a legal guardian, parent, sibling, or any other blood relative.

9. Education Loans are generally a lengthy process

With processes being digitally agile, it is easy for new-age lenders to evaluate the profile of the applicant and quickly disburse loans. Also, if the students meet their financier’s criteria, they need not worry about missing their university fee deadline.

10. Fixed and Rigid Repayment Terms

Financial institutions focussing on Education offer flexibility in setting repayment terms. Terms are generally discussed with the applicant which will help them in understanding the way they will manage their loan repayment, whether it is during their period of study or after that.


Student loans are chosen by young aspirants due to multiple benefits. Education loans cover the holistic cost of education. A smooth journey is enabled for both students are parents due to the easy availability of student loans from education-focused financial institutions. However, thorough research must be conducted in order to understand the various nuances related to educational loans. Therefore, all the misconceptions related to student loans will be debunked. Moreover, in order to pursue their education, students can choose the best possible financing solution.

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