Student loans vs Self-funding: Which is Better?

    Updated on: 11 Sep 2023

    Planning to study abroad, securing funding, and figuring out how to pay for education are all important considerations. In many cases, students do not even dream of studying abroad due to financial constraints. Most parents consider self-financing as a realistic alternative for funding their child's education by liquidating valuable assets or arranging funds through family friends and relatives, but such financial aid is not available to all families. This is where a student loan can help. This blog provides a brief overview of the advantages of student loans and their preference over self-funding.

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    Self-financing international study

    Taking an education loan can be a financial burden for most students, therefore they prefer self-funding as a viable option to prevent future debt. Students, for one reason or another, do not want to be burdened by EMIs when they could pay for everything in one go. 

    What exactly qualifies as self-funding?

    One may prefer self-funding in the following circumstances:

    • Paying for own education
    • Requesting financial help from family, friends, or relatives
    • Securing funding from a third party (Government banks or education loan lenders excluded)

    How do you budget for college while self-funding your education?

    • Financial plan: Students should arrange their money carefully, to save future troubles during the study. They should be prepared for any financial difficulties that may arise throughout the course of their studies.
    • Scholarships and grants: assist students in paying for their abroad studies while also enhancing their higher education opportunities.
    • Part-time work: helps students advance professionally and financially. This improves their talents while managing living expenditures while overseas.
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    Study Abroad Student Loans

    Students nowadays are more career-oriented and want quality education to help them achieve their goals. Traditional resources, such as borrowing money from relatives and friends, have become prohibitively expensive, making it nearly difficult to support complete quality education with years of savings.

    When students don't have enough money to pay for living expenses and tuition fees for a course abroad, they turn to an education loan.

    Types of education loans

    Secured loans or collateral loans are offered based on collateral security. When a borrower pledges collateral to get a loan, the lender is guaranteed some partial recompense for any outstanding loan debt. If payments are not made on time, they can seize the collateral and sell the property. The finest collateral loan providers in India are government and commercial banks.

    Unsecured loans or non-collateral loans do not need the pledging of any collateral. They are available to students who do not have sufficient assets to put up as collateral. However, when considering unsecured loans, factors such as parent's income, university ranking, and fees are considered.

    Check Your Education Loan Eligibility Apply Here

    Which is better: self-funding or student loans?



    Student Loans

    Financial burden

    Entails liquidating all savings and precious assets such as gold, FDs, insurance, a flat, land, and so on.

    Allows you to save money and collateral by repaying the loan on time.
    Benefit: the saved money can be used in the event of a family emergency.

    Monetary advantages

    Not Available

    Lower interest rates, more flexible repayment rules, a repayment vacation for students, and government subsidies.

    Proof of funds

    The university wants a solvency letter in order to confirm acceptance. Students must demonstrate their payment capability to the university by exhibiting approximately one year's worth of cash plus 50% extra in their account

    The bank provides a solvency letter as proof of finances.

    Moratorium period:
    a loan repayment holiday during which students are not required to pay money to the bank for a set amount of time, such as the course term + 6 months/1 year.

    Not Available

    Students taking an education loan from a government bank can prolong their payback period up to 15 years

    Arrangement of large funds

    Students / their parents must plan and save money for years. Or they may need to arrange large sums of money in a short period of time, which is nearly impossible in most situations

    The bank disburses the appropriate amounts on a regular basis. If a student needs to raise a significant sum of money in a short period of time, the student can do so by requesting a larger loan for their education against their collateral value.

    Coverage of multiple expenses

    Managing additional expenses such as house rent, fees, food, and so on is challenging

    All important expenses such as rent, food, laptop, and so on are all included in the loan amount.

    Currency rate fluctuations

    With rising inflation, the cost of education fluctuates with changes in currency rates, making students feel strained

    Education loans are not affected by these fluctuations.

    Benefits under Section 80 E of the Internal Revenue Code

    Not applicable

    Allows deduction in Rate of Interest for abroad studies.

    CIBIL score:
    CIBIL is a summary of the credit history up to that point.Opportunity for students to take responsibility

    Cannot be built because timely EMI payments are required.Involves the help of parents, relatives, and friends

    Can be built by ensuring timely repayment of the loan amount through EMIs.Parents' responsibilities will be relieved because the student will be accountable for repaying the debt.
    Benefit: motivates them to advance in their careers.

    Tax Benefits on International Remittances: According to Section 206C, the Union Budget for 2020-2021 seeks to charge a 5% TCS on foreign remittances for those flying overseas.

    Students must pay 5% TCS on overseas remittances,

    TCS on remittances backed by financial institutions for study abroad is kept at 0.5% on payments over Rs 7 lakhs.


    In most circumstances, it is recommended that students take out an education loan rather than self-funding because education loans come with additional benefits. Students are finding it difficult to secure funding to continue their studies due to rising prices. This is an excellent opportunity to take out an education loan, particularly during the pandemic in which the country's economy has been severely harmed and students are struggling to pay for their education.

    If you are also looking for an abroad education loan, you can get in touch with GyanDhan for free expert assistance in getting the loan. To start, you can check your loan eligibility now! 

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    First published date: 05 Aug 2021

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About author

Vishakha Bhagia
Interest in Finance with a flair for writing, Vishakha has written on education loans and the study abroad field for the last two years with articles published in Times of India, Outlook India, The Hindu, and many more publications.

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