How to manage educational fees and expenses?

Dear parent, 

Wishing you a great start to 2019! As admissions season is round the corner, a key question will be at the top of your mind – how do I allocate my finances to make sure school fees are paid for my child for coming academic year? This is a question which most families in India deal with every year – be it at pre-primary, school, or college level! Education today has become a fundamental need and right, rather than a luxury. Compromise on your child’s education, and you would have compromised on their future. 
In this article, we will share a few suggestions on what you can do as a parent to manage finances better in order to afford high quality education for your child. We will also give you advise on tips around taking education loans and how you can benefit out of it.
Take Stock
Figure out how much you are earning per month versus how much expenses you have. It is advisable to keep a personal track of your expenses and benchmark it against your allocated budgets. For example, if you have multiple loans running with EMIs, it is advisable to reduce your debt burden so that you can free up money for essential expenses like education, household expenses etc. It is advisable to not have more than 20-30% of your monthly income being spent on EMI expenses. Try to save from your monthly earnings – it is also advisable to invest your savings in a diversified set of financial instruments such as FDs, mutual funds, liquid funds and so on. Talk to a good financial advisor and people who are experienced in doing investments to understand how you can make your money work rather than keeping it idle in your savings bank account. 
 
Get Value for Money
In today’s world, as a parent it can be overwhelming to figure out which is the best possible education option for your child. Evaluate whether you are getting value for the money you are paying – it is always a good idea to get feedback from other parents and teachers teaching in the school you are planning to send your child to, check reviews of the school online, do on-ground due diligence of the school, take help of online aggregators like School Connects, Edustoke, who specialise in giving you quality content around the same, etc. 
 
Know the Need
If you are taking a loan, try to make sure it is for a specific expense. Knowing that makes it easy to manage. 
  • Recurring expenses: For example, education expenses are typically a one time expense in one academic year, recurring over several years – so if you take a loan for it, you would know your monthly obligation and compare it to your monthly income to check feasibility. 
  • Know the terms: if you are taking a loan, you should know the key terms – such as principal, interest, tenor, pre-payment fees, late fees etc. All these terms should be there in the loan agreement that you will sign. Ask the lender to clarify if the terms are not clear. 
Does an education loan make sense?
Absolutely! Education expenses are a recurring expense every year in the lifecycle of a parent, typically for at least 10-12 years. So if you are paying 70,000 Rs per annum for your child’s school fees, over 10 years, you will actually be spending 7 lakh rupees. Taking the right loan for managing this recurring expense makes sense because it comes with a lot of other benefits. For example, through an education loan via Credy – 
  • Open Credy Line: Credy releases funds to education institute and collect monthly instalments from you. If your repayments are good, for further loan requirements, you do not need to go through the process of applying for a loan again. We offer a mobile app through which you can borrow money as and when you want with flexible repayment terms. Over your 10 year journey, we will be with you to help manage your child’s education expenses. 
  • 0% EMI scheme: In partnership with several schools, Credy offers 0% EMI scheme, i.e, if you take a loan of 50,000 Rs for 10 months, you pay only 5,000 Rs per month. The interest is borne by the education institute where you are admitting the child. You can check out our 0% EMI scheme here 
  • Tax benefits under 80C & 80E: if you have incurred expenses towards tuition fees, you get to claim these as deductions under section 80C. Similarly if you have taken an education loan for higher studies, you can claim deduction for interest paid under section 80E. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian. The deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.   
  • Build your credit history: Life is short, but dreams are many. By converting your fixed education fee obligation to school into a loan, you get an opportunity to build a good credit history. This helps you plan for future loan requirements such as home loan, car loan etc. A good credit score can make a huge impact in getting favourable loan terms for high value items like home, car etc. and can save you 1-1.5% interest on the loan. For a home loan of say, 50 lakh Rs, that can translate into real savings for you! Check out Credy Watch here to know more how to build a good credit history. 
  • Education refinancing – if you have already made payments to the school for the fees, Credy also gives the option of refinancing the cost that you have borne and pay back the amount in EMIs. In this case, we will ask you for a few additional documents than the usual process

Choose the right Lender

There are many loan options – banks, NBFCs, online lenders, informal money lenders and so on. Not all are same, and not all would offer what your unique circumstances require. Identify your priorities – is it getting the money quickly? Is it having flexibility in loan terms and repayment options? Or is it saving interest cost? Here are some useful guidelines:

  • Speed: If you need fast loans, you should pick lenders like Credy who have an online process. Online process doesn’t just mean having a website application. Check what their KYC process is, check how they take documents and signatures on documents etc. The speed that an online process gives, a paperwork-heavy and manual process will never be able to give.
  • Interest Rates: You should evaluate for yourself if interest rates are a major concern for you. Small ticket personal loans are generally less sensitive to interest rates. For e.g. if two personal loan options have 3% difference in interest rates, total interest paid on a Rs 50,000 6 month loan would be different by less than Rs 500!
  • Customer Support & Transparent Process: This is probably the most important. A lot of lenders have hidden terms, undisclosed steps and third-party dependencies. The last thing you want in case of an urgent need is the lender telling you the process is stuck in some other department and no one can help. Rest all being the same, go with lenders who have an easy process and helpful customer support. At Credy, we have a customer focused paperless process designed to tackle this issue. 

Based on your needs, you may prefer a lender who is fast and gives good service than a slower option with long opaque processes.

Dont’s
  • Do not confuse loans with income! When you take a loan, you are signing up for an obligation to pay back with interest, and non-payment can actually be financially costly for you (by way of late fees etc.) and it impacts your credit score too. A poor credit score can permanently impact your creditworthiness and hamper your chances of getting a home loan, medical emergency loan, car loan etc. when the need arises. 
  • Do not over borrow!

           Customer support: But sir, why do you want just Rs 50,000? Your loan is approved for Rs 2,00,000
           Me: Umm.. because I have to pay interest?

    This actually happened when Harshit got a call from a loan company after he checked out their website. Loan companies will always want to give you a loan higher than your need. For them its simple economics – their processing costs are almost the same whether the loan is Rs 50,000 or Rs 2,00,000. So why not give the customer higher amount and earn more? As a customer, you have to make sure you borrow only the shortfall you have. Only the amount that you are lacking. This requires discipline, just as most financial best practices do. Another way a lot of our applicants end up over borrowing is trying to pay off one loan with the other. Don’t do that. You will end up churning loans and enter a debt trap. Borrow what you need. Anything more is giving your hard-earned money for free to lenders.

Repay on Time & To The Right Party!

This sounds obvious but sometimes is hard to implement. If you are facing financial troubles and don’t have the money to pay the personal loan EMI, you can do two things

  • Cut down any extra costs. Look closely at your expenses – there must be some expense that is avoidable at this point in time.
  • Borrow from friends just for the EMI payment. Don’t go for an additional loan. Borrowing EMI amount from friends and paying ensures that your credit score is not affected. A bad credit score will ruin your chances of getting loans in future and cause considerable stress and cost in arranging finances from alternative sources.

Be careful to ensure you make repayments to the right party. Be extra careful when making cash payments. We had a customer who was paying his EMIs regularly in cash to a bank agent. Later he found out that the agent was not depositing the cash on time and using it for his own expenses! The customer’s credit history got permanently damaged because of that.

Make sure of the following when paying by cash:

  • Check for some company identification of the collection agent
  • Ask for a payment receipt/email to be sent after you make the payment. If the receipt is not received within 48 hrs, escalate the issue.

Take care of above to a get a good deal on your education loan without affecting your long-term creditworthiness.

Pratish Gandhi, Harshit Vaishnav
Founders, Credy
Credy is a new age digital lending company, which offers education loans to parents either via 0% EMI scheme (no interest payment by the parent) or via unsecured short tenor education loan scheme (interest paid by the parent).

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