Higher education may be expensive prompting many students to seek college loans. While these loans provide much-needed financial support they may rapidly become a burden if not handled responsibly. Many students end themselves in debt because of avoidable blunders.
How do Education Loans Work?
Education loans are designed to cover the cost of higher education, including tuition, accommodation, books, and other expenses. Once the course is completed, a grace period known as the moratorium period begins, usually lasting six months to a year. During this time, students aren’t required to make repayments. However, interest continues to accumulate, increasing the loan amount.
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Common Pitfalls to Avoid
1. Selecting the Improper College or Course
While choosing lower-cost universities may minimize your initial debt if the quality of education or career prospects is poor, you may struggle to find work after graduation.
Tip: Try to prioritize colleges with a proven track record of successful placements and industry relationships.
2. Over-borrowing
Overborrowing might result in hefty repayments on the road. Many students overestimate their requirements and take out hefty debts that are challenging to pay back.
Tip: Determine your genuine spending needs and minimize the loan amount through personal savings, scholarships or part-time employment.
3. Ignoring Job Prospects
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Some students choose to study in countries or fields with limited employment opportunities leaving them without the means to repay their loans after graduation.
Tip: Research the job market in your field and location to ensure you can secure a stable job after completing your studies.
4. Deferring EMI Payments
Even while it could seem like a comfort, skipping EMI payments during the moratorium period just makes the loan more costly as extra interest will accrue.
Tip: To lessen the amount of debt you have try to pay interest during the moratorium.
5. Not Fully Understanding Loan Terms
Many students struggle to understand the details of their loans such as how interest rates change or how taking out an overseas loan has currency concerns. This may eventually lead to unforeseen costs.
Tip: Before agreeing, make sure you clarify every detail of your loan agreement and that you get any questions answered by your lender.
Strategies to Avoid Debt Traps
Plan Your Repayment: Plan your debt repayment now, rather than waiting until after graduation. Consider your financial management strategy from the beginning. If at all feasible make modest installments to lessen the total amount of interest incurred during your study.
Be Practical About Your Loan Amount: Avoid taking out large loans unless necessary. Consider the return on investment for your education and opt for cost-effective options where possible.
Look for Scholarships: Many institutions offer scholarships or financial aid programs that can reduce the need for loans. Look into these options thoroughly before committing to a loan.
Ensure Timely Payments: Once the grace period ends stick to your repayment schedule diligently. Missing payments can harm your credit score and lead to higher interest rates.
