The dilemma of financing higher education

balance with money on one side and degrees on the other

Higher education in the best universities of the world is a dream for many of our children today. While the US and UK have been the sought after destinations for higher education, there are several new Universities India which can compete with the best Universities of the world. The cost of higher education has however been going up for both the Indian and the overseas ones. How many of the parents have planned for such fees? If the parents are unable to support their kids’ fees, then what are the alternatives? The dilemma for parents is should they pay for the kids education if they can afford it? Or should they let their kids take an education loan? Let us find out

If you are interested in planning for your goals and for the higher education of your kids, please check out my fee-only financial planning service

About the Author: This is a guest post by Sanjana Choradia. Sanjana is pursuing a finance major at FLAME University, Pune. She came across the concept of personal finance only at the age of 18. She has realised its importance and thinks that it is essential to spread awareness on the topic. She likes reading books, writing and dancing. She loves animals and finds joy in helping people.

Source: Collegeboard

The chart above shows the 10-year increase in education costs of different categories of universities in United States. The average incomes however, have not increased proportionately, making higher education un-affordable for several individuals. There are two ways in which the college tuition can be paid off: either self-financing the fees or availing student loans. I will discuss both methods of financing further in this blog.

What are the pros and cons of education loans?

The amount of money you have to finance your study will help decide if you graduate with a regular college degree or a college degree from one of the world’s most renowned universities. Education loans can help you get a good quality education in the world’s best universities. If the student is able to pay off the loan without defaulting and in prompt payments, it will help him/her build a good credit score early on in their life. Procuring future loans becomes considerably easier if one has a good credit score. Several parents believe that securing student loans will make their children financially responsible. While this may be true, it can also have several counterproductive consequences which takes me to the darker side of student loans. 

A very important consideration is the choice of career path of the student. The returns that your career path will give must be proportionate to the amount of loan borrowed. To put it in simpler words, the salary that your job will give you must be enough to cover the student loan repayment installments.  

Besides covering the loan installments, other important considerations need to be made. For example, if you have been placed for a job outside your hometown, expenses such as rent, travel, food, medicine etc have to be accounted for. Starting out, students receive relatively meagre salaries which may not be enough to cover all these expenses while also covering the EMIs. Students who are unable to repay these loans are blacklisted. This means that they will not be able to procure any future loans. Many find themselves in debt traps as they are unable to repay their loans. Below is a table which shows the rise in student debt in US.

Student debt

Education loans increase pressures on the students. This pressure creates an atmosphere of stress and anxiety for students who are already burdened with coursework. Additionally, it makes learning less fun and productive. 

There is also the threat of the fourth industrial revolution. This revolution is characterized by large scale automation which ultimately translates to decrease in the number of jobs available. According to Klaus Schwab, founder and executive chairman of the World Economic Forum, the pandemic has acted as a catalyst for our transition into the age of the Fourth Industrial Revolution. PWC UK states that 30% of the workforce is at risk of losing their jobs by mid 2030s. The potential risk of unemployment between 2020-30 is reflected in the graph given below.

Job automation

The concept of education loans run on the assumption that the borrowers (the students) will attain well-paying jobs in the future. This does not account for the uncertainties of employment. Many banks provide a cushion period which allows you to start paying back the loan a short time after your graduation. However, there is still no guarantee that you will be able to procure a well-paying job enough to cover all your expenses. It is necessary to find a suitable path to affordable higher education.

Should I pay my child’s  fee for their higher education? 

Besides taking out a loan, the alternative to financing your child’s education is paying for it yourself. This, like taking out a loan, has its upsides and downsides. 

When a student is free of financial pressures at the very beginning of their career, they have more flexibility in deciding their financial plan for the future. It will help the student save more and plan for their future. The money that would otherwise be spent paying off the student debt could now be used towards investments that could potentially improve their net worth.

Many parents assume that if their child has a financial obligation looming over them, they will learn financial responsibility. Hence, they assume that paying their child’s fees is a bad decision. However, there are several other ways of teaching children financial responsibility. For example, obligating them to take charge of their other personal expenses in college such as food, rent, travel etc. 

Stress and anxiety have a direct impact on one’s mental well-being which leads to decrease in productivity.  The absence of a loan reduces the stress and anxiety of academic performance and job placement. It allows the student to be creative without any worries. 

While it would be most ideal, not all of us can always afford to pay such a huge amount of money upfront. Even with scholarships, the tuition fee is sometimes an exorbitant amount to pay. In such cases taking out a student loan becomes an unavoidable step for students who are looking to pursue their higher education at their dream university.


It can be very intimidating to pay such a huge amount of money to fund the higher education of your son/daughter. But if it is possible it should be done. While going to college is a very integral and common practice in the world, there are few who plan ahead for it. The reason for this is lack of financial planning. If you are a young parent reading this blog, it is a good idea to start planning and invest systematically which will make a real difference to your child’s education and his/her life. If you want to make a lasting impact to your child’s life, it is time to start now!

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