The days when students from affluent families could make it internationally for higher education are now redundant. Now we see a greater number of aspirants from earning backgrounds heading abroad to fulfill their dream of studying at a university overseas, courtesy abroad education loans.
An education loan for foreign studies is a savior for Indian students when it comes to education loans since they can be customized and are offered on a platter.
Benefits of an education loan
- Savings are kept for contingencies
- Tax benefits – under Section 80E.
- Repayment after the course
- Customized loan options
- Enhances CIBIL score
Different types of education loan
Indian students can take an education loan from a Nationalized bank or a private bank. They are also free to approach NBFCs and other international lenders for an education loan purpose.
Education loan amount
Lenders offer different upper limits for an education loan. Nationalized banks have set an upper limit of around INR 1.5 crore. Whereas, NBFC’s and private banks even approve education loans higher than this amount. The limit differs as per the student’s profile, program, institution, country, collateral value (if any), and co-applicant’s income.
Education loan options in India
In India education loans can be categorized into 2 types:
- Loan with collateral – Also known as a secured education loan, where the borrower is required to furnish collateral when applying for the loan. This education loan gets sanctioned faster if all the related documents regarding the collateral are up-to-date. The interest rates are fairly low and have a longer duration of repayment. Most lenders require collateral for approving a loan amount above INR 7.5 lakhs.
- Education loan without collateral – This is termed an Unsecured education loan for students who do not have any collateral. The rate of interest is higher and requires repayment during the study period. Moreover, an earning co-applicant is needed to apply for this loan.
Education loan with collateral
Learners can apply directly to nationalized banks or private banks for an education loan with collateral. However, ensure that documents related to the collateral are updated.
Collateral security for secured education loans
Any kind of 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 comes under collateral.
Amount of Collateral needed for a secured education loan
Once decided by the student to opt for an education loan with collateral, then the value of the collateral being pledged must be equal to or greater than the loan amount. This ensures that the loan application does not get rejected.
Study abroad education loan without collateral
Aspirants whose unsecured loan amount is lesser than INR 7.5 lakhs can apply at government banks. For amounts exceeding the above, they can approach private banks. A word of caution is that students should vigilantly read the fine print of their policies and then opt for the best.
Co-applicant’s income for unsecured education loans
The co-applicant’s annual income determines the sanctioning of an unsecured loan. Lenders usually look for co-applicants who draw a minimum of INR 30000. Besides, unsecured loans are granted to meritorious students, but this differs from case to case and is merely based on the lender’s rules.
The interest rate on education loans
The interest rate is the expense of borrowing from a lender. The borrower has to pay some monthly amount that is above the principal amount. The borrower squares the principal sum along with the interest in EMI’s.
Documents required for education loans abroad
The list of documents depends on the lender, scheme, and type of loan. The standard list includes:
- A Valid passport, PAN card, Aadhar card
- Proof of Residence
- Qualifying mark sheets of 10th, 12th, and the last exam appeared
- Letter of admission from the college
- Detailed fee structure and other costs during the program
- Six months bank account statement
- A letter stating (if any financial aid, such as subsidy has been received)
Margin money in education loans
The formula applied when calculating the margin money in education loans:
{1-(loan amount approved/total expenses) *100}
Any type of scholarship of financial aid that the borrower receives during the course will be added in the margin money.
On the other hand, NBFC’s have no margin money.
Processing fee in education loans
This differs from bank to bank and from scheme to scheme. Some lenders levy no processing fee while others charge a minimal amount.
Research well, choose your education loan product wisely, and finance your dreams of studying higher education abroad!
