Education Loan for Abroad Studies

Financial institutions can provide funding up to 100% of the course cost, depending on the amount and the borrower's profile.

To secure the most suitable education loan, it is essential to analyze key aspects of the available options. When applying through GyanDhan, our team conducts this analysis on your behalf. If you choose to compare loans independently, consider these factors carefully.

1. Interest Rate: Even a 1% increase in the education loan interest rate has a substantial financial effect. Example - Loan Amount: Rs. 30,00,000, Loan Repayment in: 5 years after you graduate, Course Duration: 2 years; While at 10%, you’ll pay Rs. 9.7 lakhs in interest, at 11%, you’ll pay Rs. 10.9 lakhs - that’s a difference of 1.2 lakhs for just 1%!. Also, historical changes done by any lender in its interest rates should also be considered.

2. Interest rate discount: These are offered by lenders to borrowers as a means to reduce the overall cost of borrowing. These discounts are usually offered when borrowers meet certain criteria, such as maintaining a good academic record or setting up automatic monthly payments. This is an important factor to consider as this helps to reduce the overall cost to borrow which can be a great relief for you.

3. Interest Rate in Different Currencies: Often students face a dilemma of choosing over an education loan in USD with a lower interest rate or an equivalent amount in INR with a higher interest rate. By the previous trend of the rising prices of USD to INR conversion rates, it is a smart choice to go for the loan amount in INR even though it may come with a higher interest rate.

4. Loan tenure: Repayment tenure or loan tenure refers to the duration of time for which a borrower is required to repay their loan. It is an important factor while making a decision for choosing the lender for you as a shorter loan tenure can help you in saving interest and ultimately a lot of money, but this will lead to higher monthly instalments. In case you cannot bear high monthly installments then you can opt for lenders that have a longer loan tenure.

5. Tax Rebate: Education loans for foreign studies taken from Indian banks are special in that the entire amount paid as interest is exempt from income tax. This has a huge impact: Example - Loan Amount: Rs. 30,00,000, Marginal tax bracket: 30%, Repayment in: 5 years after graduation, Course Duration: 2 Years, ROI: 10%... If your loan has tax rebate, you can save Rs. 2.9 lakhs!

6. Margin Money: The amount that you need to pay from your own pocket while the rest is paid by the bank. If a bank offers a 0% margin, it means they’ll fund all your education expenses in the offered loan amount.

7. Hidden Fees: There are numerous hidden fees that your lender might be charging you and when accumulated these will cost you a considerable amount, such as:

   • Forex Margin: Some lenders charge a forex conversion charge when the overseas education loan is sanctioned in INR and disbursed in some other currency. This can be as high as 1.5%, which translates to Rs. 45,000 for a loan amount of Rs. 30 lakhs.
   • Processing Fees: This varies from zero to as high as 2%. For a loan of Rs. 30,00,000, the processing fees can be as high as Rs. 60,000
   • Cost of Credit Life Insurance: Some lenders make it mandatory for the applicant to go in for credit life insurance with their education loan scheme so that their loan amount is protected against any unfortunate eventualities. If the premium amount is on the higher side then it eventually increases the cost of the education loan as well.
   • Mandatory Cross-Sell: Some lenders try to cross-sell other policies before sanctioning the education loan, even though it is not required on the applicant’s end.

As you can see, by selecting the right overseas education loan, the reduction in cost can be as high as 5-6%.

Autopay, in the context of education loans, refers to a convenient payment method where the borrower authorizes the lender to deduct the monthly loan instalment automatically from their bank account on a specified date. This automated payment ensures timely repayment and reduces the chances of missing deadlines, helping students manage their loan obligations efficiently.

An "education loan top-up" allows borrowers who have an existing education loan to obtain additional funds over and above the original loan amount. This option is beneficial when students require extra financial assistance due to increased educational expenses or unforeseen circumstances. The top-up amount is added to the existing loan, and the borrower continues to repay the combined loan amount as per the agreed terms.

The interest rate on an education loan is determined by various factors, including the applicant's creditworthiness, co-applicant's financial profile, loan amount, loan tenure, type of interest rate (fixed or floating), and the lender's internal policies. Students with a strong credit history and co-applicants with stable financial backgrounds are more likely to secure a lower interest rate.

Margin money in education loan refers to the portion of the total educational expenses that the borrower needs to finance from their own funds. It is the percentage of the course cost that is not covered by the loan and needs to be borne by the student or their co-applicant. The remaining amount, after deducting the margin money, is financed through the education loan.

The moratorium period for education loans is the time during which the borrower is not required to make any loan repayments. It typically starts from the course completion date and extends for a certain period afterward, allowing the student to focus on finding employment and settling into their new career. The duration of the moratorium period varies among lenders but is usually around 6 to 12 months.

Education loan insurance provides financial protection to the borrower and their family in case of unforeseen events, such as the borrower's untimely demise or permanent disability. This insurance coverage ensures that the loan does not become a burden on the family, as the insurance company settles the outstanding loan amount, allowing the borrower's educational aspirations to be fulfilled even in their absence.

Education loans typically offer two types of interest rates - fixed and floating. In a fixed interest rate, the rate remains constant throughout the loan tenure, providing stability in repayment amounts. On the other hand, in a floating interest rate, the rate fluctuates based on market conditions, potentially leading to varying monthly installments.

A co-applicant for an education loan is generally a close family member, such as parents, guardians, or spouse, who agrees to take joint responsibility for repaying the loan along with the primary borrower (the student). Co-applicants should meet the lender's eligibility criteria, which may include having a stable income and a good credit history.

In India, under Section 80E of the Income Tax Act, individuals can avail tax benefits on the interest paid on education loans. The entire interest amount paid during the financial year is eligible for deduction without any upper limit. However, the principal amount repayment does not qualify for tax benefits.

In secured student loans for studying abroad, one can get up to INR 1.5 cr. In overseas education loans without collateral, students can apply for study loans of up to INR 75 Lakh. This loan amount limit can increase or decrease depending on the applicants and co-applicants profile, country, course, etc.

Collateral refers to any movable or immovable property offered to a bank as security for a loan. Most Indian banks require collateral to minimize the risk involved in extending credit. It can be in the form of liquid assets like bonds, fixed deposits, shares, or immovable properties like houses, commercial properties, or land. Agricultural land is generally not accepted as collateral.

A guarantor plays a significant role in an education loan. If the borrower defaults on payment, the guarantor has a legal obligation to repay the loan amount. If the loan amount exceeds INR 4 lakh, the bank may ask for a guarantee from a third party. In such cases, the guarantor holds the liability to repay the entire loan amount to the bank in case the borrower is unable to do so.