How students can reduce their international education loan burden

Reduce student loansEducation loans have helped countless students pursue their dreams. But, they’ve also burdened some students, and lured more than a few parents into putting savings at risk for unrealistic ambitions.

Not all college degrees lead to happiness ever after. No institution can guarantee a job, much less a good, stable salary. That makes an education loan a major decision which impacts not only the student but also their parents and anyone else who guarantees the loan.

In most stories where an education loan was the villain, the students, and their families, had failed to do a cost-benefit analysis (and perhaps more than one). They’d forgotten to ask themselves a crucial question: Can we handle the ramifications of this loan?

Loans aren’t an inherent burden, as long as you know how to manage them.

The first question to answer is whether there is a reasonable chance that your bank-funded degree will fetch you a well-paying job. Keep in mind that a foreign degree may or may not land you a job in that country (or any other).

If you plan to return home after international study, while your foreign qualifications may impress a recruiter, you may not earn much more than someone with a domestic degree. If you have wild expectations, it’s time to rein them in.
 

What to do before taking an international education loan

Once you’ve decided to pursue a Master’s with an education loan, you have to choose a university and city that will suit your budget.

You may not want to, but you should ask yourself what is affordable. Will the visa and university rules and conditions allow you to work part-time as an international student? What about post-graduation visa requirements? Will you be able to stay on to look for a job, or will you need to leave as soon as you graduate?

Do your research before shortlisting courses. Talk to people who have taken those programmes. Ask about course content, faculty, and job opportunities. Dig for information; you must prove a return on investment for your studies.

When looking for a loan, determine which banks have the lowest interest rates and the most student-friendly terms. Public sector banks usually win here (and these days, they are also more likely to sanction education loans). But, do not make the mistake of looking at a single loan product. Each one varies tremendously, and you may miss a terrific opportunity without a close look.

Explore whether preferred suppliers offer any concessions that may apply to you. You may just find special arrangements based on family income, lower interest rates for women, or a reduced margin (your contribution toward meeting the cost of the study program). Find out whether loans may be taken in smaller tranches (only when you need to pay fees), as this will reduce your total loan burden.

Always look for scholarships. “Not a chance” may be your first reaction, but knock on every door. Spend plenty of time uncovering the various public, private, and philanthropic scholarships available. A well-written letter explaining who you are and your academic interests and achievements will help you build a persuasive case.

Remember that you can apply for scholarships later, don’t rule them out just because you don’t have a chance before arriving on campus.
 

Formulate a repayment strategy

After you’ve been accepted into a university and your bank loan has been sanctioned, the next step is to formulate a repayment strategy. The most important point to consider is the grace period before repayments begin. This often lasts for one year after your studies or six months after you get a job, whichever is earlier. Properly considering this period may ease your loan burden.

Banks still levy interest during your grace period; it’s only a repayment holiday. They typically begin charging interest immediately after disbursement of your loan. While you don’t need to make payments during your grace period, you’ll be rewarded for repayments made, occasionally through an interest concession.

By making payments before you’re required to do so, you’ll also be able to reduce the principal and the interest. If you can pay simple interest during this time, it will make an impressive difference.

While at college, work part-time if you can. At the very least, a frugal lifestyle will ensure the safety of your financial future. Keep a tab on your expenses and reduce any unnecessary costs.

You might also use the grace period to build an emergency fund that can reduce your risk of non-payment in the future. Remember, if you default for 90 days or more, your loan is declared a nonperforming asset (NPA), which is an alarm bell for your bank and a red flag for future would-be creditors. Any default affects your credit worthiness, and you will have trouble getting a loan in the future.

Of course, taking your studies seriously is a wise, though indirect, strategy to ease your loan burden. The better you do in college, the better your job prospects, and the better your repayment capacity.
 

Things to do after college

If all goes well, and you land your dream job quickly, you can start repaying your loan as scheduled. If you do a cost-benefit analysis of prepayment, you may find that it is a better option than any tax rebates for borrowers. If and when you receive a bonus, you may want to use it towards your loan to reduce interest.

Pay more than the minimum when you can, so you can repay the loan earlier and begin saving for your future.

But, what if things don’t go exactly to plan? What if you don’t find a job you like? Worse, what if you don’t find a “proper job” at all?

Student and career counsellors say that if the “ideal offer” doesn’t come your way, you should accept what you get, for the sake of financial stability. If you only manage to find a part-time job, take it, and continue looking for a position that suits your needs.

Remember, banks may consider extending the grace period only in exceptional macroeconomic circumstances. A “balloon repayment” option, where you make lower monthly payment in tough times and higher ones during better days, is more likely to be offered. You may also be allowed lower payments for the first few years of your career when your salary is likely to be lower, but you may need to negotiate these terms.

In rare and most deserving cases, banks allow extensions up to 10 years for higher loans. If you plan to launch a start-up right after college, you may be able to merge your education loan and your business loan.

Millennials are on track to be the most educated generation in history. But that also makes them the most indebted. But, that doesn’t mean you should fear an education loan – you just need to understand what you’re in for before you take the leap. It could make all the difference.
 


Rishabh GoelAuthor Bio: Rishabh Goel is an Associate Relationship Manager at Prodigy Finance. He studied Economics & Engineering at BITS & Masters at London Business School. He has helped Indians excel at GMAT/GRE and mentored students to attend top schools globally.

This article is part of CrystalConnect, an outreach initiative by MBA Crystal Ball.


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9 Comments

  1. Abhijeet karki says:

    Hi, need advice.
    I wrote my GMAT last year in December and scored 710 V40 Q48 AWA5.
    Post that I began on a product development journey which has flavours of predictive, descriptive and diagnostic analysis. I worked in R programming, Qlikview or data visualisation and modelling and am now managing different teams to develop the first cut of the application.

    I wanted to pursue MBA in Marketing/IT to equip myself and start the product man3333agement journey post my MBA. However, now after working in the rising field of analytics with Cognizant and Microsoft leaders I am confused whether to pursue MBA in IT/Marketing/BA or an MS in Data Science/Analytics.

    Financially I am totally depending on the funding that I can get.

    Also, I am neck deep in work and cannot take time out to study and write GRE before October.

    It will be very helpful if you can give your advice on what I should consider based on the costs, loans, scholarships and what salary can I earn after MS / MBA.

    Few key points from my profile:
    GMAT: 710 V40 Q48 AWA5
    TOEFL: 113
    Under-Grad: 72.34%
    Professional Achievements:
    • Awarded -Rising Star- for 2nd Quarter of 2013 across all Enterprise Information Management practice.
    • Awarded -Phoenix- for 1st Quarter of 2014 across all Enterprise Information Management practice.
    • Best Performer Award – First Time Lead – Corporate Leadership Training, Cognizant Dec’ 2014 – Mar’ 2015
    • AIM Cheers Annual Awards: Associate of the year – 2015
    • Worked with multinational clients in Retail, hospitality and e-commerce. Worked in Dubai for 1 month during the requirements gathering and analysis phase.
    • Got three promotions in 4.6 years [Analytics and Information Management].
    Programmer Analyst Trainee -> Programmer Analyst -> Associate -> Senior Associate

  2. Rishabh Goel says:

    Hi Abhijeet,

    Thank you so much for sharing your growth story with us.

    Reading your post, I would recommend to apply for an MS in Data Science/Analytics for the following reasons:
    1. You are good at it, evident from your awards and promotions.
    2. Most good Analytics/Data Science programmes are accredited as STEM programmes and hence eligible for 36 additional months of Optional Practical Training (OPT). An OPT gives you a total of 4 years (3+1) visa to work in US without worrying about H1B lottery system.
    3. The Big Data Industry is rising in US, which provides ample opportunities for recruitment in US. The salaries are comparable to MBA graduates.
    4. Data Science/Analytics degrees tend to be shorter (1 year) and hence have a lower tuition fee and living expenses.
    5. MBA programmes are much more competitive to receive admit compared to Data Science/Analytics.

    With your GMAT score, you have a realistic chance of securing an admit from a top Analytics/Data Science programme (some programmes to look at here http://www.mastersindatascience.org/schools/top-masters-in-analytics/ and here http://www.mastersindatascience.org/schools/top-masters-in-analytics/).
    Study from one of these schools, secure a good job with salary similar to an MBA graduate and work in US for at least 4 years till you become financially stable.

    Happy to answer any further queries.
    Rishabh Goel

  3. Prabhas Myneni says:

    Hello,

    I’m an IIT Kharagpur Mechanical Engineering Graduate [B.Tech + M.Tech].

    I have 4.5 years of work experience. 4 Years of which is in Territory Sales Management. I’ve worked in an MNC for 2.5 years and worked in two startups for 2 years with a stellar track record.

    My GRE is 333. 170+163; My GMAT is 730. V39 Q49.

    My aim is to do a full-scholarship course [recently married – very pressed for cash] in Data Science/Robotics/Artificial Intelligence or do a top MBA [the best I can do with scholarship].

    Need your advice on how to go about the same. What schools should I target? I would love to do settle in Europe/UK in the longer term.

    Will my test scores do? Or do I need to rewrite them?

  4. Rishabh Goel says:

    Hi Prabhas,

    Thank you for your interest in Prodigy Finance.

    Love your background, work experience and scores. No need to retake your tests!
    If your long term objective is to settle in the West, the safest option is to study an MS in Data Science from US and secure a job there. Data Science, Robotics and AI are all STEM accredited courses with 36 month Optional Practical Training extension that allows you to work in US for 4 years without H1B (and apply for H1B 4 times). The Data Science industry is large and booming, and recruitment is relatively comfortable. AI and Robotics are exciting, but they are still nascent and recruitment can be challenging, specially with a background of Mechanical Engineering + Sales management.

    A top 10-20 MBA is also an achievable target. Do keep in mind that an MBA is usually 2 years long (while MS can be 1 years) and generally more expensive that an MS degree. Furthermore, while you’ll get a great boost to your career, their is no guarantee to geography.

    Regarding your question on scholarships, there is no fool-proof method to secure an admit with full scholarship. Very few students secure such scholarships and often have a trade-off the quality of school for the same. Instead, you can always choose to go to a top school, where you are confident of securing a high-paying job to repay back the education loan.

    You deserve top quality education and don’t let finances cloud your judgment.
    Happy to answer any further questions or queries.

  5. Aro says:

    Sir,
    I am an average student and I have done Btech in Electronics and Instrumentation.I hope to do MS from the States but I heard that getting scholarships for MS course is difficult and I should aim for MS+Phd.However,I am not keen on taking a Phd.How difficult is getting a scholarship for a two year MS course?And what should I choose?

    • Rishabh Goel says:

      Hi Aro,

      Thank you for your interest in Prodigy Finance.

      Typically students are recommended MS+PhD route as this route often offers full scholarship and stipend for living expenses. However, completing an MS+PhD takes 5 or more years, which is a massive investment of your time. Additionally, PhD students often engage in research after graduating.

      If you are keen on research then MS+PhD is a good path to pursue. Else, MS is the most logical choice. There are plenty of scholarships available for MS programmes. They don’t always cover the full tuition fee. You can always approach Prodigy Finance for non-security loans to cover the rest of the required fees.

  6. Anubha says:

    Hello Sir,
    Recently i have given my ielts exam and scored a band of 7 with no less than 6.5 . I am planning to do my MBA from Canada and want to settle over there after that but as funds are concerned i have to opt for loans. Can you guide me for loans and also my consultant has shortlisted these B schools for me which are NYIT VANCOUVER, Royal Roads, Vancouver Island university. Are these schools good because the major drawback which is coming is that i have scored 55% percent in my B.Com(H) and i am having an experience of 5.3 years. Also Can you let me know apart from MBA in finance what other Specialisations can be opted as i am good with technology and analytics

  7. Rishabh Goel says:

    Hi Anubha,

    Thank you for your interest in Prodigy Finance.

    Unfortunately, we do not have a loan program in place with BYIT Vancouver. If you’d like to take a look at the schools that we do support this year, the full list on our FAQ page here: https://prodigyfinance.com/students_faq

    Our aim is to support international students joining the top 100 schools in Business, Engineering, Law and Public Policy. We’re now speaking with many of these schools to build partnerships for the classes starting in 2017.

    Best wishes,
    Rishabh Goel

  8. Rash says:

    Hi
    My name is rash. I’m from India. And I recently got admits from a top Australian university for July 2017 intake. But going through a very bad phase due to lack of finances. Could you please tell me that is there any way that you can provide loan for studying In Australia because as I saw on your website,no Australian universities are listed. Can you please help me.
    Thanks

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