Higher education is a significant step for students. It is that phase of life that prepares students for specialised knowledge and skills and builds the foundation for a robust future. But it comes with its set of challenges. Some of these challenges include –

a. Financial constraints

b. Lack of guidance or mentorship

c. Limited access to quality institutions

d. Language gap for students transitioning from regional schools

e.  Family and societal pressure to take up certain career paths rather than the ones of their interest

These are just a few of the pressures and hurdles students face when deciding to pursue further studies.

In this blog, we focus on the first point, the financial constraints, and the two common options for students to manage them during their higher education phase – Education loan and Scholarship.

Understanding the differences

Let us dive deep and understand how these options work.

1. Core Concept

Education loan: Banks and other financial institutions, such as Non-Banking Financial Company (NBFC) offer education loans to students based on several criteria.

In countries like India, where 31% of the population belongs to the middle class, many families still face limitations to afford higher education due to the high cost of living, economic inequality, high tuition fees, additional educational expenses such as study material, hostel accommodation, transport, food, laptops, etc. In such a scenario, taking an education loan helps.

Scholarship, on the other hand, is a financial grant offered to students based on merit (for academically high achievers). The other factors are to encourage specialisations in fields such as arts, STEM, research, etc., and to support students from low-income and disadvantaged backgrounds to access education. Private institutions provide scholarships to attract a diverse, high-quality student population, encourage community service, and nurture leadership skills. Unlike education loans, these need not be repaid. Primarily offered by the government (both state and central), scholarships are also offered by certain trusts, private bodies, NGOs, and a few corporations.

2. Eligibility criteria

Education loan: Primarily, Indian nationals between 16 and 35 years are eligible for education loans. Banks look for a minimum of 50-60% aggregate in previous qualifying exams.

This is offered as an unsecured and secured loan.

Unsecured education loan/collateral-free loan up to Rs. 7.5 lakhs is given by public banks. But some banks also go up to Rs. 40 lakhs, depending on the reputation of the institution. Banks also check for courses and institutions approved by UGC, AICTE, or other Government-recognised bodies. Private banks can go up to Rs. 3 crores for foreign education (depending on the destination). However, banks need a strong co-applicant (generally parents or siblings) with a steady income, the student’s academic record, course details, and, in case of international education, all the details regarding the university.

A secured loan is offered against collateral such as immovable property, fixed deposits, or even liquid securities such as stocks and bonds. The loan offered can go up to Rs. 1.5 crores or more, depending on the course of study, university, and the country (for studying abroad).

Banks prefer courses with high employability to ensure quicker repayment.  

Scholarship:  The common eligibility criteria include -

a. The candidate should be an Indian national.  

b. Academic excellence, i.e., students who have secured 60-80% in their class 12 or equivalent course.

c. Low-income families, i.e., between Rs. 2 lakhs and 8 lakhs per annum.

d. Students should take up a regular course and not correspondence.

e. There are certain reservations for underprivileged and backward sections of the society, and also for differently-abled individuals.

3. Repayment

Education loan: The repayment of the loan with interest starts after a few months or a year after the course completion. In certain cases, it can be extended from 5 to 7 years. Education loan includes study material costs, accommodation fees, and everything to do with the course and the students don’t have to pay for anything from their pocket.

Scholarships need not be repaid and are provided to students to empower and motivate them to study further.

4. Advantages and Challenges

a. Coverage: While an education loan covers 100% of the student’s higher education charges, most scholarships cover about 10-90% of the tuition fees, and some amount of transportation. Only some top-tier merit or government scholarships may cover the full amount.

b. Competition: Education loans are easier to secure, but scholarships are highly competitive and involve a rigorous selection process and some strict eligibility criteria.

c. Purpose: As Scholarships are not meant to be repaid, they do not add additional pressure on the students, but education loans are debts that need to be repaid as per the schedule. This can add an additional layer of pressure to students, especially in a job market with low prospects.

Conclusion

When students meet the criteria to apply for scholarships, they must do so and take an education loan to bridge the gap, which can ease the financial pressure. But applying for an education loan as a standalone option is also a good choice, provided the students plan the repayment mode with their families and create a stress-free study environment to study and build a successful career.

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Disclaimer

The blog is curated by referring to various credible sources and does not necessarily reflect the opinions or positions of QS I-GAUGE. The information provided is for general informational purposes only, readers are advised to conduct their own research and seek professional advice before making any decisions.