The rising cost of education all over the world significantly increases the financial burden of parents, especially when you are a parent of multiple children. Student loans help such parents by providing the financial assistance required for their children’s education. However, many parents struggle to manage the education loans of multiple children.

Financial planning can help them manage multiple education loans for their children. This article provides a parent's guide to education loans, where we will learn why financial planning for education loans is important. We have also covered several tips you can use to manage education loans for multiple children.

Understanding How Education Loans Work

Before learning how to manage the education loans of multiple children, let’s understand how they work. Education loans are the loans offered to students for funding their education in India and abroad. These loans provide the funds required by the students to pursue higher studies at a recognized university in India or abroad.

Students can use these funds to cover their educational expenses, including tuition fees, living expenses, the cost of study materials, the purchase of a laptop, and other course-related equipment. 

Education loans in India typically require a co-applicant, usually a parent or legal guardian of the student, to sign the loan agreement alongside the student. A co-applicant shares the loan responsibility alongside the student and will be responsible for repaying the loan if the student, for any reason, is unable to do so. These loans are mainly divided into two types based on the collateral requirement of the loan: secured and unsecured loans.

Secured Education Loans

A secured education loan is a loan where applicants provide their property as collateral for the loan. Lenders require applicants to pledge collateral as security for the loan amount to obtain the loan. Involving collateral security in the loan reduces the risk for the lenders. Thus, collateral loans offer higher amounts at lower interest rates for students.

To get a secured education loan for your child, you have to pledge a property that is accepted by your lender and has value according to the loan requirement. Most lenders accept immovable properties and liquid securities as collateral for student loans. 

Unsecured Education Loans

An unsecured or non-collateral education loan is a student loan that doesn’t require any collateral or security. This means applicants can get an unsecured education loan without having to pledge collateral. However, these loans are given based on the income and creditworthiness of the co-applicant. 

Is It Possible to Get Education Loans for Multiple Children?

Yes, it is possible to get education loans for multiple children. However, it can involve taking a separate student loan for each child. You should take separate student loan applications for each child. Lenders will assess each child’s student loan application, and the loan terms offered for each child can vary depending on their eligibility, the preferred country, preferred course, university, and the loan type. The financial factors of the parents, such as the CIBIL score and FOIR norms, significantly impact their children’s education loans.

Financial Factors of the Parents Affecting Children’s Education Loans

Banks thoroughly assess the financial factors of the students and co-applicants to process their education loans. In most student loan applications, parents are involved as co-applicants. The following are the financial factors of the parents that affect their children’s education loan approval:

  1. Parents’ Income: Banks evaluate the income and CIBIL score of your co-applicant to check the education loan eligibility. The income of the parents plays a major role in their children’s student loan approval, especially for unsecured loans. 
  2. CIBIL Scores: As we have discussed before, lenders evaluate the credit scores of both the student and the co-applicant for the education loan process. It helps them assess the risk of offering loans to students.
    Private lenders are very strict about their CIBIL score requirements for education loans, as they primarily offer unsecured education loans, which do not have the safety net of collateral.
  3. FOIR Norms: Banks follow the Fixed Obligation to Income Ratio (FOIR) norms while providing education loans. FOIR of an individual represents the ratio between their monthly income and obligations, i.e., how much a person is earning in a month and how much of it is going towards their repayments of other credit services.

It helps lenders understand the repayment capacity and the risk of providing loans for individuals. A lower FOIR indicates a lower risk for lenders, and a higher FOIR indicates a higher risk.

Banks can even reject the children’s student loan applications if the parents do not meet the FOIR norms, which means that the parents’ obligations, i.e., the EMIS and other liabilities, are higher than how much they can afford.

Why Financial Planning for Education Loans Matters?

Financial planning for education loans is crucial, especially when you are taking multiple student loans for your children. It helps your children manage their education loan funds efficiently. Here’s how education loan financial planning can help you manage multiple children’s education loans.

  1. Understanding Your Children’s Requirements: Financial planning involves understanding each child’s student loan requirements, including their tuition fees, living expenses, cost of study materials, and other educational expenses.
  2. Improves Decision Making: You should understand important education loan terms, such as loan limits, interest rates, and repayment terms, before choosing the right lender for your children. Financial planning for education loans helps you understand these loan terms to help you make the right decisions.
  3. Helps Manage Multiple Loans: Financial planning assists in managing children’s multiple education loans. It assists parents in managing their children’s education loans by helping them create a budget, choose the right lender, and plan repayments. This reduces the student loan stress for both parents and their children.
  4. Reduces Risk of Defaults: Financial planning lets you choose the right repayment plan for your children and helps them avoid missing or late EMIs. This ultimately helps them manage their finances during the repayment period and avoid defaults. 

Contact WeMakeScholars for expert student loan support. Our team can help you manage multiple children’s education loans with the right guidance. When you apply for education loans through us, we provide personalised support to cater to the diverse needs of your children and help them get the best offer according to their profiles. Requesting a callback now to get a stress-free education loan journey for your children. And since WeMakeScholars is supported by the Ministry of IT, we offer our services for free to students.

How to Manage Education Loans for Multiple Children?

The following are several tips you can use to manage the education loans of multiple children.

  1. Start Planning Early: As we have already discussed, financial planning can help you manage the education loans of multiple children. Planning early reduces the risk and helps your children use their student loan funds responsibly.
  2. Create a Budget: Creating an effective budget can help you manage multiple education loans. Create a budget considering all the essential expenses of each child taking a student loan, including their tuition fees, living expenses, purchase of study materials, and course-relevant equipment.
  3. Consider Including Collateral: When a parent cosigns one of their child’s education loans, it can increase their FOIR. And as we already discussed, a higher FOIR reduces the chances of getting other loans. This affects the education loan approval for your other children. 
    In such a situation, consider involving collateral for your child’s education loans. Involving collateral reduces the risk for the lender, thus increasing the student loan approval chances.
  4. Add Additional Co-applicants: In the above scenario, you can also include additional co-applicants to your loan. By doing so, the combined income of all the co-applicants will be considered, increasing the chances of the loan approval.
  5. Choose the Right Lender: Choosing the right lender is essential when you’re planning to education loans for multiple children. Compare all the loan terms, including the loan amount, collateral requirement, interest rates, and repayment terms, of different lenders and choose the lenders that satisfy all the needs and requirements of your children. Choosing the same lender for all the children’s education loans can even offer favourable loan terms.
  6. Opt for Loan Consolidation: Loan consolidation refers to the process of combining multiple education loans into to single loan. Students with more than one education loan can opt for loan consolidation. Lenders can offer a lower interest rate by consolidating multiple education loans into one loan, reducing the financial stress of the students. Although consolidation is highly unlikely for education loans of different students, it can be used when one of your children has multiple student loans.

Conclusion

Financial planning for student loans is crucial, especially when you are managing education loans for multiple children. It helps you understand your children’s loan requirements and assists in making the right decisions. Planning early reduces your children’s chances of defaulting on their student loans.

WeMakeScholars offers an effortless student loan process. When you apply for your children’s education loans through us, our team carefully analyzes each of your children’s profiles and connects them with the best lenders, according to their eligibility and requirements. Get in touch with us today and get the best study abroad loan for you.