Introduction
An individual plans a lot when it comes to their savings. And these funds can be directed towards an ample number of things. So, while one may have several goals in mind, it’s crucial that their finances are mapped out just as thoughtfully. In such a scenario, planning to study abroad can potentially take a toll on a person’s lifetime worth of savings, especially when we talk in terms of the currency difference.
Now, this may seem daunting, but this is where education loans for studying abroad come in handy, as they offer to take a significant load off your pocket and savings. These loans charge a minimal fee while providing you with ample funds and time, not only to go study abroad but also to return home, apply for jobs at your targeted companies and brands, pick the best option for yourself, and start earning, before you’re able to pay back these loans from a place of sufficiency.
What’s more is that when you aim to study at universities located in the UK, Ireland, or Dubai, your skillset becomes both multidisciplinary and superior, thereby moving global brands, within India and beyond, to trust the quality you offer as a professional and what you bring to the table. Ultimately, this means success for them, and yes, for you too. This further ensures handsome remuneration, which empowers you to pay back the acquired loans on time and without burdening your pockets. In other words, it makes your study abroad journey achievable and affordable.
Hence, as an Indian aspirant of overseas education, a sound understanding of what education loans in India are about is essential, and this article will help you exactly with that!
Understanding Education Loans
From your tuition fees, travel costs, living expenses, books, and even your other academic essentials, an education loan takes care of it all. The amount you secure can be through a government bank, private banks in India, Non-Banking Financial Companies (NBFCs), or international lenders, which offer loans that are either secured (requiring collateral) or unsecured (without collateral).
Standing as a meaningful investment towards your future, these loans ease your financial pressure, offer you tax benefits under Section 80E of the Income Tax Act, help you build a viable credit score, and often come with moratorium periods, which allow repayment of the loan to begin after your course has been completed. Until then, you usually pay a minimum amount as discussed with the bank.
Eligibility Criteria for Education Loans
- For Students: Usually, as a student/applicant of this loan, one must be between the ages of 18 and 35 years, should have secured a confirmed admission into a recognised foreign institution, one which is known for its credibility, ranking, and reputation, and opt for the right course, as it is of importance in terms of your job prospects, therefore signifying your ability to repay the loan. A consistent academic record and standardised test scores for IELTS/TOEFL/GRE, etc., are also referred to when checking your eligibility.
- For Co-Applicant/Co-Borrower (usually parents/guardians): Students often do not have a stable and consistent financial income or record, which requires someone to serve as a guarantor for them to be eligible for an education loan. This guarantor, however, must be able to present stable income through salary slips, regular income tax filing proofs, and business income documents, to substantiate their credit score (CIBIL of 700 or above), which strengthens the student’s case.
- Collateral (for secured loans): When you secure an education loan that exceeds the INR 7.5 lakh mark, in most cases, collateral is mandatory. This can either be in the form of residential/commercial property, fixed deposits, government bonds, LIC policies, or non-agricultural land, all of which should usually be equal to or higher than the loan amount you’re seeking to secure.
- Non-Collateral (for unsecured loans): Alternatively, these loans are faster to process but generally come with a higher rate of interest. Plus, your academic and financial profile is rigorously scrutinised in these cases before you’re deemed eligible.
Application Process for Education Loans
- Research and Compare the Lenders: You should begin by choosing between public sector banks (example: State Bank of India), private sector banks (example: ICICI Bank), and Non-Banking Financial Companies (example: HDFC Credila). Before you finalise your lender, consider their interest rates, i.e., fixed (rate of interest remains constant throughout the tenure of the loan) vs floating (rate fluctuates with market conditions), loan processing time and fees, moratorium period duration, repayment flexibility, and customer reviews and after-sales support.
- Choose between secured and unsecured loans: Secured loans generally offer better terms, whereas unsecured loans may offer faster processing for smaller amounts or top-tier institutions, but they also involve a longer evaluation process, given the lack of collateral, which makes them subject to higher scrutiny.
- Verify Eligibility Criteria: Ensure you are taking admission in a recognised foreign institution, have a consistent academic merit record, have a co-applicant with a strong credit profile, and have collateral in place for secured loans.
- Prepare the Documents: Gathering the documents in advance helps to avoid potential delays. Typically, you must be ready with your identity and address proofs, admission confirmation letter, academic transcripts, co-applicant’s income proofs, and collateral ownership papers (if any).
- Submit the Loan Application: The loan application can be submitted in person by visiting the preferred branch or the NBFC branch (offline method). Alternatively, you can do it online via the Vidya Lakshmi Portal (for both government and private banks) or go straight to the lender bank’s website.
- Verification and Loan Sanction: Once your application is received, the bank verifies your documents and the co-applicant’s details, while also assessing your academic and career potential based on your course and university choice, conducts a valuation of the collateral, and then sanctions the loan along with a sanction letter if everything has been approved.
- Disbursement of Funds: The sanctioned funds are usually released in instalments by the bank, which is called the disbursed amount. The student can then use these funds towards payments of tuition fees, living expenses, and other essentials. The students can carry these funds with them through a forex card, cash or more, depending on their needs.
Documents Required
a) Applicant (student) Documents:
- Admission/offer letter from the foreign university which clearly indicates your name, course name and the programme duration
- Academic transcripts and certificates (Class 10th, 12th, Bachelor’s, Master’s, and so on)
- Entrance exams and language eligibility score reports
- Valid passport with a minimum of six months of validity, and a valid student visa
- Statement of estimated expenses, along with passport-size photographs, birth certificate, and justification for any gap years in your academic/professional journey
- KYC documents such as PAN Card, Aadhaar Card, Passport, or Voter ID
- Income proof (if salaried) in the form of salary slips, Form 16, ITR, employment certificate, and bank statements
- If self-employed, then business proof, ITR with computations, CA-certified financial statements, and bank statements
- Ownership documents of the property (one that is offered as collateral) such as a sale deed, gift deed, will, or allotment letter
- Encumbrance certificate that proves the property to be free of all legal dues/issues
- Approved building plan and property tax receipt
- Legal and valuation report through a bank-approved lawyer and valuer
- If offering financial assets as proof, then documents of those fixed deposits, LIC policies, mutual fund units, etc.
Tips for a Successful Education Loan Application
To improve the chances of approval for your education loan application, you can certainly follow these steps:
- Start Early: You should start with your application as soon as you receive the university’s offer letter. This gives you time to understand lender options, meet deadlines, and prepare documents.
- Choose the Right Lender: For this, you must compare public and private banks and opt for the one that gives you lower interest rates and better repayment flexibility.
- Maintain a Good Co-Applicant Profile: His/her credit score should be a minimum of 700+ along with a stable income and documents to prove it.
- Justify the Financial Need for the Loan: You need to clearly outline the expected costs of tuition, living, travel, and other essentials, providing an accurate and realistic budget that signifies your credibility.
- Draft a Strong SOP/Cover Letter: Some lenders, such as NBFCs, value a personal statement that outlines your career goals, purpose of foreign education, and repayment plans.
- Ensure Your Collateral Is Legally Clear: Make sure your property is dispute-free to be considered as collateral.
- Use Tax Benefits: Remind co-applicants about tax deductions under Section 80E.
- Follow Up Timely and Proactively: Once the application is submitted, also clarify all your doubts to avoid any delays.
- Prepare for Verification: The bank might conduct checks to confirm the validity of your documents.
Repayment Options and Terms
- Tenure of Repayment: Generally, these fall anywhere between five to fifteen years, depending on the amount you borrowed and the lender’s policy.
- Moratorium Period: A moratorium period is a temporary halt on loan payments, agreed upon with the bank, allowing one to avoid penalties during financial challenges.
- Methods to Repay:
- Standard EMIs: Monthly instalments after the moratorium period
- Partial Interest Payment: Pay only the interest during the moratorium period, followed by full EMIs
- Step-up EMIs: Start with lower EMIs and then increase gradually based on your expected salary growth
- Bullet Repayment: A lump sum payment, usually applicable to NBFC loans taken for shorter-term funding
- Pre-payment and Foreclosure:
- Pre-payments mean making extra payments towards the loan principal amount before the due date
- Foreclosure means paying off the entire loan amount in one go before the end of the tenure
- Interest Subsidy and Tax Benefits:
- Students from economically weaker sections may benefit from the Central Sector Interest Subsidy (CSIS) during the moratorium period
- Under Section 80E of the Income Tax Act, interest paid on education loans can be claimed as a deduction for up to eight years
- Missed EMIs and Penalties: This can result in a drop in the borrower’s or co-applicant’s credit score
- Loan Restructuring: In case financial hardship arises, some banks do allow restructuring of loan terms, such as extending the tenure or reducing EMI temporarily; however, this is case-specific
Conclusion
Finally, considering an education loan as a bridge between your current academic and future aspirations is a wise decision. It empowers you to dream bigger and upskill yourself to a point where repaying the borrowed amount becomes easier and more affordable. It also helps you avoid draining all your financial resources at once, allowing you to move steadily towards long-term success.
Therefore, don’t fear taking an education loan because of repayment concerns. Instead, be diligent with your research to find the ideal lender, one who offers flexibility in repayment terms and supports your journey, making the experience truly worthwhile.
Frequently Asked Questions (FAQs)
Education loan interest basically means the amount (in percentage) charged by the bank or financial institution from which you have loaned the funds. This means the extra amount you need to pay them apart from the principal amount. As of now, the average interest charged by Indian banks (private or government) stands roughly between 8% to 14% per annum, as reflected on SBI’s official website. But to get the accurate figures, it is recommended you reach out to the bank of your choice in person, or through their website.
You can apply for a loan online in India through these simple steps:
- Choose a lender (research well)
- Check your eligibility (based on the information on their website)
- Prepare the relevant documents
- Apply online through their authentic website
- Wait for the loan processing and sanction
- Receive the disbursed amount`
The education loan amount can be pre-closed (foreclosed) or pre-paid after six months of securing the loan. Notably, this also may improve your credit score.
To put this simply, collateral is a guarantee on your behalf by someone who is ready to be your guarantor. Sometimes, students don’t have financial records, credit scores, or bank statements to prove their repayment capacity. In such a scenario, collateral comes in handy and can be in the form of assets or financial deposits like LIC policies or fixed deposits.
To make the right decision, you must consider the following points thoroughly:
- Interest Rates
- Loan Terms
- Processing Time and Fees
- Collateral Requirements
- Customer Service
- Loan Coverage
- Reputation and Reviews
Still have questions?
Reach out to us today for a free session to get guidance on education loans or any part of your study abroad journey. We are there for you, every step of the way!
