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Education Loan for MS/MBA Abroad: 2 Common Misunderstandings

Education Loan for MS/MBA Abroad: 2 Common Misunderstandings

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Explore two common misunderstandings about education loans for pursuing an MS or MBA abroad. Gain clarity on eligibility, repayment options & application process.

Education loan MBA MS Study abroad
GyanDhan
Diwakar Kumar Singh
Updated on:  20 Jan 2025  | Reviewed By:  Aman  | 5.68K | 13  min read

Challenges for MS and MBA aspirants aiming for top universities abroad are boundless. Often education loans add to your list of worries, particularly with several misconceptions going around. Here, we debunk a couple of such myths:

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First Misunderstanding: Sanctioned Amount vs Disbursed Amount

Educational loans are different from other loans in the sense that the interest need not be paid on the entire loan amount sanctioned, but only on the amount that has been disbursed. The sanctioned amount is the amount that is allocated by the bank at the beginning of your venture. However, the interest is required to be paid on only the money that you utilize, and only for the period that you borrow the money for.

 

For instance: If you are sanctioned a total amount of 30 lakhs, but end up disbursing only 7 lakhs for the 1st semester, the interest starts accruing on these 7 lakhs only. For the 2nd semester, if you disburse another 5 lakhs, the interest starts accruing on 12 lakhs (7 lakhs + 5 lakhs) from this point onwards. Further, if you need only 20 lakhs for all the semesters put together, the remaining 10 lakhs will not be your concern – only 20 lakhs is the principle that you owe to the bank.

 

We recommend that you opt for a higher loan amount at the start as the unutilized amount does not cost anything, especially when you get your loan processed at GyanDhan, because, unlike our rivals, our loan processing fee does not change with the loan amount.

 

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Second Misunderstanding: Why Margin Money?

Usually, banks expect the borrowers to pull in a little bit of risk for themselves. They require that up to 15% of the expenses be taken care of by the student’s own sources viz. personal funds or scholarships. Such an amount is termed as marginal money. For instance, if the fee for the first semester is 7 lakhs and the margin is 20%, the bank would pay 80% of it and the remaining 20% is to be borne by you.

 

Part of our mission at GyanDhan is to ensure complete transparency in education loan terms. Should you have any other questions about education loans, feel free to write to us or leave a comment below! Also, if you are planning to take an education loan via SBI then we have launched a new service of door pickup of documents (at zero cost) which will reduce your time and effort substantially.

 

Since we have explained the two common misunderstandings, now let us understand the various loan options available and how they compare against each other.

 

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Comparison of Loan Options

Let us see and understand the various options available for education loans. We will analyze and see the differences between the various loan options. 

First, let us start with a secured vs. unsecured loan.

 

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    A secured loan is a loan in which the borrower has to pledge collateral against the loan amount which can be in the form of a fixed deposit, government bonds, property, etc.
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    An unsecured loan is a loan in which the lender does not require the borrower to pledge collateral as a security.
 

Now, let us see the key differences between these two types of loans and understand which is the ideal loan as per your requirements.

Basis Secured Education Loan Unsecured Education Loan

Meaning

Security (or collateral) has to be pledged against the loan amount.

No security (or collateral is required)

Loan Amount

Generally higher depending on the value of the collateral

Lower compared to loans with collateral

Interest Rate

Lower interest rate because of an involved security

Higher interest rates because no security is involved

Processing Time

Longer time due to verification of documents 

Lesser processing time

Co-applicant Requirement

No co-applicant is required

Co-applicant is required

Eligibility criteria

Relaxed as the collateral serves as security

Stringent as the lender has to rely on the borrower's creditworthiness and co-applicants financial stability

Now, an important point to note is that public banks only offer secured loans while private banks offer secured as well as unsecured loans. However, NBFC (Non-banking financial companies) only offer unsecured loans. Let us understand the differences between these through a table.

 

You can read more about these type of loans and their comparison by reading our other blog here.

 

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Comparison of Loan Options: Private Banks, Public Banks, NBFCs, and International Lenders

Let us understand the loan options from private banks, public banks, NBFCs, and international lenders through this table:

  Feature Public Banks Private Banks NBFCs (Non-Banking Financial Companies) International Lenders

Loan Amount

Up to INR 1.5 crore.

Unsecured loans up to INR 50 lakh; secured loans up to INR 1 crore.

Unsecured loans up to INR 75 lakh; secured loans up to INR 1 crore.

Up to USD 100,000.

Interest Rates

9% to 11%

11.5% to 13%

11% to 14%

12% to 15%

Processing Fees

INR 10,000 + GST.

Varies.

1% to 2% of the loan amount.

up to 5% of the loan amount.

Processing Time

Longer due to extensive documentation and verification processes.

Moderate

Quick processing

Quick processing

Repayment Terms

Up to 15 years

Up to 15 years 

Up to 20 years

Up to 15 years

Tax Benefits

Eligible for deductions under Section 80E of the Income Tax Act.

Eligible for tax benefits under Section 80E.

Generally not eligible for tax benefits, except in specific cases like HDFC Credila.

Not eligible for tax benefits under Indian tax laws.

Financial co-applicant required

No

Yes 

Yes

No

We have a detailed guide on MBA in India vs Abroad vs MS and we would recommend you to go through that as well. It will be beneficial for you in making an informed decision.

 

Also Read - 

 

EMI calculator

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Frequently Asked Questions

What is an education loan for MS/MBA abroad, and how does it work?
 

An education loan is a financial aid that students apply for to fund their studies abroad. Different banks and financial institutions offer these loans at competitive interest rates, making quality education more affordable for students. With various banks and lenders providing student loans abroad, choosing the right option can be overwhelming. This is where GyanDhan comes in as a guiding light. We help students find the best education loan for their study abroad needs, tailored to their unique profiles, ensuring a seamless and hassle-free loan approval process.

What are the eligibility criteria for applying for an education loan for MS/MBA abroad?
 

Following are the important eligibility criteria for applying for an education loan for MS/MBA abroad.

Factor Educational Loan Eligibility

Nationality

Indian

Age

18 - 35 years (certain exceptions are accepted)

Collateral

Residential / Commercial property (depends on the lender’s terms and conditions

Academics

At least 50% in Higher Senior Secondary

University

Recognized university in India/Abroad

Co-applicant Income

A stable co-applicant income is required

CIBIL Score

A CIBIL score greater than 700 is usually considered
What is the typical interest rate for education loans for MS/MBA abroad?
 

The rate of interest depends on multiple factors and the types of loans you are applying for. However, for secured loans from public banks, the rate of interest starts from 8.10%% per annum and goes up to 11.5 % per annum. For unsecured loans, the rate of interest from banks usually starts from 9.75% and goes up to 13%. However, NBFCs (Non-banking financial companies) interest rates are considerably higher than banks but processing time is much less as compared to banks.

Which is better secured education loan or an unsecured education loan?
 

Secured education loans offer lower interest rates, but you have to pledge collateral like property, government bonds, or fixed deposits. A secured education loan is recommended if you have collateral to pledge. However, if you do not have an asset, then unsecured education loans are available. They offer loans at higher interest rates as risk is higher without collateral.

Can I get an education loan without margin money?
 

Yes, you can get an education loan without margin money, but that depends on the lender’s policies. Margin money assures lenders that you are serious about your studies and dedicated to your goals.

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