Start planning early

It is always good to plan big expenses in advance. This applies to children's education as well. Young clients to set aside a little extra for their children's education. If a course from a foreign university costs `25 lakh today, I suggest they set aside at least 30%--sometimes even 100%--of this sum. There are several child plans in the market that can help parents accumulate a big enough corpus to meet their children's education expenses.

Be realistic

Often those opting for higher education abroad assume they will get a good return on their investment when they get placed. But this is not always the case. We tell students and parents that foreign universities don't guarantee placements. So, they should opt for them only if they are willing to take risks.

A foreign degree does not guarantee a job in India. And if you get one, do not expect a high pay packet simply because of a foreign degree. Students with foreign degrees should not expect a very big difference in the salary offered to them compared to those who have studied in India. At best, expect a difference of `15,000 a month.

Education consultants say parents should encourage their children to consider alternate sources of funding such as scholarships or working part-time while studying.

Request for an extension

Do not opt to take a personal loan or a loan against property (LAP) to repay the education loan because they come at a high cost. Loan against securities and investments are also quite expensive. It is best to avoid them. If your child is unable to service the loan, negotiating an extension is the best option available to you.

When jobs are difficult to come by, due to macroeconomic conditions, lenders are willing to consider extending the repayment period. This will give your child more time to repay the education loan. Though this will mean a higher cost in the long run, it is likely that your child's salary will also improve with time and he / she will be in a better position to service the loan.

Usually, education loans have repayment tenures of 5-7 years. But, the tenure can be extended up to 10 years for loans of up to `7.5 lakh, and up to 15 years for bigger loans.

Service interest during moratorium

Moratorium is a repayment holiday that banks offer to those who avail of education loan. Typically, it extends for the duration of the course plus one year, or six months after finding a job, whichever is earlier. Paying the interest during this period can help reduce the debt burden. Banks charge simple interest during the moratorium period and give a 1% discount, if interest is serviced during this period. The 23-year-old took a loan of `27 lakh for a one-year course in management. Kumar's father started servicing the interest portion of the loan as soon as the disbursement happened. The loan moratorium period ends in February and Kumar will start repaying the loan from the next month. Parents can also strike a deal with the child to repay the loan for the first two years. In this period, the child's salary is likely to get better and he can start paying the loan

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