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The Existing Financial Solutions and the associated complications
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“An Investment in knowledge pays the best interest”
– Benjamin Franklin
The Education Ecosystem
One of the most important aspects of a successful life today is undoubtedly education. The need for education is counted as a basic need of life in today’s rapidly changing world. The right knowledge brings out the desired changes in one’s life and rules out the chances of instability, ensuring a contented & successful life, hence it becomes inevitable to invest in knowledge and education.
While the entire Indian ecosystem stresses education via multiple authoritative laws like the right to education act 2009 (RTE) which enables a child from 6 to 14 years to free and compulsory education, these initiatives only ensure basic education which does not enable a child’s future in the long run. To succeed as an educated individual, one has to explore a range of careers that are interesting and apt for the learner. One also has to consider the fact that the majority of higher education courses and certifications come with an unaffordable price tag which becomes a burden to the parents and their pupils.
According to a government report, the dropout rate at the secondary school level in India is more than 17%, while the dropout rate at the upper-primary and primary level is 1.8% and 1.5% respectively, which may also be an indicator of the financial burdens of high education costs in India. While over the years the cost of education has increased drastically, a recent survey by Assocham states that there has been an inflation of 169% in the primary and secondary segments. We can only imagine the pressure of financial burden being put on the parents, in turn affecting the pupil’s education and even future.
In previous times like the 1980s, the education costs were affordable with minimal options to explore. Back then, even an HSC degree would help an individual to secure a job and earn a decent living in the private sector or even the government sector. However, the change of culture and increase of population has created grave competition amongst the students and the need for higher education has reached a demand like never before, it remains at an all-time high. Even if government jobs have some relaxation in terms of qualifications, the competition has made it almost impossible to get one, when 20 qualified individuals are competing against a single vacancy (As per TOI Report). A scenario like this leaves the rest with no choices other than the private sector which is high-paying and provides a rapid ladder to success but at the same time, it demands not only a higher qualification like a post-graduate degree but also successive academic grades. In a situation like this, the need for recognized and impactful qualification becomes unavoidable and a candidate must pursue the required studies. The parents must be prepared to lift the heavy financial expenses in the hope of a brighter future for their children.
The Existing Financial Solutions and the associated complications
With a problem statement so deep and seemingly unreasonable, which places questions right on the children’s future, there are traditional solutions that provide relief to some extent and enable the parents to provide quality education to their children somehow.
The traditional methods include the basic way of saving funds for the child’s education from early years, applying for a scholarship program in institutions and the last resort is to obtain an education loan from banks. However, not as simple as they seem, one needs to understand the risks, problems, and conditions associated with these traditional ways.
As an example, a rise of 169% in educational costs will outrun the savings plan as no financial institution would guarantee such high returns even in the long run and would not cope up with the rising costs of education resulting in a need for lending from a bank or other NBFCs. Similarly opting for scholarships would not be an option for a child with average grades as it will require the pupil to be above average and qualify for the scholarship exams wherever required.
To evaluate the traditional methods, one will need to do a thorough comparison and understand the borrowing mechanisms and their affordability.
Saving funds from early years
This method is the most preferred one as per the Indian parent mindset, which involves cutting down on unnecessary expenses and building up funds for future requirements on educational plans. While doing so, the parent will understand and anticipate the required amount with creating an education plan with definitive goals in mind start with identifying major spending areas like admission fees, tuition fees, cost of books, stationeries, transportation, etc. After reaching an estimated figure, the parents would then figure out the maximum saving capacity and start with the process.
While this method seems traditionally easy which was followed by the masses in previous times, it also comes with challenges associated with Past v/s Future, as the inflation rates have heavily outgunned the past ones.
As a matter of fact, “No individual has achieved success with methods from the past, one needs to be able to apply the reasoning of past mistakes to the plans to succeed”
As per the ASSOCHAM reports, the rise in education costs has been at 169% for primary and secondary education, which means this traditional method of saving enough funds for the educational future is highly likely to lag on the actual requirements. However, there is one case that has been able to gain funds through tested but risky options like the share markets and mutual funds.
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Applying for Scholarship programs
Benefitting from scholarship programs has been the best choice for many students as some educational programs award scholarship/financial aid based on the merit or need of the students. The key is exploring this option as early as possible. Parents can expedite this option with the schools/colleges/institutes and research for external agencies and trusts that provide scholarship or financial aid options.
The main deterrent to this method is the requirement of successive grades throughout the educational journey of a student if one does not fall under the category of economically weaker section. Even if an average student opts for the scholarship, these conditions put enormous pressure on them to succeed in scholarships examinations given their ability to score grades.
The number of seats available for the scholarship program versus the number of eligible students is a comparison one needs to evaluate, along with the capacity of the student. For obvious reasons, the demand and the supply mechanism of the scholarship seats will never match hence, the probability of obtaining the scholarship is on the lower side. However, the scholarship program is a great option for the eligible lot, it enables them to secure a relevant and impactful education which is expected and required as per the industry standards. Eligible students should explore this method which will ease them of the financial burden associated with other means.
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Educational Loans from a Bank
The most commonly followed practice of borrowing loans from a bank is one of the fastest and sure-shot ways of obtaining required funds for educational purposes. As a common practice of the banking industry, the documentation and process formalities do take up a considerable amount of time and effort.
Educational loans from banks have helped millions in gaining access to quality education and achieving their dream qualifications, but all this at the cost of higher interest rates and strict rules of settlements. Are bank loans as approachable as they seem? The answer to this question can be tricky in many ways. One can compare and evaluate the offerings based on Interest rates, processing charges, taxes, repayment schedules, covered vs non-covered expenses, eligibility criteria, minimum grade requirements any many more. In a typical manner, banks offer educational loans on multiple conditions as per the below table.
The above evaluations do not include a very valuable requirement, which is Educational loans for K-12 students to support the primary and secondary education of a child. In a typical situation, educational loans are considered only for students studying beyond HSC completion, leaving a huge gap in the K12 section. The parents can explore other options with very high-interest rates like personal loans which can go up to 24% Per annum leaving a dent in the household budget.
Apart from the basic evaluations, there are other parameters one needs to understand such as which expense is covered from an educational loan and which is not. This enables the borrower to get a clearer picture of how much funds he/she needs to manage on their own and how much funds can they acquire.
While education loans from banks are the most common methods, there is little awareness of the new-age solutions like Fee Funding, Fee Financing options offered by new-age fintech platforms. If the above evaluations and conclusions look like a red flag, then one may consider these options as one of the best solutions in current times.
The New Age Solution: Fee Financing
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While we consider and evaluate the above-stated traditional methods of funding children’s education. The need for a solution, which can bridge the gap between a parents’ demand for optimized rates and institutes’ inability to decrease prices owing to increased cost, is increasingly felt within the educational ecosystem. Fee Financing has emerged as a win-win concept for both, the institutes as well as the parents.
Fee Financing as a model of fee payment for any learning requirement has created a win-win situation for all parties involved. It has eased the financial woes of the parents by reducing their financial burden. The schools on the other hand have found a way to optimize their capital flow and thereby they can manage their expenditure in a better manner.
Almost all the institutes that have adopted Fee Financing as a model of fee payment have seen a considerable drop in the institute dropout rates.
Institutes and Schools have also noticed an increase in the admission rate as fee financing model of fee payment has not only reduced the financial burden on parents who could afford a certain category of institutes for their child’s education, it has also opened up options for parents who till date could not afford certain prestigious institutes owing to higher costs.
While what is said above sounds exciting. It does raise a lot of questions in the mind of readers. Questions such as, what is Fee Financing? Is Fee Financing the cure to all problems as it seems to be? How does Fee Financing work? This article aims to provide answers and details to all such queries that may be intriguing to the reader.
So, what is Fee Financing and how does it work?
The gaps in our existing educational financing system have given rise to a few organizations innovating and redefining the Fee Payment landscape, where parents can opt for Fee Financing instead of going for heavy interest education loans from banks. Parents do not need to go through stressful paperwork there is no paperwork at all. Besides the borrowers do not even need a collateral guarantee. Most of the fee financing organizations have a tech-based app system that eradicates the need for physical papers and provides approval and disbursal in a fraction of time as compared to banks or other lenders.
The fast pace payment options without too many conditions make Fee Financing, the perfect choice for parents and even institutions to function smoothly.
The Fee Financing model works in a simple yet impactful manner. Fee financing solutions are unique payment models which allow the parents to pay their child’s education fees in easy monthly installments rather than as a lump sum amount. The magic of the model, which makes it such an enticing proposition is that there are no additional costs (processing costs, interests rates, etc) in doing so. The institutes on the other hand receive an entire year’s payment upfront for any parent who chooses to pay through the Fee Financing model.
The Fee Financing option helps the institute with ample funds to plan expenditure and manage their infrastructure for the whole academic session while parents get the benefit of zero interest and zero cost EMI.
According to the surveys conducted, we see a major gap in terms of access to education in India. Various reasons being Urban-rural gap, gender gap, and also financial constraints Access to education has not been equal for all, the Fee Financing models fill the gap here and equate the entire system at least from the financial perspective.
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How does Fee Financing Help and what’s the need?
If referring to the available statistics, only around 64 percent of the country’s 99.7 million adolescents progress to secondary and senior secondary stages. Meanwhile, a whopping 24 percent of Indian children between 3-5 years of age still do not have access to early childhood education and therefore miss out on critical and overall development that would benefit them in their subsequent education journeys. One can safely assume that a major contributor can be the financial burdens that may force parents to have their pupils drop out.
The core issue of lumpsum payments creates a barrier for parents which in turn affects their children’s education. As an example, buying a luxury car or a house may seem like a distant dream from many, but with the latest offerings and innovations in the banking sector; buying a car or a home with financial support from banks has made it easy for the masses to obtain what they desire.
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In the case of education loans from banks, and irony exists that car loans are available at much lower interest rates as compared to education and that’s not all, it comes with a list of conditions for which one must comply to obtain it.
The need for Fee Financing emerges strongly to leverage the importance of education as compared to other human wants. Simply, the need for education is much higher and more basic as compared to anything and there is a dire need for financial solutions pertaining to education in the current times.
How is Fee Financing Helping?
As a point to study the Fee Financing aid let’s look at a simple case study, an average middle-class household earns roughly about 145000/ PA, which translates into approx. 12,000 per month. Post calculating the basic and necessary household expenses in today’s times leaves them with a very little amount to spend on education or other learning needs like tuition or coaching; In this case, the entire algorithm does not allow a child to make lumpsum payments for Fees and puts the child’s future and the family’s financial health at risk.
In a situation like this, the Fee Financing option lets the parent pay the entire year's education fees in one go while they repay the lending institution in equal installments without charging any interest. E.g., if a family living in a metro chooses private education for their child which costs around 50,000 a year, they would pay 4167 in monthly installments for a year which amounts to the exact fees.
By opting for Fee Financing, the parents ensure that the financial burden of paying the entire amount together has been ruled out and the expense is manageable without straining their monthly household budgets.
If we compare the same equation with interest-based loans, the monthly EMI would increase and there may also be requirements for a collateral guarantee along with other stressful processes and time taking approvals. Fee Financing has helped millions of students to achieve their much-deserved education and supported parents financially, at the same time it has also helped institutions to run smoothly by receiving the entire year's fees in a single installment.
If carefully assessed, Fee Financing as a concept proves to be a win-win for both, the parents and the institutions making it the best option.
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How popular is Fee Financing as a concept in India?
The common myth “If it’s too good, it’s not true” applies aptly to the fee financing concept. With so many financial scams and fraudulent activities happening around, the average Indian consumer has developed trust issues with Financial matters and has restricted themselves on approaching anything that looks risky.
In a case like this, financial literacy plays a vital role where the consumer has sound knowledge about the subjects and takes an informed decision, however, the financial literacy rate stands at just 24% in India. The concept of Fee Financing is relatively new and requires peer introduction like any new entrant to gain trust in the long run.
Currently, there is a section of consumers who are aware and take utmost advantage of the concept but at the same time, there are sections who depend on others for advice. The popularity of this concept is steadily increasing as more and more parents opt for it. The institutions play a vital role in promoting Fee Financing to parents and students who remain unaware. The number of parents using Fee Financing has gone up at a steady pace since its introduction.
Where and Whom can you approach for Fee Financing options?
The financial gaps in the educational ecosystem have led to the rise of a few new-age fin-tech start-ups. Over the past few years, the Financial market has completely evolved and New-age fintech firms have emerged. Many of these firms are working towards making education fee financing accessible to those in need. In recent years, fintech lending platforms have come up with innovative financing models to reduce the fee burden on parents and students. Initiatives such as zero-cost EMI for education fees, rewards, and insurance benefits along with other models, where a parent does not bear the burden immensely.
One such new-age fintech organization is Financepeer, which offers educational fee financing solutions starting from Zero cost depending on your choice of institution and the courses. The fintech player is emerging rapidly and has helped millions of students and parents with their innovative Fee Funding platform and has partnered with over 7000+ institutions across India. Above all, the platform also offers Fee Financing solutions on unrecognized and hobby-based courses like music schools or even acting classes. Financepeer is one of the very few organizations which cover all the costs from top to bottom for any course starting from K-12. Before taking up any alternative methods one should enquire about Financepeer’s or its equivalents for the best options in Fee Financing.