The ongoing discussion between student loans and scholarships in higher education finance has drawn the interest of educators, parents, and students alike. Students apply hard for scholarships, which are given out based on need, merit, or other requirements. Financial organizations’ educational loan aid offers students an extra way to finance their studies, even as scholarships lessen the economic burden of completing an education. Nevertheless, these loans frequently have an interest-bearing payback requirement.
For individuals who meet certain qualifying requirements and demonstrate academic excellence, scholarships offer a non-repayable kind of financial help, making them a desirable choice. Numerous organizations, including foundations, corporations, government agencies, and universities, can provide this much-needed support. The advantages of scholarship programs go beyond just helping with finances. It is accompanied by a feeling of acknowledgment, achievement, and success.
On the other hand, student loans approach school financing more proactively. Students who choose education loans willingly take out loans to cover their educational costs, knowing that they will have to pay back the money they borrow—often with interest—once they start working. The passive part of education loans is their flexibility in providing immediate financial aid. Students may focus on their studies because this approach relieves them of the immediate financial pressure of covering accommodation, tuition, and other associated costs. Even after completing their schooling, the borrower might still have to shoulder the massive burden of payments.
Scholarships or student loans should eventually be chosen based on individual circumstances and choices.
Scholarships Vs Education Loans – Growth in Education Loan
The growth in student loan debt has become positive for the first time in the previous five years. In the most recent fiscal year, which ended in March 2023, it had a 17% increase. The outstanding portfolio under the education loan program increased by 17%, according to data made public by the Reserve Bank of India. The amount is ₹96,847 crore for the fiscal year 2022–2023 compared to ₹82,723 crore for the year prior. This is an important signal since, for the three years preceding 2021–2022, the growth in student loan debt was negative and remained flat.
The main factors driving the rise in education loans are the increase in demand, particularly for expensive loans for study abroad programs, and banks’ readiness to offer collateralized loans. Both public and commercial lenders typically offer loans for higher education.
The government’s student loan program has interest rates that are lower than those of banks and other private financial organizations. Students must provide supporting evidence to be considered for these loans. If approved, they are then responsible for repaying the loan plus interest within the allotted time.
Scholarships Vs Education Loans – How Do Student Loans Work?
Before applying, it is advisable to thoroughly understand how student loans work because choosing the wrong loan might have a negative financial impact.
The following are comprehensive explanations of the application process for student loans:
- Application Submission: The borrower applies for a student loan at a bank, an NBFC (Non-Banking Financial Company), or any other financial organization, including a government agency.
- Financial Assessment: The financial institution evaluates the borrower’s eligibility based on several factors, including income and credit history.
Loan Disbursement: The borrower receives the loan proceeds via direct deposit or check after approval. - Repayment Obligation: The borrower is in charge of paying back the loan under the conditions outlined in the loan agreement, which frequently entails making monthly payments over a predetermined period, including interest.
- Financial Flexibility Options: If the borrower is unable to repay the loan, they may be able to work out a new payment schedule or look into other options such as consolidation.
Scholarships Vs Education Loans – Pros and Cons of a Student Education Loan
There are benefits and drawbacks to choosing an education loan in India. The following are a few advantages:
Pros of Student Loans:
- The ability to pursue higher education is made possible by access to education, even for those who are unable to pay for it out of pocket. Higher education can increase one’s earning potential and open up greater career options. One’s future may benefit from this investment. Access to high-quality education is made possible by student loans. The applicants will be able to pursue their academic objectives since it can assist in defraying significant costs associated with tuition, study materials, and housing.
- Flexible repayment Options: Income-driven repayment, which modifies monthly payments by a borrower’s income and family size, is one of the many flexible repayment options available for student loans. Education loans in India can be made more reasonable by utilizing one of the several government programs and subsidies that are offered.
- Enhances Creditworthiness: Paying back student loans on time and with responsible handling can help borrowers enhance their creditworthiness. This is crucial for upcoming financial undertakings like credit card applications and property purchases.
- Deferred Payments: Students usually have the choice to postpone repaying their loans while they attend school. This suggests that there may be a temporary delay in the requirement to make quick repayments. While pursuing college, this offers comfort and short-term financial respite.
Cons of Student Loans:
- Protracted Application Process: The application process for a student loan can be drawn out and difficult. For students from low-income households in particular, the approval process for an education loan may be onerous.
- Interest is added to the loan debt and is often accrued while the borrower is enrolled in school for student loans. This can cause the principal amount that needs to be repaid to rise dramatically over time.
- Growing Debt Load: It might be financially difficult to graduate with a large debt from student loans. A graduate’s capacity to invest, save, or make other significant financial decisions may be restricted by higher monthly installments.
- Risk of Default: Borrowers may find it difficult to make loan repayments if they have trouble finding well-paying positions after graduation or experience other financial issues. There might be serious repercussions for creditworthiness when student loan default occurs.
- Bankruptcy Filing Difficulty: Filing for bankruptcy usually makes it harder to discharge student loans. The standards for the discharge of student loans through bankruptcy are somewhat high. Even if they are eligible for bankruptcy, many students are not eligible for their student loan debt to be discharged.
- Unpredictable Job Market: Repaying student loans might be difficult because there is no assurance that one will find a high-paying job right away after graduation.
- Restriction on Financial Options: Debt from student loans can cause borrowers’ options to be limited financially and postpone making crucial life decisions. Maintaining a modest quality of living may be impossible if student debt repayment is neglected. For a greater portion of the payback time, students endure unjustified hardship.
Scholarships Vs Education Loans – Understanding Scholarship Programme
Scholarship programs provide students with financial awards and support to help them with their academic endeavors. These grants are given out based on several factors, such as demonstrated competency, academic merit, financial necessity, or extraordinary talent in a particular sector.
Competitive exams are used to grant certain scholarships. For those who can prove they have a financial need, there are also need-based scholarships available.
Scholarships Vs Education Loans – How to Do Scholarship Programme Work?
- There are numerous platforms via which students can apply for scholarships. Applicants should always try to find as many possibilities as they can and apply to those for which they qualify.
- Numerous resources comprise financial assistance offices, internet-based initiatives, as well as public and commercial establishments. Before applying for a scholarship program that is being offered, applicants must be aware of their eligibility and requirements.
- Transcripts, recommendation letters, and personal essays are among the documentation requirements that need to be carefully prepared for the application process.
- All relevant documents and information must be provided by the instructions. All inquiries must be addressed honestly.
- The completed application needs to be sent in.
- If the applicant is chosen, they will need to come for further details or an interview. It is imperative to adhere to the guidelines given and furnish timely answers.
Scholarships Vs Education Loans – Pros and Cons of a Scholarship Programme
Scholarships are a popular form of financial aid for students. However, they come with their own set of advantages and disadvantages. The pros and cons of scholarship assistance on offer are as under:
Pros of Scholarships:
- Monetary Support: Scholarships are an extension of non-repayable financial aid. Scholarship help, in contrast to college loans, lessens or completely removes the financial strain.
- Academic and Professional Reputation: Scholarships are frequently associated with distinction and honor, which can improve a student’s record both in the classroom and in the workplace. It is seen as a noteworthy accomplishment to receive scholarship support.
- Financial Relief: Scholarships can help with the cost of education by paying for study materials, tuition, travel, and other related costs. It lowers the total cost of school spending considerably.
- Focused on Merit: A lot of scholarships are given out based on academic merit, proven ability, or success in a specific field, which inspires students to pursue excellence in their fields of interest or study.
Cons of Scholarships:
- Scholarship applications are fiercely competitive. Fulfilling the demanding requirements while up against competition from other applicants can be difficult.
- Restricted Availability: Scholarships could not be offered to all students in all academic fields. Certain institutions, research fields, demographic segments, or domains are the exclusive focus of certain scholarship programs.
- Application Process: Filling out a scholarship application can take a lot of time. It needs careful planning ahead. As part of the application process, candidates could be asked to submit essays, recommendation letters, and other files.
- Limitations: Certain scholarships have limitations or prerequisites, such as upholding a specific GPA or choosing a specific degree or professional route. These limitations could be a constraint.
- Implications for Income Tax: Scholarship funds may occasionally be liable to income tax. The scholarship amount on offer should be understood by applicants, and if needed, they should get advice from a tax expert.
- Requirements for Renewal: To continue receiving financial support, students are often required to fulfill specific requirements to be eligible for scholarship help in subsequent semesters or years. Should these conditions not be fulfilled, the scholarship funding may be forfeited.
Scholarships Vs Education Loans – Difference
Scholarships:
- One kind of financial aid that is not required of the recipient is a scholarship.
- Scholarship funding is provided by academic institutions, businesses, non-governmental organizations, and other public and private entities.
- Students receive scholarships based on their merit as well as certain standards and other factors.
- Scholarship awardees and their families are not negatively impacted financially by the lack of a repayment obligation.
- Scholarships are frequently combined with satisfying certain requirements and academic success. As part of the selection process, candidates might have to take competitive exams.
Education Loans:
- Borrowers who choose this type of financial assistance must repay their student education debt.
Financial institutions such as banks, credit unions, and government agencies frequently provide loans for higher education. Both private lenders and educational institutions may offer these loans. - The borrower’s ability to repay the loan—which takes into account things like credit history and prospective income—is the primary criterion used to award education loans.
- The financial creditworthiness of a borrower may suffer if they fall behind on an education loan.
- Students who fulfill the eligibility requirements can apply for education loans, which do not often necessitate taking competitive tests.
Can you apply for a student loan and a scholarship?
Yes, they don’t have to be mutually exclusive. Often, the best way to pay for your school is to look for a combination of student loans and scholarships. This is a terrific method to reduce costs, especially if it involves taking out a smaller loan.
Before deciding how to pay for your education, it is a very good idea to do extensive research on the scholarships that might be available to you. As there is theoretically no upper limit to the amount you could get, you should be informed of all that is available. To get started, take a look at what worldwide institutions have to offer by visiting our scholarships page.