Pursuing higher education is a significant investment in one's future but it can be a costly affair. Education Loans and self-financing are two methods to arrange funds for your education. It's important to weigh the pros and cons of an Education Loan vs. self-finance to determine which option best suits your financial situation.
Self-financing
Self-financing involves the utilisation of personal savings, contributions from family members or scholarships to cover expenses. Advantages include:
- Financial independence: Avoiding Education Loans means starting post-graduation life without the burden of debt. This can significantly reduce financial stress and provide more freedom in career and life choices. You also save money that would otherwise be spent on interest payments over the years.
- Psychological benefits: The absence of debt-related stress can lead to better mental health and a more positive educational experience. Self-financing your education can also provide a sense of pride and accomplishment, knowing that you have funded your own future.
Although, self-financing also has its share of challenges:
- Cumbersome savings: Accumulating sufficient funds for higher education can be difficult, especially for families with limited income. It may mean depleting savings or investments that were intended for other purposes, such as retirement.
- Expensive education: The high cost of education today makes self-financing increasingly challenging, especially for an international degree. Tuition fees, books, living expenses and other costs can amount to significant funds, which may not be feasible for all. Compare the features of Student Loans vs self-funding to study abroad carefully before arriving at a decision.
Advantages of Education Loans
- Easy and quick availability of funds: They enable students from various economic backgrounds to pursue higher education, potentially opening doors to better career opportunities.
- Moratorium period: Most Education Loans allow you to start repaying the loan 6 to 12 months after completing your studies. This means that you can focus on getting a job without the immediate burden of repayment.
- Subsidy options: Some banks like Axis Bank offer subsidy schemes like the Central Government Interest Subsidy Scheme for economically weaker sections. Under this scheme, the interest during the moratorium period is fully borne by the Central Government.
- Various expenses covered: They cover a range of expenses, such as tuition fees, accommodation, travel, books and other educational costs, providing comprehensive financial support.
- Credit score building: It is a common belief that Education Loans lead to a lifetime of debt. While it is true that such financial obligations can take a few years to repay, paying your EMIs on time helps build a good credit score for your future loan requirements.
Education Loan vs self-finance: Which one to choose?
| Aspect |
Self-financing |
Education Loans |
| Individual financial circumstances |
If you have sufficient financial resources to cover your education expenses without taking out loans |
If you are falling short of funds to cover your education expenses |
| Financial risk |
Carries the risk of depleting your savings or facing financial strain if unexpected circumstances arise |
Your savings remain intact, allowing you to use them for unexpected expenses if they arise |
| Repayment responsibility |
You avoid the burden of loan repayments after completing your course |
You carry the responsibility of paying your EMIs after your course completion |
| Education quality |
Access to reputable institutions based on financial support |
Depends on available resources and scholarship opportunities |
Also Read: Education Loan tax benefit: Exemption & eligibility under Section 80E
Conclusion
The ultimate goal is to achieve your educational aspirations without compromising your financial future. Make an informed decision by evaluating the criteria of Education Loans, such as interest rates and repayment terms, alongside self-financing options. Weigh the pros and cons of Student Loans vs self-funding and choose the one that best fits your needs and long-term goals.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
