Should Students avail loan?

“Should students avail loan?” This question was posed to me by Dr. Prakash (pseudonym of one of my close acquaintances). He was posing this question to me not because he was not in a position to fund his son's higher education but because of his desire for instilling a sense of financial discipline in his son who had just crossed the threshold of legal age of being a major. His son had qualified in the JEE Main (an All India Entrance Test for admission to premier technical institutions) and had got offer of admission in a premier National Institute of Technology in his desired stream. He was thinking of asking his son to avail an educational loan to fund his higher studies (although he had the means to fund his son's education without availing loans).

Dr. Prakash was in two minds because he was afraid that his son may misunderstand his well intentioned move to instil financial discipline in the youngster may lead to accusations of being a miser or too stingy, at a later date by his own family members. Secondly, he had a dilemma that in his zeal to make his son more responsible, is he not pushing him to a life of hardship in the shape of repayment obligations which will commence once his son starts earning. This will again mean that his son may not have enough savings to fulfil his dreams of buying a vehicle of his choice or go on a foreign trip with his friends ( because of reduced surplus cash due to educational loan repayment obligations).

After lot of deliberations, Dr. Prakash decided to fund his son's higher studies from his own sources instead of asking his son to avail an educational loan from a scheduled commercial bank. But he wanted his son to imbibe financial discipline during his student days so that he is well groomed for his working life in advance. So we had a lengthy discussion on how to achieve this goal of financial discipline for the youngster. Dr. Prakash decided to give monthly pocket money to his son which will be just bare enough to sustain himself in the campus.

Dr. Prakash wanted to give advice to his son to avail 'short-term loan' or 'Instant loan' from new generation NBFCs for his expenses when expenses in a month shoots up. Be it throwing a party for friends, purchases for projects or going on a short holiday vacation to any nearby tourist place or going on a study tour, the youngster should avail a loan to fund such unplanned bulging expenses on his own. He should avail loan on his own credentials from the concerned NBFC and also repay the loan availed timely. This will ensure that his son is responsible, builds a good credit score and financing agencies will be eager to extend him a loan for buying his dream vehicle or buying a home of his own or for funding his entrepreneurial venture (should he decide so, after completion of his education).

The answer to question: “Should students avail loan?” is an affirmative yes. Just as we say, the habit of savings needs to be inculcated in human beings from the childhood days, the habit of availing loans from recognised institutional players and repaying in time also needs to be inculcated in human beings once they are of legally enforceable age of adults. This helps them in getting a decent exposure to institutional sources of finance, building a repayment history and improving their credit history, which will enable them to get access to finance from recognised players at affordable rates. Thus, availing loan from institutional players during student days becomes a training ground for becoming financially responsible Citizens. The process is exhilarating; once a loan is availed and repaid in time, the student becomes eligible for a higher quantum of loan with a longer repayment cycle. This process goes on till he meets his repayment obligations in time. In fact, once he finishes his education and becomes an earning member, he has built a solid credit history, good credit bureau score and has made himself eligible for all kind of financing options, when he feels the need for availing. He is well on his way to fulfil his life's dreams and does not feel the crunch of availability of financial resources (even if there is a shortfall, lenders are more than willing to finance him because of his good credit score!!!)

A word of caution here for students: avail loan that you can repay and do not fall in to a debt trap. Avail loan when there is a temporary shortfall and repay the loan as soon as you have liquidity. Avail this facility judiciously, repay in time, create a good track record and be ready to fulfil your future dreams. Do not avail a loan if you have not identified the cash flow from which you are going to repay. Remember not to distort your credit bureau history by becoming a defaulter in any financial institution. This will be a black mark in your credit history and will make you ineligible for jobs with reputed companies besides affecting your chances of availing loans from any banks, financial institutions. Be responsible, maintain financial discipline and reap the benefits of having a good credit bureau score throughout your life.

"(Dr. Manas Ranjan Pani, is a banking and finance sector professional with more than 3 decades of experience in Retail Banking, Corporate Banking, SME, Stress Assets Management, Financial Inclusion, Banking Operations, Risk Management, Training & Development. Presently, he is a Visiting Professor in Xavier School of Commerce, Xavier University, Bhuaneswar, Odisha , India.)"