An abroad education loan is the best investment a student can make for a promising future. The cost-benefit analysis of an education loan can show the multiples in which the investment gives the return. No investment can provide a lifetime earning, but a degree from a world’s top university will, and that too in an age where credit is not only accessible but affordable too. Every year lakhs of students take education loans from different financial institutions and realize their dream of studying at a top-notch university. Just a cursory glance at the list of Indian-origin CEOs of fortune 500 companies can help one understand the impetus a degree can have on career prospects.
Be it Sundar Pichai of Google studied at Wharton, Satya Nadela of Microsoft studied at the University of Wisconsin, Shantanu Narayan of Adobe studied at UC Berkeley, and the list goes on and on. Seeing these names gives a sense of pride and showcases the possible height one can scale if they have an advanced degree from the world’s top institution. This is certainly not the only criteria to excel in life, but the chances of excelling increase exponentially if one chooses to invest today by keeping an eye on the future.
What’s the eligibility for getting an education loan for studying abroad studies?
An Indian student must be eligible to pursue their higher studies at a foreign university and get an education loan in India for study abroad. The loan criteria are strict for abroad studies since education overseas is way higher than in India. The loan amount is considerably high, and the repayment tenure can be as high as 20 years. So, banks consider all this before approving a loan for abroad studies.
Most of the students are eligible for abroad loans if they have an excellent academic background. However, going through the criteria can help students in figuring out the nitty-gritty of the requirements:
- A student must have attained majority, i.e., age 18 or more years old.
- The student must be an Indian citizen.
- Most lenders see the academic record as it gives a rough idea about a student’s potential and the job they can land.
- The chosen university/college must be on the list of the institutions maintained by lenders. Few NBFCs and International lenders may give some relaxation, but it happens in exceptional cases.
- The job prospects of the course for which the student is joining the university must be bright. Students from STEM courses, journalism, MBA, Law, etc., are more likely to get a loan than non-professional courses.
- The co-applicant must have a good credit score in case of unsecured loans. While in the case of collateral-backed loans, a student must have a valuable asset like Land (non-agricultural), Fixed deposits, Gold, Apartment, etc.
These are the requirements that any lender will seek, but this isn’t exhaustive, and there might be some inclusion or exclusion depending on the lender.
Important Terms Related To Abroad Education Loan
One of the most important things about taking a loan is to understand the way borrowing works. The process involves some terms that a borrower must know to understand the terms and conditions mentioned in the loan document. Here are some of the important terms that one should know:
In layperson’s terms, the co-applicant is the person who has to pay the loan in case the applicant(student in case of education loans) fails to repay the loan. They must be a close family member.
Sometimes people confuse a guarantor with a co-signer. However, they are different as a guarantor is a third party whose assets are taken as collateral.
Marginal Cost of Funds- based Lending Rate (MCLR)
It is a benchmark rate below which financial institutions can’t lend, and a formula given by the RBI calculates it.
Annual Percentage Rate
APR is a term most commonly used by international lenders for the actual cost of funds, including an additional fee or any other cost on the loan amount. The real interest rate is shown in terms of APR by international lenders.
Certain countries like Canada, New Zealand, Germany, etc., mandate disbursal of a part of the loan before issuing a visa. Lenders do it on a country basis where it is mandated, not for other countries.
This is the part of the loan amount that a borrower has to pay, and the lender will pay the rest. So, if a student is taking a loan of INR 10 lakh and the loan margin is, say, 10%, then the borrower has to pay INR 1 lakh, and the lender will pay the rest.
It is the time period given to a student after the completion of the course to start the repayment process. Once the degree is completed, a moratorium period of up to one year is given by Public Sector Banks. However, the moratorium period varies from one lender to another. But the maximum moratorium period is one year.
Floating Interest Rate
In the floating interest rate system, interest rates vary either quarter, half-yearly, or annually. The rates may increase or decrease, but they shouldn’t be confused with the variations like the stock exchange. The rates change, but the change is not abrupt; rather, it changes in accordance with repo rates by RBI.
Lenders For Abroad Education in India
There was a time when there was an acute shortage of lenders for abroad education loans. The lenders mainly were Public Sector Banks(PSBs) and a few private sector banks, but Indiaâ€™s credit culture has changed for good, and now we have a multitude of lenders. From PSBs to private and from NBFCs to International lenders. Now the abroad education loan is a big part of the lending for all the major financial institutions in India. The rate of interest, repayment time, loan tenure, terms of repayment are way more viable than what they used to be a decade back.
Public Sector Banks
Banks like SBI and BoB are the major lenders among the PSBs. They have a relatively lower rate of interest rate and a ton of other benefits from tax exemption to government-subsidized interest rates. The only issue is that they only give secured loans for abroad education.
Axis Bank, ICICI, HDFC, etc., are the leading lenders. They have a more broad lending base as they also give unsecured loans. The rate of interest is more, but tax exemptions can be claimed. Also, they provide longer repayment times than any other lenders. However, for unsecured loans, the loan amount is approximately half of that of the secured loans.
These are the newest addition to the lenders market, and they provide loans to an extensive group of borrowers. The loan processing time is less, and that too with minimum paperwork. However, the rate of interest is high when compared with PSBs or Private banks. Avanse, InCred, etc., are the leading names among the NBFCs giving abroad education loans.
They are the best options for those who want to take unsecured loans with higher loan amounts. The rate of interest is high, but they have a swift loan processing system and give customized options to borrowers.
In a nutshell, if a student has a good academic record and has secured admission at a top university, then money will not be a barrier in contemporary times.