Here are 10 things your children must know before you plan to borrow funds for their higher studies.
Higher education is getting expensive and education loans are a hope for many students who wish to achieve their goals of studying at prestigious institutions. Parents put in their heart and soul to ensure their kids go to the best of the best institutions after completion of their school education.
Parents run from pillar to post to ensure they get funds required for their children’s education. However, students must also learn something from their parents before they embark on their journey to study in reputed colleges and institutions.
Here are 10 things your children must know before you plan to borrow funds for their higher studies.
Importance of education
Parents must teach their kids about the value of education, the impact it can have on their future, and the role it plays in shaping their personal and professional lives.
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Financial responsibility
Parents should educate their kids about the importance of financial responsibility, including budgeting, saving, and managing debt.
Loan basics
Kids should understand the basics of loans, including the interest rate, repayment terms, and consequences of not repaying on time. They must know that their focus should be on getting the education and find a job to ensure the loan is paid back on time.
Debt-to-income ratio
Kids should be aware of the concept of debt-to-income ratio, which is a key factor in determining whether they will be approved for a loan and how much they can borrow.
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Credit score
Parents should teach their kids about the importance of maintaining a good credit score, which can impact their ability to get approved for loans and the interest rates they will be offered.
Adhil Shetty, CEO, Bankbazaar.com, says, “Your credit score is a measure of your credit health. It shows how you have managed your dues in the past. This can also indicate how strong or weak your finances have been. It lays bare your credit history and assigns you a score on the basis of your credit behaviour. Good credit behaviour is paying your EMIs and credit card dues on time for several years in a row.”
Loan options
Parents should educate their kids about the different types of education loans available, including federal and private loans, and the pros and cons of each.
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Eligibility criteria
Kids should be aware of the eligibility criteria for education loans, including academic requirements and income restrictions. Parents should educate their kids about it even before they complete school education. It will motivate them to perform well in their exams and achieve bigger goals.
Repayment options
Parents should teach their kids about the various repayment options available. Almost all lenders provide a moratorium period before the repayment of loan starts. This period can be an opportunity to conserve the cash if they have already started a job and use the money for repayment. For repayment of your loan early, lenders don’t charge any penalty.
Importance of research
Kids should understand the importance of researching lenders, interest rates, and repayment options before taking out an education loan. The point is, your children’s involvement in this process will educate them.
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Borrowing wisely
Ultimately, parents must teach their kids about the importance of borrowing wisely, only taking out loans they can afford to repay and avoiding unnecessary debt.
