Partial education loan

Funding a child's education entirely from savings feels like the responsible choice. The workbook points out it is not always the right one.

A partial education loan covers part of the cost through borrowing instead of savings. The child repays that portion later, once qualified and earning. The parent keeps more of their own savings, including retirement savings, intact along the way.

The mechanism has two moving parts, and both matter:

1. Only part of the cost is borrowed. The parent still funds a share from savings; the loan covers the rest, so the family is not asking the child to shoulder the whole cost alone.
2. The repayment sits with the child, after the course, out of the child's own earnings, not with the parent, and not during the parent's remaining working or retirement years.

The workbook offers this specifically as the alternative an adviser raises when a client wants to fund a child's higher education entirely by diverting money away from their own retirement. Because retirement has no borrowing option, nobody can lend a retiree an income, the loan route is available for the education goal but not the retirement goal. That asymmetry is the reason to use it for the former rather than sacrifice the latter.

A client's daughter needs Rs 20,00,000 for a postgraduate course abroad. The client can save Rs 12,00,000 without touching retirement contributions.

Instead of diverting the remaining Rs 8,00,000 from the retirement corpus, the family takes a partial education loan of Rs 8,00,000. The daughter, once she starts working after the course, repays the loan in EMIs from her own salary over, say, 7 years, a burden on her early career, but not on her parents' retirement.

Compare the alternative: diverting Rs 8,00,000 from a retirement SIP earning even a modest 10% a year over the 15 years left to retirement gives up roughly Rs 33,00,000 of future retirement corpus, far more than the Rs 8,00,000 itself, purely from the lost compounding.

Chapter 17, section 17.3, names the partial education loan as the concrete alternative an adviser should raise when a client is compromising retirement for a child's education. Expect it tested alongside the objective role of the adviser, as the specific tool that operationalises that role.

• It is partial, not full. The workbook's example still has the family funding part of the cost from savings; the loan fills the gap, not the whole cost.
• The repayment obligation moves to the child, which is the entire point. Retirement money, once spent, cannot be similarly recovered from anyone.
• This is a behavioural-finance illustration, not a specific loan product. The workbook does not name a lender, rate or tenure; do not invent one on an exam answer.
• Do not present this as risk-free. A loan taken in the child's name is a real obligation on their early income, and the adviser's role is to make that trade-off explicit too, not just the parent's.