Education Loans for Study Abroad
Educational Loans Overview
“An investment in knowledge, pays the best interest” – Benjamin Franklin.
As the above quote goes, money spent on one’s education does reap valuable benefits in the long run, hence keen students are in the lookout for every possible opportunity to realize that dream. Students primarily finance their education via the following means:
- Self-finance: Funds from personal tangible assets, liquid funds, savings.
- Scholarships/ Fellowships/ Grants: Students also use scholarships, grant funds if they have been awarded the same.
- Educational Loans: An increasingly sought after solution that provides flexible options in financing foreign education.
Credible educational loan providers step in with their good guidance and assured support, helping aspirants finance the study to quality education in universities overseas. India sends out lakhs of students for education abroad every year, now due to the ensuing pandemic the numbers are on the lower side at around 3.75 Lakhs per year as per UNESCO data. Nevertheless, the prospects of Indian students flying abroad for education is steadily increasing every year. The US accounts for the lion’s share of the pie, with more than 50% students preferring to study there. This is followed by Australia, Canada, UK, and Germany. The ability of Indian students to pursue education abroad hinges on their capacity to afford said education. Tuition fee, living expenses, travelling costs, etc., along with the currency rate of the concerned nation will have a definitive bearing on the total cost of studying overseas. Additionally, there are numerous benefits to taking out an educational loan like enhancing your credit history, income tax benefits, not having to spend out of family money/ savings, etc.
Indian banks including NBFCs (Non Banking Financial Companies) provide educational loans to deserving candidates depending on the foreign university in which the student is admitted, the course of study, study destination, etc. Loans can be reimbursed in multiple ways, i.e. most loan providers give flexible repayment options. Many education loans cover not just the cost of tuition fees, but also include travelling costs, living expenses, etc. Government banks are known to provide higher loan amounts while taking guarantee in the form of collateral. Many NBFCs are likely to grant unsecured loans, but the loan amount will not be large.
Education Loan Features & Requirements
The common age bracket for educational loans is between 18 and 35 years. Though some loan providers do accept senior candidates with advanced age. Such cases are approved on a case by case basis depending on the financial background of the individual, program of study, study destination, university of study, etc.
The type of educational program one can apply includes undergraduate/ bachelor’s education, masters programs/ graduate Study, doctoral studies/ PhD. All academic domains such as Science, Humanities, Engineer, Management, etc., are eligible for educational loan options. Please verify with your loan provider on the program, and subject domain eligibility.
Tuition fees, exam fees, travelling expenses, living costs, labs and library fees, pre-admission costs etc., are some of the costs that most loan providers cover. Be sure to confirm with your loan servicer on the exact costs covered. The expenses covered will vary depending on the educational loan type.
Proof of Admissions:
While applying for a loan many loan providers do not insist on acceptance to said program. This means you might be able to get an ‘Approval Letter’ for an educational loan. But by the time you reach the stage of ‘Loan Finalization’, you will definitely need to provide a valid admissions letter/ offer of acceptance.
Co-Borrower/ Co-Signatory/ Co-Applicant:
Most education loans ask for a Co-Signer or a Co-Borrower in the loan. This is one way of securing the loan. Additionally the co-borrower must be an earning member in India. It can be one’s parents, spouse, siblings, legal guardian, or other family members, etc. The co-applicant would also be considered as the primary debtor
Secured Loan/ Loan with Collateral:
In simple terms secured loans are less risky for banks. Candidates who can qualify for secured loans have higher chances of reaching loan finalization. Moreover secured education loans generally sanction larger amounts and offer more flexibility to the borrower.
In a secured loan the borrower i.e. the applicant/primary debtor will need to provide proof of collateral funds such as immovable assets – agricultural & non-agricultural lands/ flats/ houses, deposits – fixed deposits, recurring deposits, gold deposits. Securities such as equity shares, debentures, and bonds, can also be used as collateral.
A non-secured loan is one in which the borrower does not provide any tangible or intangible assets as guarantee against the loan amount. Unsecured loans are a risk for a bank since they will have to bear disadvantages that come with loan forfeiture. For borrowers this kind of a loan might seem advantageous, but in comparison with secured loans, unsecured loans will not have many features, flexibility, or might not provide sufficient enough coverage. Nevertheless few public banks, many private banks, and NBFCs do offer unsecured educational loans. For unsecured loans private banks are a better bet, since they generally offer lower interest rates, lower than NBFCs.
Education Loan Pathway
We have a simple yet comprehensive profile form that you need to fill in. Input all the necessary data and you are set. We will do all the hard work for you in terms of research, analysis, and comparison of available loans and possible vendors suitable to your profile. We shall revert back to you with all the options and you can make an informed decision and finalize your choice.
Like any regulated process that requires approval and passes through multiple verification channels, the educational loan attainment procedure is document intensive. Galvanize will hold your hand through these steps and ensure you have your papers well before time. Below we have provided an exhaustive list of documents, ID proofs, transcripts, etc, that one will need while applying for an educational loan.
This is the first step in your educational loan process. The form must be filled accurately and a copy must be held with the candidate. This form will ask for the basic details that a borrower will need to declare with the bank, such as name, age, address, educational qualification, professional designation held, income tax information, educational program details (for which loan is required), parents name/ spouse name, contact details (email, cell), co-applicant information, collateral information.
Passport Size Photographs
Candidates and Co-applicants will need to provide passport size photographs for multiple documents, including the applicant form, loan finalization form, etc. Generally 2 photographs would do.
Photographic IDs are essential in the documentation process. The following would qualify by most loan providers: Aadhaar, Voter ID, PAN card, Passport, Driving License.
A document verifying the candidate’s age will also be required such as Birth certificate, Passport, Aadhaar, PAN card, Driving License.
The following documents are accepted as proof of address: Aadhaar, Passport, latest Electricity Bill, latest Telephone Bill, Ration Card, existing House Lease Agreement, Bank Account Statement
Applicants must provide a list of marksheets as per the candidates educational history. This implies marksheets of 10th and 12th grades, undergraduate program, and masters program (if any). Some banks also ask for national level entrance exam score cards.
If the student has already received an offer in the concerned program then an admissions letter must be provided. Usually in the beginning of the loan application procedure an offer letter might not be mandatory, but the same must be provided during loan finalization.
Bank statements or pass books of the last 6 to 8 months will be required.
Income Proof – Asset Details – Yourself and Co-Borrower
Income proof can be shown via Salary slip, Form 16, Income-Tax returns of the last 2 years, and computation of income of last 2 years certified by a Chartered Accountant. This needs to be provided for the
Program Cost Details
The details of the educational program you wish to pursue must be given, this includes the program name, university, program cost, duration, application status, visa information, etc. These details can be provided before loan finalization.
If the student has received a scholarship, the details regarding the scholarship amount, costs covered, official scholarship award document, etc., will be requested by the loan provider.
Key Factors in Loan Approval
There are certain aspects that loan providers focus on and when such key factors are strong, loan seekers are most likely going to get their loans approved. We at Galvanize ensure our students understand the same
Though this requirement varies as per each lender, the age of the candidate does play an important role in loan finalization. A very young candidate cannot avail educational loans for study abroad (some banks have a minimum age limit of 16 while many start with 18 as the minimum age bar).
Collateral Loan & Guarantor/Co-Applicant Status
This is the golden rule in most loan applications, this clause takes on even more significance if you are looking for higher loan amounts. Loan seekers who can provide adequate collateral or have a promising guarantor/co-applicant to sign on to be a co-borrower, then chances of loan approval skyrocket. The loan provider will analyze the job, income, and financial health of the guarantor or verify documents supporting the collateral.
The credit history of the applicant and the co-applicant is always an important condition for availing any kind of loan. The CIBIL Score (Credit Information Bureau of India Limited) is used as a good indicator of loan repaying capacity of the candidate. Previous loan repayments done by the candidate or the co-applicant is analyzed to arrive at an appropriate credit score.
Academic & Professional Record
Loan providers will look into the past academic performance of the candidate and if he/she has work experience, that will also be verified. Basically an academically strong student should be able to complete his education abroad successfully and find a suitable remuneration. All this is held as evidence for possible repayment of the loan in the future.
University & Program
The educational institution that you are to attend, its reputation, and ranking, will have a bearing on the loan process. Students must make sure their university is recognized and accredited, this is essential if the loan is to be approved. The letter of acceptance for the particular program must also be supplied.
Future Job Prospects of Candidate
If your concerned program has good earning potential most banks will agree to lend you money. Earning prospects of the candidates will depend on a multitude of factors such as country, currency, job market, candidate’s past work experience, academic standing, etc.
Secured Loans or Loans with Collateral - A Closer Look
In simple terms collateral or security is a cushion for the lender to fall back on. The guarantee is that a collateral can be used to cover loan repayment if in case the loan borrower is unable to repay the loan. The collateral security will be mortgaged to the lender until loan tenure is complete and repayment is done. Common types of assets that are accepted as security is given below:
This is the loan with a Co-Applicant/Co-Borrower. Their guarantee on the loan is a security for the bank. They become the primary debtors.
Agricultural Land, Commercial Plot, Bungalow, Independent House, Flat. These are the main types of tangible assets that will be considered as collateral for the loan.
Fixed deposits, Gold deposits, Recurring deposits.
Note: Some banks might not accept recurring deposits.
Bonds, Equity Shares, Debentures.
Primary debtors can show existing insurance policies as collateral.
Third Party Borrowers
Another bank or employer can be used as a collateral if they are willing to provide a guarantee.
Tax Benefit on Educational Loans - Section 80E
As per section 80E of the income tax act, the interest paid on educational loans can be deducted from the total income while calculating tax. This rebate is available for 8 years or till the year interest is being paid, whichever is earlier. Please note the deduction is only applicable to the interest part of the EMI and not the principal portion. That is there is no tax benefit for the principal part of the EMI.
In order to show documentation evidence while claiming the 80E tax benefit, it is best to ask for an educational loan certificate form the bank/lender that describes the interest and principal portion of EMIs paid in a particular year. The total interest paid can be used as the deduction while calculating income tax. There is no maximum limit on the maximum amount of interest that can be shown as deduction.
The benefits as per section 80E can be deducted from the income of an individual only. This rebate cannot be applied to the taxes of a HUF, Private Company, or any other kind of individual.
The education loan can be taken for higher education purposes of oneself, spouse, children, or for the student for whom the individual is the legal guardian. Parents can avail the benefits on the 80E deduction of their children’s educational loan.
The educational loan must be taken from an approved financial institution, banks, and notified NBFCs. Only then can the 80E deduction be applied.
Interest Rates on Educational Loans
Indian educational loan interest rates range anywhere between 6% to 16%. Please remember this rate can vary between various loan providers and will also depend on your credit worthiness. Additionally, if you are able to provide a collateral, loan interest rates can be reduced significantly. Unsecured loans can be upto an additional 5% higher than loans with a collateral.
The below table provides an overview of the interest rates of our educational loan partners. Please keep in mind the rates will change at the discretion of the bank. Make sure to confirm the base interest rates with the bank as they change annually or at the discretion of the lender.
13.70% to 15.20%
CBLR (Credila Benchmark Lending Rate) for the current year is 11.80%. Spread rate will be determined individually based on multiple factors such as loan amount, credit profile, etc.
Starting at 10.75% per annum
Based on your profile, loan amount, and other factors, the interest rate will be higher.
Interest Rate = Avanse Base Rate + Spread Rate
Fixed margin - Upto 8.7%
Administration Fee 5% (one time charge)
Base Lending Rate = 12.7%
Interest on Loan = Base Rate + Spread Rate
Spread Rate is determined separately based on customer credit profile and other allied factors.
11.75% to 14%
InCred charges a floating rate of interest on its loans, i.e. variable rate of interest. This implies the rate may decrease or increase depending on certain factors such as market conditions and loan regulations.
Educational Loan Reimbursement
- Educational loans have a repayment period anywhere between 5 to 15 years. The average range would be 5 – 7 years. Most lenders have flexible repayment options so the borrower can plan the repayment schedule to his/her convenience.
- Loan providers offer a moratorium period to the educational loan borrowers. During this period the borrower generally does not start any repayment towards the loan. This period may be to the duration of 6 months to 1 year. Please cross check with your lender and confirm the exact duration of the moratorium period, if any. Generally this holiday period is during the time when the applicant has completed the program and is applying for suitable jobs. RBI has advised banks to give a moratorium of 1 year for educational loans. Axis Bank, Prodigy Finance, ICICI Bank, HDFC Credila, Avanse, Auxilo, InCred, all provide moratorium periods of some duration. Please check with the respective loan providers on the exact conditions of the moratorium period. Many financial institutions have also offered special moratorium periods in light of the Covid 19 pandemic as per RBI guidelines.
- EMI – Estimated Monthly Installment of your loan will contain both the principal and interest portion. During the beginning of your repayment period the EMI will contain more interest and towards the end of the loan tenure, your EMI will contain more principal. Once your moratorium period is done you will need to start paying the EMIs regularly. You will keep paying the EMIs until the entire loan amount is repaid.
Lengthier loan tenure will make EMIs more easily payable, and if you opt for shorter loan tenures then accordingly EMI amounts will be larger.