Your child has an offer from a university abroad. A master’s in the United Kingdom costs somewhere between ₹35 lakh and ₹70 lakh all in. In the United States it is usually more than ₹76 lakh.
The question everyone asks is whether you can afford it. That is the wrong question, and it is the reason these decisions go wrong. The right question is who is carrying the risk, and for how many years they will still be able to earn if it does not work out.
This is not an argument against sending your child. It is an argument for knowing the numbers before you sign, because almost nobody is shown them.
The thing that happens while they study
Education loans do not ask for repayment while the course is running. You get the course length plus another six to twelve months before the first instalment is due. Banks call this a moratorium and it is presented as a kindness.
Interest does not pause. It builds up, and at the end it is added to what you owe.
Take a ₹50 lakh loan at 11%, a two year course, and six months after it. That is thirty months before a single rupee is repaid. By the time repayment starts, the loan is no longer ₹50 lakh. It is about ₹65.7 lakh.
The debt grew by ₹15.7 lakh while everyone was concentrating on visas and accommodation.
Now the repayment. Over ten years:
- If the interest was left to pile up: ₹90,563 a month, and about ₹1.09 crore repaid in total.
- If somebody paid the interest during the course: ₹68,875 a month, and about ₹82.7 lakh in total.
Paying the interest while your child studies costs about ₹45,833 a month for those thirty months. Doing it saves roughly ₹26 lakh across the life of the loan.
If you take one thing from this article, take that. It is the single largest number here and almost nobody mentions it at the counter.
The tax benefit is probably worth nothing to you
You will be told that education loan interest is fully deductible with no upper limit for eight years. That is true, and it is worth real money. On this loan the interest in the first eight years comes to about ₹40.6 lakh, which at a 30% slab is around ₹12.7 lakh of tax saved.
It exists only on the older tax regime.
The newer regime is the default. If you have never filled in a form to choose, you are on it, and this deduction is worth zero to you. Whoever repays the loan should work out which regime they are on before counting this as part of the plan, because it is the difference between ₹12.7 lakh and nothing.
What signing as co-applicant actually means
In India a student has no income, so a parent signs alongside them. This is not a formality and it is not a character reference.
- It is your loan, from the day you sign. Not a promise to help if things go wrong. The bank can come to you directly and does not have to chase your child first.
- It appears on your credit record immediately, at its full size, which affects anything else you want to borrow.
- Your income is the thing being assessed, not your child’s future salary, particularly where there is no collateral.
- Above ₹7.5 lakh, most banks want security. Usually property, often the house you live in. Some banks and finance companies will lend more without it, but at higher rates, around 11% to 11.5% against roughly 8.9% for a secured loan.
That rate gap is not small. On ₹50 lakh over ten years it is worth lakhs, and it is the reason the collateral conversation deserves more thought than it usually gets.
The asymmetry nobody says out loud
Here is the part that matters more than any interest rate.
If this goes well, your child repays the loan out of a foreign salary and it was a good decision. If it goes badly, because the job market turned, or the visa did not come through, or they came home, the loan does not go away. It moves to you.
Your child, at twenty four, has about thirty five working years to recover from a setback. You, at fifty two, have about eight. The person with the least ability to earn their way out is the one holding the risk.
That is not a reason to refuse. It is a reason to size the loan so that the worst case is survivable rather than ruinous, and to be honest with your child about what the worst case would mean for you.
Paying cash looks generous and is the most expensive option
Many parents avoid the loan entirely and pay from savings. No interest, no bank, no paperwork. It feels like the responsible choice.
Take ₹50 lakh out of retirement savings at fifty two. Had it stayed invested at 9.5%, by the time you are eighty five it would have been about ₹9.99 crore, which is roughly ₹1.46 crore in today’s money after allowing for rising prices.
That is what the cash option costs. Not ₹50 lakh. A ₹50 lakh loan repaid over ten years costs ₹82.7 lakh if handled well. Money taken out of a retirement fund at fifty two costs several times that, because it never gets the decades back.
The ten years before retirement covers why the fifties are the worst decade to take a large sum out of your savings.
One more thing: the bills are not in rupees
Your loan is in rupees. The fees and the rent are not. If the rupee slips 3% a year while the course runs, a ₹50 lakh plan needs about ₹53 lakh. At 5% it needs ₹55.1 lakh.
Sanction a little more than you think you need, or keep a buffer. Going back for a top up loan mid course is harder and costs more than arranging it once.
What to actually do
- Service the interest during the course. The single most valuable thing in this article. If the family can find that monthly amount, find it.
- Check which tax regime the repayer is on before counting the deduction as part of the plan.
- Compare a secured loan against an unsecured one properly. The rate gap is large enough to be worth the paperwork, but understand exactly what is pledged.
- Do not let the loan size follow the offer letter. Decide what the family can survive repaying if nobody abroad ever earns a salary, then work backwards. If your child is still young and this is years away, turn a distant goal into a monthly number shows how to fund it instead of borrowing it.
- Keep your retirement saving running. Pausing it for three years to help is the quiet version of paying cash, and it costs the same way.
- Have the uncomfortable conversation. Your child should know what happens to you if the loan comes back. Most of them, told plainly, would choose a cheaper university.
An education abroad can be worth every rupee. So can a retirement you do not have to work through. The mistake is pretending the first one is free because a bank agreed to lend for it.
This article is for learning. It is not personal financial advice, and it is not a recommendation of any bank or course. Course costs, loan rates, collateral thresholds and moratorium terms vary a great deal between lenders and change regularly, so treat every figure here as an illustration and get your own quotes. The growth rates used are examples chosen to show how the sums work, not forecasts. Tax rules change with every Budget. For advice about your own situation, speak to a SEBI-registered investment adviser.