Abroad Education Loan Terms: Important Glossary to Know

In clear, simple language, this article provides a thorough understanding of some of the most commonly used education loan terms. This article's education loan terms apply to both secured and unsecured education loans in India. Certain terms of education loans apply to those of foreign money lenders as well. Let’s begin by distinguishing between the two types of education loans available in India.

Collateral Education Loan

A secured education loan or education loan with collateral is a type of education loan which is provided based on security pledged as collateral. This collateral can be a tangible asset like a plot with boundaries, flat, etc., or an intangible asset like FD, life insurance, or government bonds.

Read more about: Types of Collateral Security Acceptable for an Education Loan

Non Collateral Education Loan

Education loans in which the borrower doesn't need to provide collateral security are called unsecured education loans or non collateral education loan. This loan is given based on factors like co-applicants monthly income, financial history, target college, course, and country.

Basic Education Loan Terminology

• Principal Amount - The main amount of loan granted by lenders to the borrower, or in other words, the total amount disbursed as a loan is called the principal amount.
• Interest Rate - The interest rate refers to the money paid in terms of percent per annum to the lender in return for borrowing the principal amount. In India, interest rates are based on the MCLR and the LIBOR-based APRs are applied by international lenders.
• Co-applicant/Co-signer - A co-applicant refers to the person who signs a loan contract with the applicant for education. If the applicant fails to do so, he is liable to reimburse the education loan. Co-applicants are also addressed as co-signers by the international lenders. The co-applicant must be a close family member (parents and siblings preferably) of the loan applicant for an education loan in India.
• Guarantor - A guarantor is essentially a third party, whose property/liquid assets are undertaken as collateral security against collateral education loans.

Education Loan Terms Related to Interest Rates

• Accrued Interest - The interest is paid by the lender and payable by the borrower. In addition to the unpaid principal balance, the interest is calculated for each day.
• Floating Interest Rate - Such interest rates may vary over a short period. Most banks, international lenders, and NBFCs are following floating interest rates.
• Fixed Interest Rate - This does not change in the short term and even if it does, interest rate changes do not affect those applicants who already have taken education loans.
• Marginal Cost of Funds-based Lending Rate (MCLR) - That is the benchmark based on which most Indian lenders have fixed their education loan interest rates. It is used by prominent loan lenders in the country on online educational loan pages.
• APR (Annual Percentage Rate) - APR is the percentage that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the loan. International lenders usually address their interest rates in the form of APR. Prodigy Finance is one such international lender. 

Terms Related to Secured Education Loan Process

• Collateral - Asset mortgaged to the educational loan by the borrower. Collateral security essentially refers to real estate or liquid assets pledged to the bank to borrow an education loan.
• Loan Margin - The margin money, also called loan margin, in terms of study loans is the amount that is paid by the borrower while the remaining amount is paid by the lender. A loan margin usually expressed in percentage usually refers to the candidate's contribution to their overall higher education expenses abroad or in India.
  For example, 'SBI's 10% loan margin' means loan applicants are responsible for paying 10% of their overall expenditure, and the remaining 90% is contributed by the lender. The margin of the loan varies between different profiles.

Terms Related to Disbursement

• Education Loan Disbursement - The process of releasing the education loan amount to the borrower by the lending bank is called a disbursement of an education loan.
• Pre-visa Disbursement - This term refers to a part of the loan disbursed before the applicant begins the process of applying for a visa. A pre visa disbursement is normally requested by those who borrow education loans to study in countries like Germany and Canada.

Terms Related to Education Loan Repayment

• Loan Tenure - Indicates the total repayment tenure of education loans. Loan tenure of 15 years indicates that candidates can repay their education loan within a span of 15 years.
• Amortization - Refers to a gradual repayment by periodic installments of the principal and the interest amount of the education loan. Many international lenders use this term to indicate the process of repayment of overseas education loans.
• Moratorium Period - Refers to a loan holiday granted to the borrower. In education loans, it varies from lender to lender and goes up to course period + 1 year. Simple interest or partial interest is often charged by private lenders during the moratorium period.
• Grace Period - It is the extension of the moratorium period beyond a student’s course duration. An additional six months, the grace period can be granted by the bank for students who are unable to find employment immediately post their course. The total duration of this grace period depends on the lenders.
• Deferment Period - Is an extension on the repayment of the principal amount granted to the borrower by the lender. 
• Loan Waiver - Those students who are unable to find employment for five consecutive years post their course of study are eligible for a loan waiver. They should provide genuine reasons behind their claims to lending banks. Waiving the education loan’s decision depends entirely on the lender.
• Loan Write-off - A loan write-off occurs when assets undertaken as collateral become assets that fail to deliver, that is, the asset cannot generate income that can help the bank recover any portion of the loan. A bank will cancel the loan in such a scenario, where the chances of the loan's recovery may seem remote. However, creditors continue to be liable for repayment.