Yes! You have made it to your acceptance mail and you are probably in the seventh heaven. All that huge amount of ordeal is finally worth it. A fluffy think cloud pops up on your brain where you’re flying on a plane, landing in your dreamland, befriending a multicultural group of people and ending up with a 5 or 6 digit salary in the US. But wait – there are things that are yet to be lined up before you can begin your journey, and these things include your not-so-cheap tuition fee that might leave you in a bundle of nerves. Unless you have paternal ties with Lil Wayne or Bill Gates, you can’t help but apply for an educational loan.
You can apply under an Indian government education loan scheme to avail of interest subsidy.
Under the interest subsidy schemes, the interest payments for the moratorium period are waived off. The moratorium period is usually the study period, plus one year or six months after getting the job, whichever is earlier. Once the moratorium period is over, the student will have to make interest repayments along with the principal amount. There are, however, strict eligibility criteria to apply for the subsidy. Read about various schemes that are available to students and their eligibility here.
I think it is better to take an education loan instead of spending your parent’s savings. They might be saving it for their retirement. They also help to make you more responsible financially as you will be the one making loan repayments. This financial responsibility will help you in the long term.
Nationalized banks offer better rates of interests as compared to other financial institutes, starting from 7.6% for women and 8.1% for men. The rate of interest of loans with collateral is generally low.
Next, private banks, like Axis Bank, offer low interest rates for an unsecured education loan. Other private financial institutions like NBFCs charge a higher rate of interest.
Interest rates offered by Indian lenders, except SBI, are floating. That is, the rate can increase or decrease depending on the market conditions. This fluctuation is negligible in public sector banks, but can be significant in private financial institutions.
So before you settle with a lender, compare different rates, calculate your total EMIs, and the total amount you would be paying as interest by the end of your loan tenure.
Adding to what @Ramesh mentioned, there is also a scenario where you might be better off taking a loan. This is the scenario where your investments are expected to generate a better post-tax return than the cost of debt that you would be incurring. Remember, that education loans from banks allows you a tax incentive and many folks could generate (or hope to generate) better returns through their own investments.
I can speak from personal experience as I did my MBA from IESE Business School by taking a loan from a Spanish bank and having my savings generate a better return which allowed me to pay off my debt after graduation and allowed me to put the initial capital for GyanDhan.