Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now

You can switch off notifications anytime using browser settings.
Stock Analysis, IPO, Mutual Funds, Bonds & More

How to fund child's studies? Education loan better than mortgaging house, using savings

Instead of jeopardising future goals, taking an education loan is a better option.

Mar 18, 2019, 06.30 AM IST
Getty Images
Aparna must consider an education loan as her first choice, as banks offer loans for professional courses like engineering.
After the untimely death of her husband, Aparna has been focusing on providing the best education for her two daughters, so they can become financially independent in the future. Aparna works in a public sector bank, and has a limited amount of savings. One of her daughters has now secured a seat in an engineering college on merit. She requires Rs 10 lakh for the next four years to cover fees, hostel expenses and other costs. Aparna does not know how to fund this large sum. Should she draw on her investments or take a loan against her house? She wants to know how this can affect her future as well as the future funding requirements for her second daughter?

Aparna must consider an education loan as her first choice, as banks offer loans for professional courses like engineering. If the child is admitted to a reputed college with a good placement record, banks may be more than willing to offer a loan. Many educational institutions also have tie-ups with banks to arrange loans for students. An education loan takes care of all expenses, including the hostel fee. Also, the loan is repayable in instalments only after the course is over. So, Aparna’s daughter will be able to repay the loan herself, once she has completed her studies and has begun to earn an income.

The bank may require Aparna to guarantee the loan, which she should be able to, given her income and her PF balance. She will be required to step in for her daughter only if her daughter defaults on the loan. Here, it is important for Aparna to explain to her daughter the financial position of the family and instill in her the sense of responsibility towards repay loans.

Although drawing on investments might come at a lower cost, it might risk the other goals that Aparna has for her second daughter. It is also important for Aparna to protect her retirement corpus, so that she does not have to depend on her daughters. Taking a loan against the house may be cheaper, as it has the security of an asset. But it may result in Aparna mortgaging her only valuable asset for a single goal. She must avoid deciding emotionally and take the objective route of facilitating her daughter’s funding of her own education.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

Also Read

Consumer loans growing but some vintage loans indicate higher risk: CIBIL

Demand for vehicle loan shrinks

Demand for vehicle loan shrinks

Sebi tightens disclosure norms on loan defaults

Top 10 banks' home loan interest rates

Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links

Follow us on

Download et app

Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service