Foreign Education Loan for Abroad Studies: A Complete Guide for Students

Gone are the days when only students from affluent families could afford to go abroad for higher studies. Today, we see an equal or even greater number of students from average earning backgrounds heading abroad to fulfill their dream of studying at a foreign university, all thanks to the abroad education loans. 

An education loan covers the tuition fee and all other study-related expenses and has come as a savior for students who wish to go abroad for higher studies but are unable to do so because of financial constraints. If you are an Indian student who wishes to go abroad for studies and are contemplating taking an education loan, read ahead and know everything that you need to know about education loans for foreign studies.

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What are the benefits of an education loan?

Education loans have become a popular option for financing higher studies - in India or abroad for students who are unable to arrange funds for their higher education. Apart from this obvious benefit, they also have some other benefits.  Let us take a look at some of these benefits that they offer:

• Keep your savings safe for other contingencies - Well, Indian parents spend a substantial amount of their income on their children’s education. However, even if you or your parents are in a position to fund your higher education abroad, it is prudent to take an education loan and keep your personal savings safe for emergencies. No one can predict when an emergency arises and having adequate funds for such emergencies has become a prerequisite these days. Taking an education loan will help you with this. 
• Get tax benefits - Students get tax benefits when they file their income tax returns after they have started repayment of their education. An education loan is eligible for deductions under Section 80E of the Income Tax Act of India. 
• Repayment after the program - The ability to repay your education loan after the program is a major relief for many students who can concentrate on their studies with a single-minded dedication without worrying about repayments and finances. 
• Customized loans - The ability to choose from customized loan products is another benefit of an education loan. An education loan covers all study-related expenses and lenders also have different types of loan schemes for different needs. So, a student can get a customized education loan based on his requirements. 
• Helps build a good CIBIL score - Timely repayment of your education loan is the first step towards building a good CIBIL score - a step that will prove extremely helpful during future borrowings. 

What are different types of education loan lenders in India?

Indian students can take an education loan from a Nationalized bank such as SBI, Bank of Baroda, etc, or a private bank such as ICICI Bank, Axis Bank, etc. They can also approach NBFCs and other international lenders for an education loan. 

How much education loan can I get?

Different lenders have different upper limits for an education loan. Nationalized banks have set an upper limit of INR 1.5 crore for education loans. Based on individual cases, NBFCs and private banks even sanction education loans higher than this amount. The limit varies as per the student’s profile, target course, college, country, collateral value (if provided), and co-applicant’s salary.

What are the education loan options in India?

Students in India can take 2 kinds of education loans. Let us take a look at the salient features of both these education loans. 

• Secured education loan or loan with collateral - This kind of loan is one where the borrower is required to attach collateral when applying for the loan. This kind of education loan is easier to get approved if all the documents related to the collateral are complete and up-to-date. Even though it takes more time to get sanctioned, as the bank has to verify all the documents related to the collateral being offered, it has a lower rate of interest and a longer repayment period. Another benefit of this loan is that it does not need parental income and even has zero repayments during the study duration. Most lenders need collateral for sanctioning a loan amount above INR 7.5 lakhs. 
• Unsecured education loan or education loan without collateral - Students who do not have any collateral to offer when applying for an education loan should not lose heart as they can still make their study abroad dream come true by applying for an education loan without collateral. This loan has a higher rate of interest and is more difficult to get. It also has some form of repayment during the study period and an earning co-applicant is needed to apply for this loan. However, this loan is the best option for such students who need an education loan of more than INR 7.5 lakhs but have no collateral to pledge or are uncomfortable pledging their family assets or savings for their higher education.  

How to get a study abroad education loan with collateral?

Students can apply directly to nationalized banks or private banks for an education loan with collateral. Utmost care should be taken that documents related to the collateral being attached are complete and are updated. Students must also submit the complete list of collateral documents when applying for a secured education loan, failing which their education loan application might get rejected. GyanDhan can help them at this step by providing a customized list of documents that would be needed for their loan application. 

What is collateral security for secured education loans?

Collateral is a security that a borrower pledges when applying for an education loan. It can be an immovable property such as a home or land or intangible assets such as FDs, ULIPs, Mutual Funds, gold, Life Insurance Policies, shares, government securities, etc. This collateral can be used by the bank to recover the loan amount in case the loan becomes an NPA (non-performing asset).

How much collateral is needed for a secured education loan?

If a student wishes to take an education loan with collateral, then the value of the collateral being pledged should always be equal to or greater than the loan amount being applied for. This will ensure that the loan application does not get rejected. Another important thing to remember when pledging collateral is to ensure that all documents are complete. 

How to get a study abroad education loan without collateral?

Students who wish to take an unsecured loan of an amount less than INR 7.5 lakhs can apply at government banks. For an unsecured education loan of more than INR 7.5 lakhs, they can approach private banks such as ICICI Bank or Axis Bank or NBFCs such as HDFC Credila, Auxilo, InCred Finance, and Avanse. However, students should look at the fine print of their policies and then choose the best option. GyanDhan can come to their help in this case too by assessing their profile and then suggesting to them the best option for their case and that too for free. 

What should be the co-applicant's income for unsecured education loans?

The co-applicant’s annual income influences the approval of an unsecured loan. Lenders mostly look for co-applicants who earn a minimum of INR 30000. However, unsecured loans are also given to meritorious students who have co-applicants earning less than this, but this differs from case to case and is solely based on the lender’s policies. 

What is the interest rate on education loans?

The rate of interest is the cost of borrowing from a lender. Anyone who takes a loan from a bank has to pay some monthly amount that is over and above the principal amount that they have borrowed. This is called the rate of interest. The borrower repays the principal amount along with the interest in equated monthly installments (EMI). 

Public banks calculate your education loan EMI on a Simple interest basis while the education loan rate of interest for private banks and NBFCs is calculated on a compound interest basis. The RoI of an education loan has a huge bearing on a student’s total loan repayment amount and thus should be carefully studied before accepting an education loan offer. To learn more about the rate of interest on education loans, read here. 

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How to reduce education loan interest in India?

Yes, it is possible to reduce your rate of interest, both when you apply for an education loan and also after your loan has been sanctioned. Steps such as applying for a secured loan, applying for loan subsidy schemes, paying interest during the moratorium period, trying to repay the loan sooner than the loan tenure, are some ways in which your rate of interest on an education loan can reduce. 

Which bank has the lowest rate of interest on education loans?

Nationalized banks offer the lowest rate of interest on an education loan. Among the different public banks, Union Bank of India currently offers the lowest RoI, i.e. 6.80%, on education loans up to INR 20 lakhs. This is followed by Bank Of India and Central Bank of India that have an RoI of 6.85%. SBI and Punjab National Bank give education loans at an interest of 6.90%. Private banks have a higher rate of interest than government banks. Among them, HDFC Bank offers the lowest rate of interest of 9.25% on education loans. This is followed by Axis Bank of India that gives education loans above INR 7.5 lakhs at an RoI of 13.70%. 

How much time does it take for an education loan to process and get sanctioned? 

Depending on the lender and kind of education loan you have applied for, the loan process and sanction time will differ. This loan sanction time can further increase if your documents are incomplete. Students who wish to expedite their loan process and sanction time can take the help of GyanDhan that helps students get their unsecured education loan sanctioned in 4 days and a secured education loan sanctioned within 10 days. 

What are the documents required for abroad education loans?

The list of documents required for an abroad education loan is quite varied. Depending on the lender and the scheme, the documents required would vary too. However, some common documents that are essential when applying for an education loan are as follows:

• A copy of the applicant’s passport, PAN card, Aadhar card
• Residence proof
• Marksheets of 10th, 12th, and the last qualifying exam 
• A copy of the admission letter from the target college
• Fee structure and other study-related expenses during the program
• Bank account statement of the last six months
• If any financial aid, such as scholarship has been received, a letter stating the same

Many times students miss submitting some document and this results in rejection of their loan application. To prevent such a mishap, students can approach GyanDhan and get a customized list of documents that would be needed along with their loan application. 

What is margin money in education loans?

Margin money in education loans is the amount that the borrower has to pay for his education while the rest is paid by his lender (public or private banks). It is calculated by the following formula:
{1-(sanctioned loan amount/overall expenses)*100}
Any scholarship of financial aid that the borrower receives during the program will be included in the margin money. Different lenders have different margin money for education loans. NBFCs on the other hand have no margin money. Let us take a look at the margin money set by different lenders.