Education Loan: 5 Sins You Must Avoid

Harmanjit was on top of the world when his student education loan came through. That was 2013, it was the year his dream to pursue a top-notch course at a renowned university had come through! All that stood between him and a promising career ahead was his last leg of education at the university. But the problem was funding the ballooning cost of higher education, to tackle this problem; he opted for a student education loan. Fast forward to 2015, he has a great job, a salary that allows him to live comfortably and loan repayment hanging on his head. Harmanjit can?t do much now except focus on repayment but learning from him, we can certainly do what he didn?t do. Let?s look at a few mistakes that many students often commit when taking a student loan.
Not exploring alternate avenues: Often, we do not consider the alternatives we have in front of us. Don?t be fixated on a college that has very high tuition fee, look for colleges that are equally good and have lower fee. There is no harm in enrolling yourself into the latter if your career requirements can still be met. We are not suggesting that you lower your career goals, but if you can save a bit and still get quality education from someplace else, what?s the harm? Remember, every paisa saved is a rupee earned!
Not doing proper research: Most of us commit the same mistake as Harmanjit of not doing a proper research before applying for an education loan. The general tendency is to hit the nearest bank, apply for a loan and head home. But, what?s the hurry? Find out what all will the bank cover (tuition fee, accommodation, other college fee, etc.), would you need a guarantor or provide security, by when the loan will be disbursed. Start by comparing all loan options available to you. So, your savings actually begin even before the loan is disbursed!
Borrowing more than required:Banks are often in the habit of giving you a loan amount that exceeds your requirement. Be careful of this as the more you borrow, the more interest you pay. Borrow precisely what you need. One of the many reasons, Harmanjit is having a tough time repaying his loan today is because his loan amount was more than what he needed. At that time, he did not think through and used the excess money to ?maintain? a lifestyle. Avoid this situation when you undertake an education loan.
Following a flawed repayment approach:
In an attempt to pay faster, Harmanjit committed the mistake of opting for an unrealistic repayment plan. He is not alone in this approach as all of us want to pay off our loans at the earliest. However, a balanced repayment strategy would take into account what you can repay while meeting your basic expenditures comfortably. Chewing more than what you can bite does not help. It often leads to repayment defaults and you end up paying more than what you were supposed to in the first place. So, plan your repayment in such a way that you consider all eventualities and yet manage to make timely payments!
Ignoring prepayments:As students we often never explore the possibility of trying to repay early. Repaying earlier will help you reduce the amount spent on your interest outgo. This is because payments made during your time at the university or before your actual repayment starts do not attract any prepayment penalty. If you prepay even a small amount during this time, you are reducing your interest amount and consequently the total sum.