What are the Disadvantages of an Education Loan?

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Written By Loanbuddy Singapore
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What are the Disadvantages of an Education Loan?

Education loans are considered unsecured installment debts, meaning there isn’t a physical asset tied to them, and they’re paid back in a set number of installments over an agreed-upon period. Additionally, you should ensure that you have a clear understanding of the loan agreement and its terms before signing it.

1. Eligibility criteria

Banks give education loans only to the students whom they consider deserving, checking their academic records. So, you need to prove that you deserve enough to avail yourself of the loan. There are certain other eligibility criteria for the loan. Other criteria may include your credit scores, co-signers, a guarantor, and income requirements. Not all students qualify for certain loan schemes.

2. Repayment pressure

The education loan has a floating rate of Interest with a variable index that changes with time. Depending on the banks and the type of loans you are taking, the interest rate may change. Once you have availed yourself of the loan, there is always the pressure of repayment. After graduation, you’ll need to start repaying the loan. Balancing loan repayments with other financial responsibilities can be challenging. There is added pressure on the students to do well and to be able to repay the loan.

Understanding Education Loans: What you need to know

An education loan can be defined as money borrowed to finance your post-secondary education or higher education-related expenses. Education loans are intended to cover the cost of tuition fees, books, supplies, and living expenses while the borrower is in the process of pursuing a degree. 

Payments are often deferred while students are in college and, depending on the lender, for an additional six-month period after earning a degree. This deferment period is also referred to as a “grace period.”

Navigating the Loan Process in Singapore

Singapore is a small country, but it has some of the best universities for those who are considering studying. However, you might not be able to afford a tuition fee at the institutions. That’s where education loans come in.

An education loan in Singapore is just as it sounds: a loan amount borrowed to offset tuition fees. There are different ways to acquire such cash, all of which will be discussed in this article. Read on to learn how to get the best education loans as a Singapore citizen.

Types of Education Loan

There are various tuition fee loan options available in Singapore, and they include:

Secured education loan

Getting these loans to study requires pledging an asset as collateral. The collateral depends on the borrower and the lender issuing the student loan. Real estate, land with clear boundaries, bank deposits, government bonds, and other similar assets are the most common types of collateral that lenders will accept.

You can get a secured loan from any financial institution, including most banks like DBS OCBC, and UOB. A study loan is also obtainable from a credit union or even an online licensed money lender.

Unsecured education loan

Unsecured education loans for study in Singapore do not require a loan indemnity. This implies that students do not need to provide collateral to obtain an education loan. Students are given loans based on their academic profile and the financial profile of their co-applicant.

Unsecured loans have stricter credit score requirements than secured loans. However, borrowers with poor credit may still be approved for a loan if they can offer a cosigner. If a borrower cannot pay the interest-bearing loan, a cosigner agrees to do so on their behalf.

Educational Loans from Banks and other Financial Institutions 

‍Depending on the financial institution, you can expect two types of repayment schedules, monthly rest or an interest-only loan. The former entails repayments with interest while studying, while the latter allows you to pay only the interest while you study, and the rest after you graduate. 

Documents required to apply for an Educational Loan in Singapore

The bank is your next hurdle in acquiring your education loan. They would require several important documents from you to sanction the loan amount. Here is a list of documents that are primarily needed but not limited to:

  • Academic documents of the student
  • Proof of the University Admission
  • Proof of residence of the borrower and the guarantor
  • Statement of borrower’s bank accounts
  • A legit guarantee against the loan amount

Taking out a Study Loan from a Bank

In Singapore, many banks which offer study loans to students. There are many different features of education loans, knowing what they are and how they work is important in to make a decision. Listing the following to check and choose the right one for you:

  1. OCBC FRANK Education Loan https://www.frankbyocbc.com/products/investments/edu-loan/
  2. POSB Further Study Assist https://www.posb.com.sg/personal/loans/education-loans/posb-further-study-assist
  3. Maybank Monthly Rest Education Loan https://www.maybank2u.com.sg/en/forms/loans/myinfo-eduloan2.page
  4. CIMB Monthly Rest Education Loan https://www.cimb.com.sg/en/personal/help-support/rates-charges/rates/loans-financing.html
  5. DBS Study Loan https://www.dbs.com.sg/personal/loans/education-loans/study-loan
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Factors you should keep in mind while taking an Educational loan

Once you determine to take the educational loan in Singapore, remember most banks in Singapore will provide you with the option of repaying the loan only after you complete the education. However, you must remember that there are other charges or fees involved in the loan.

Therefore, before taking any study loan in Singapore, you must compare the following components from multiple banks to determine the best option that suits your requirements:

  • Interest Rate
  • Processing Fee
  • Loan Tenure
  • The maximum and minimum loan amount that can be taken.
  • Age criteria
  • The educational institutions covered.
  • Late payment fee
  • Early loan pre-closure fee

Eligibility criteria for Singapore Citizens (SC) and Permanent Residents (PR) 

Taking full-time subsidized undergraduate courses, or SCs taking part-time subsidized undergraduate courses must be above 18 years of age, and a guarantor if needed should be at least 21 years of age. Education Loans below 4 lakhs require no guarantor but for the ones above this amount, a guarantor is mandatory.

Eligibility criteria for Foreign Students 

Whose course of study at the approved educational institution is subsidized by the Ministry of Education Tuition Grant can apply under the CPF Education Loan Scheme. They would need to provide a guarantor (showing a minimum S$30,000 annual income) for their application. The students need to give a copy of their passport with all the above documents.

Interest Rates and Processing Fees

One of the most important factors to consider when deciding on an education loan is the interest rate. When choosing a loan to finance your education, you would surely try to go for those with as low interest rates as possible.

However, there is also another fee that you may be less familiar with the processing fee. Most of the banks in Singapore charge a processing fee of around 1.50% to 2.50%, and that could add up, especially with a high loan amount.

To ensure that you get the best deal, be on the lookout for promotional interest rates and processing fees and stay up to date with the latest announcements given by the banks.

“Are there any other options available to me than an Education Loan?”

Not everyone wants to take out an Education loan from banks due to their strict policies, higher interest rates, or such. So, what’s the way around it? Are there any alternatives in place? Fortunately, there are a few options to consider.

1. Scholarships

Scholarships The best way to get a student loan is to go for a scholarship. If you think you’re eligible for one, give it a shot. You know the difference: a scholarship will get you nearly free education while a student loan is more like a burden on your shoulders. But if you feel that not everyone is lucky enough to score for scholarships. If it sounds relative, here’s another option to consider.

2. CPF Education Scheme

If you think that you’ll easily get a job within the first year after graduation, give yourself a pat on the back, you may meet the requirements of the CPF education scheme. The program allows students to borrow loans to meet their educational expenses but comes with the strict requirement of repaying the loan right after the first year of completing higher education. If you’re interested, you can apply for the loan online. 

CPF Education Scheme is a loan scheme that involves the use of CPF savings to pay for tuition fees. Under this scheme, students can use either their own CPF savings or their parents to pay for 100% of tuition fees. Of course, this type of loan requires you to have available savings, and you can only use up to 40% of the savings in the CPF Ordinary Account. 

‍With this type of scheme, loan repayments begin after graduation or upon leaving the course – whichever comes first. Furthermore, both the CPF savings withdrawn and the interest accrued from when the savings are withdrawn, have to be fully repaid by the student. 

‍Pros and Cons of the CPF Education Scheme

• Low interest rate at 2.5% per annum. 

• No guarantor is required if you are a local 

• Covers 100% of the tuition fee.

• Generous loan tenure, a maximum of 12 years. 

• ‍Foreign students may require a guarantor

• Not available for students taking up a second undergraduate degree.

3. MOE Tuition Fee Loan

MOE stands for the Ministry of Education (Singapore). The Ministry of Education is providing tuition fee loans to students willing to continue with higher studies despite the tight budget. Students in autonomous universities and polytechnics can apply for the loan.

The MOE Tuition Fee Loan is a loan offered by the government to help students who need monetary assistance paying for their education costs. As of December 2022, the interest rate stands at 4.75% p.a. and covers up to 75% of the subsided fees payable by polytechnic students and up to 90% of the subsidized Singapore Citizen fees payable by university students.

‍‍Pros and Cons of the Ministry of Education Tuition Fee Loan

• Covers up to 90% of the tuition fee. 

• 0% interest during study. 

• Generous loan tenure. 10 years for loans taken at polytechnic and 20 years for loans taken at university. 

• The MOE Tuition Loan does not cover miscellaneous costs. 

• A guarantor is required to apply for this loan.

• Eligibility for this loan requires a student to be studying full-time at any of the polytechnics or studying full-time subsidized undergraduate and postgraduate programs in the autonomous universities. 

• ‍Only Singaporean citizens studying part-time subsidized undergraduate programs in autonomous universities are also eligible for this loan. 

4. Personal loans from licensed moneylenders

You see, educational institutes, schemes, and banks aren’t the only places where you can get a loan for your studies. Taking loans from licensed moneylenders is another considerable option for you. 

These licensed moneylenders are provided with a license from the Govt. and offer loans with relatively lower interest rates. All your contracts with the licensed moneylenders are properly signed by both parties and kept secure by the Govt. itself. This way, borrowing personal loans from moneylenders becomes a reliable approach.

Click here to know more about SME Micro Loan

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