Studying abroad can change your life beyond any imagination. However, this is something that cannot be achieved easily. Those interested in pursuing higher education abroad but finding it difficult to arrange funds, now have the option of education funding. Student loans for studying abroad have made dreams come true for so many aspirants over the years. Quality education at international universities is now possible with an easy education loan.
Here are some of the advantages that education loans offer:
1. Competitive interest rates
2. Tax deduction on interest paid under Section 80E of the Income Tax Act of India, 1961
3. Pre-approval before the confirmation of admission
4. Up to 100% finance
5. Online application
6. Door to door services
With the help of overseas education loans, students get the chance to pay for further studies after high school, both for courses in India and abroad. Not only tuition fees, but some of the other expenses that a loan covers also include equipment purchases, charges for the hostel, and other expenses related to the course. In the case of studying overseas, various education loan providers also consider airfare.
Read More: Study Abroad after 12th or graduation
How to choose education loans for studying abroad?
Education loans play an essential role in the lives of students who aim to study at a premier institute but don’t have enough financial sources. With the help of education loans, it has now become easier for parents to send their children abroad for higher studies. Longer moratorium periods, competitive interest rates, and flexible terms for repayment have made education loans a popular choice.
In India, various financial institutions and banks extend financial aid to students who aim for higher education in India and overseas. However, the set of services and features offered by every lender are different. The processing fee, rate of interest, repayment terms, moratorium period, repayment tenure, and tax benefits are some of the conditions which vary from bank to bank. Therefore, one needs to consider the following pointers before zeroing down on a particular loan provider:
1. Tax benefits
Education loans which are taken from foreign financial institutions and Indian banks are eligible for tax deductions on loan interest which come under Section 80E of the Income Tax Act, 1961. One can avail tax deductions for a period of eight consecutive years – the year when the loan was taken and seven consecutive years–or till the interest on the loan is paid off entirely, whichever takes place earlier.
2. Rate of interest
The interest rate is the essential thing to consider while selecting any esteemed institute or bank for an education loan as even a small difference can help in saving money. Know the difference between floating and fixed interest rates, compare the rates which are offered by different institutions and banks, and opt for the option which is the most pocket friendly.
3. Costs covered
The total disbursed amount depends upon various factors such as the reputation of the university, academic background, applicant history, co-applicant, and others. While some banks cover the entire education cost, some of them cover only a certain part. Make sure to ask about the covered costs from your loan provider. Costs covered may include lab fees, tuition fees, equipment charges, examination fees, library charges, and personal expenses.
4. Documents and eligibility
Most financial institutions and banks have a specific process for evaluating loan eligibility. The process involves creditworthiness, academic background review, family income, co-applicant details, etc. The disbursed loan amount for study abroad also depends upon the nature of the course and the employment probability after the completion of the course.
It is also recommended to collect the list of documents that are needed for a loan so that it doesn’t take time to gather the documents. Various institutions and banks usually ask for a copy of mark sheets of previous education qualifications, address proof, co-applicants’ income proof, passport size pictures, etc. While some institutions ask for a confirmed admission letter, some of them approve the loan without any need for a letter.
5. Prepayment terms
The earlier you pay the loan amount, the more you will save on interest on the principal amount. Ask if there will be any prepayment penalties. Accordingly, a strategy can be made for getting a job to repay the loan as soon as possible.
6. Moratorium extension
Financial institutions and banks give a time frame of six months to a year after course completion before prepayment starts, which is considered a moratorium. This is because students need time to get a job and gain financial stability before paying for the education loan. In certain cases, it might be required to extend the period because of job unavailability and unexpected financial obligations. Get all the necessary details about these charges and policies.
7. Total cost over EMI
An education loan is paid in EMIs which are distributed evenly throughout the loan tenure. Some people prefer longer tenure so that the monthly installments can come down. While this might seem convenient in the short term, the total loan cost will climb higher every year. Look for a lender who offers the best interest rate and makes your studies convenient.
8. Loan processing time
The deadline plays a major role in applying to a university abroad. The loan sanction letter is a must to have as a financial resource while applying for visa application and admission. Make sure to ask for the processing time that the lender needs for loan disbursement.
9. Service charge
Not only the loan amount, but certain charges are also applicable while applying for the education loan. Some of these are moratorium extension fees, loan processing fees, prepayment charges, etc. Ask about all these charges before applying so that they don’t come as a surprise to you later.
Various financial institutions and banks offer education loans for higher education abroad, and each lender offers a diverse set of benefits and services. It is recommended to compare and analyze different products to find the one that best suits your needs and requirements.
Read More: Study Abroad for free: All you need to know
Which is better? Loans with collateral or without collateral – Know the difference!
Education loans are of two types; one which is taken with collateral, a secured loan, and the other one is without collateral, an unsecured loan. It is essential to know the difference between both of them before choosing the one which is right for you.
1. Secured Educational Loans
Collateral loans are also defined as secured loans, which can be taken with a pledge of something that has a greater monetary value than the loan amount. It works as a security and, therefore, the lender will be protected against the loss of money if the borrower fails to pay the loan. If there is any default, the lender can sell the asset to recover the amount.
How does a collateral loan work?
a) The rate of interest is lower if compared to another one.
b) A borrower can offer any collateral, such as FD, immovable property, insurance policy, etc., against which the loan can be offered.
c) The approval rate is higher.
d) When a student is studying, no prepayment is required.
e) The repayment period is longer.
f) Parental income is not necessary to get approval.
2. Unsecured Educational Loans
Non-collateral loans are also called unsecured loans. The loan can be available by the evaluation of the creditworthiness of the collateral or the borrower. The loan is sanctioned to the borrower who meets the eligibility criteria. Here, credit scores play an essential role.
How does a non-collateral loan work?
a) The rate of interest can be higher, usually, 1.6%-4.5%, which is higher than the collateral loan.
b) It is not necessary to offer any collateral to the lender for loan approval.
c) The repayment period is shorter when compared to collateral loans.
d) It can be a risky affair to get this loan. Therefore, it is not so simple to obtain an unsecured loan from the bank.
e) A certain amount of repayment needs to be done during the study period.
f) Parental income should be the proof for loan approval.
What are the necessary documents required for secured education loans in India to study abroad?
Financing higher education abroad is the biggest challenge for students who want to study abroad. While many institutes/universities offer scholarships, not everyone is eligible for them. Therefore, many of them depend on education loans for studying abroad.
The procedure for applying for the loan can be hassle-free if all the necessary documents are available from the applicant’s side. If you don’t know about the required and essential documents for higher studies abroad, then read on to find out.
The following documents are cross-checked at the bank and verified for approval of the loan:
1. A valid passport: A valid passport is a must to apply for a loan overseas.
2. KYC: KYC documents include the candidate’s valid identity proofs, i.e. PAN card and Aadhaar Card.
3. Education proof: The certificates for class 10th, class 12th, and other relevant degrees should be presented. If there’s any gap in between your studies, a certificate stating the gap should be included. If you have any work experience, an offer letter can be provided.
4. Address proof: Along with the application, there should be proof of your permanent residential address and the present residential address.
5. There should be an offer letter that a university has given to apply for the loan. Along with that, it is also necessary to show the scorecard, fee structure, and the results of admission tests such as IELTS/TOEFL, GMAT/GRE, or any other test for which you might have applied.
6. Co-applicant documents also need to be submitted, which include address proof, photo identity proof, bank statements, salary proof, business proof, and income tax return certificates.
You can directly visit the website of the bank or institution to apply for the loan. Fill in the form and you will know your eligibility. If you need to know more and are looking for a hassle-free process to obtain an education loan to study abroad, experts at upGrad Abroad will guide you towards a convenient and quick process.
Education loans for abroad studies-FAQs
Q1. Am I eligible for a study abroad loan?
To be eligible for a study abroad loan, the following eligibility criteria must be met: 1) Should be 18 years old or above. 2) Must be a citizen of India. 3) The admission should be confirmed by the university where you have applied. 4) The co-borrower should be from India. If the admission is not confirmed, there are still chances of getting a pre-admission loan. This will help you to cover all the expenses, such as consultation fees, entrance exam fees, cost of tests, etc.
Q2. What are the covered costs of an education loan?
Almost all the student's expenses are covered by the loan. Some of the expenses which are covered by the loan for higher education abroad are: 1) Purchase of study materials, books, project expenses, and computers. 2) Course fee. 3) The insurance premium is also covered in some loans offered by the banks. 4) Building fund, caution deposit, entrance exams, consultation fees, prep tests, etc. When you apply for an education loan, almost everything regarding study costs is covered. This ensures all your expenses are paid off without any hassle.
Q3. Do I need to provide the margin money?
Some of the financing institutions and banks offer 100% finance. This means there's no need to provide the margin fee to get the educational loan for abroad studies.
Q4. What is the maximum loan amount?
There's no limit when applying for a loan. However, the loan amount depends upon certain factors, which are type of course, academic record, parents' ability to repay the loan, etc. You can use the eligibility calculator to find out the loan amount. You can also pay a visit to any of the nearest branches to find out about the procedure for getting a loan.
Q5. Do I need to provide collateral for the loan?
In some institutions, it is not necessary to provide collateral for further education abroad. However, if there's any chance of providing security in the form of commercial/residential property or any fixed deposit, then you can enjoy higher loan amounts and a reduced rate of interest.