Here are 5 terminologies that are used frequently in the context of education loans

Are you going to take an education loan to pursue a higher degree?

You may either want to pursue study of medicine or something else like an MBA degree. Whatever your aspirations are, you can pursue them with financial help in the form of an education loan. Many students know this and so take education loans to pay their course tuition fees and much more. Most students who take education loans do so for the first time in their lives. They do not know the terminologies of education loans.

To help students understand those terminologies, this blog will list some of the most commonly used terminologies and explain them.

1) Principal Amount

Students have to calculate beforehand the total amount of money that they will need to cover the financial aspects of their higher education. That amount is considered to be a base amount that students will borrow in parts over the course of their education. When a lender sanctions this base loan amount, it is called as principal amount of education loans. Of course, lenders levy different types of charges on this base amount which increases the total money that a student borrows.

2) Interest Rate

Every education loan is accompanied by an interest rate. When lenders help students finance their higher studies, they expect themselves to earn dividends of their investment in the future. They earn this dividend in the form of extra money that they ask students to pay on top of the principal amount repayment. This extra money is charged in the form of per cent per annum and it is called as interest rate.

3) Co-Borrower

A co-borrower is a person who is a part of an education loan agreement along with the original borrower, who is a student. Usually, when students borrow education loans, lenders know that those students do not earn. So, lenders ask one or more blood relatives of that student to be co-borrowers. These co-borrowers have to repay the education loan if a student is unable to repay the same. In India, either of a student’s parents, legal guardian, siblings or spouse can be co-borrowers.

4) Loan Margin

Not all lenders pay all the costs of higher education of students. Some lenders expect students to cover those costs partially. This partial amount is called as margin money. It would be better for a student if the lender does not ask them to pay margin money. Loan margin, as margin money is also called, is expressed in percentage of the total potential cost of higher education.

5) Moratorium Period

Lenders do not expect students to start repaying loans as soon as they earn their degrees. They know that students need time to get a job or start a business venture, and become financially able to repay their loans. So, lenders offer students a grace period. This grace period is called as moratorium period.

Now you have firm knowledge about the terminologies used in the context of education loans. This is the right time to find what field you want to pursue, and search a college that will teach you the skills you need to breakthrough into the field of your choice. Do not let money constraints stop you from pursuing your favourite field: take an education loan. Have a nice day!