What is the right approach to education loans—taking it in the student's name or the parents'?

Education Loan Tips: Education loans are typically taken in the student's name, with parents or guardians acting as co-applicants. Consequently, their income, credit score, and repayment capacity play a crucial role in loan approval.

Education Loan News: Covering the cost of expensive college fees or professional courses often places a heavy financial burden on parents. Many families turn to education loans in such situations. However, a major question arises: should the loan be taken in the student's name or the parents' name? Banks usually designate the student as the primary applicant and the parents as co-applicants. Yet, the same option may not be suitable for every family.

What are the benefits of taking the loan in the student's name?

An education loan is directly linked to the student's studies and future career. If the loan is taken in the student's name, the responsibility for repayment—based on agreed terms—falls on the student after completing their education. A significant advantage is that timely EMI payments after starting a job can help build the student's credit history for the future. This can also alleviate some of the financial burden on the parents. However, obtaining a loan independently can be difficult for a student without a regular income or credit history.

When is it appropriate to take the loan in the parents' name?

If the parents have a stable income, banks may view them as strong applicants. This allows the family to start paying EMIs while the student is still studying, thereby reducing the debt burden once the student begins their career. However, one must ensure that loan repayments do not adversely affect savings, other essential expenses, or retirement planning.

Points to consider before taking a loan

When opting for an education loan, it is not enough to simply look for the lowest interest rate; families should also consider the following factors. Compare the total loan amount and the applicable interest rate.
Find out how and when interest accrues during the course of study.
Check the duration of the moratorium period.
Clearly understand the loan tenure and when EMI payments begin.
Check if any subsidy or government assistance is available.
Verify the terms regarding the requirement for a guarantee or security.
Check if there are any extra charges for pre-paying the loan.

Should the loan be taken in the student's name or the parents' name?

If the student has no income of their own, making the parents co-applicants is usually a practical option. However, if the student is expected to earn a good income in the future and the bank's terms are favorable, the bank may accept the student as the primary applicant. Most importantly, the total debt amount and the feasibility of repayment matter more than whose name the loan is in.