There is no doubt about the significance of education these days, from students 1st grade till post-graduation, what they learn serves as steps of a ladder helping them ascend to their success.
And who can deny the opportunity you get from universities abroad? When you study abroad every step is a learning experience but many deserving students hold back from pursuing their higher studies abroad because of meager finance. The predominant reason for this is a lack of awareness pertaining to the funding options available to the student for foreign studies. But you can reach out to WeMakeScholars an organization funded and supported by the Ministry of IT, Govt. of India, we not only provide you a transparent picture but assist you throughout your loan process and help you get the best deal possible for your education abroad.
This article is focused on providing you a general idea on education loan for foreign studies
Let's start with the types of Loan you can opt for-
1. Collateral/Secured loan-
A collateral/secured loan is where you mortgage an asset to the banks to take a loan against it, with a collateral loan, you can expect to receive more lenient loan terms from a lender than with an unsecured one. It could be a lower interest rate, larger loan amount, or a longer loan repayment period. now collateral is of two types,
- Immovable property like a house, flat, non-agricultural land and
- Liquid security like Fixed deposits, Insurance policy(Term Insurance), and govt bonds.
A lender can also get you a loan against third-party collateral where your relative or friend willingly pledges his/her property for your education loan.
Mandatory documents required for immovable property
Getting a secured student loan for foreign studies is trouble-free if you have the documents mentioned below-
- Title Deed of the property
- Registered Sale Agreement/ Gift Deed/ Will
- Original registration receipt for the Sale Agreement/ Gift Deed/ Will
- Allotment letter of the property by Municipal corporation
- Copy of municipality approved building plan or plot layout
- Latest property tax bill and electricity bill bearing the same address
- 30 years link document or previous chain of sale deed establishing title or EC is required.
- A conversion document will be required for agricultural land that has been converted into a residential area.
2. Non-collateral/Unsecured loan-
An unsecured loan is a loan that doesn't require any type of collateral. Rather than relying on a borrower's assets as assurance, lenders approve unsecured loans based on an applicant's eligibility. For an unsecured student loan for foreign studies, lenders examine a set of deciding factors to check the applicant's creditworthiness, those are
- Applicant's academic profile- Lender judges by this the "Employability Potential of the applicant". At least a minimum of 60% is required in 10th, 12th, and degree.
- Financial co-applicants income, CIBIL score. This is the most important deciding factor for an unsecured loan as lenders are not taking any collateral, with strong financial co-applicant lenders can stay assured about payment of interest during the moratorium period
- Course/Degree for which an applicant is applying for. Lenders prefer job-oriented courses like UG, PG in STEM disciplines over courses like Public policy or Aviation but never Ph.D., Mbbs, Theology, tailoring, etc.
- The country you're going to. Lenders prefer major study abroad destinations like the US, UK, Canada, Australia, Ireland, Germany as the chances of the applicant getting hired in those countries is higher, and which is why they are skeptical about the less known countries like China, Ukraine, etc.
- University you're going to. Private banks have a list of some globally top universities with them only for which they approve an unsecured loan.
Lenders and their offer for foreign education loan
1. Govt banks/ Public banks -
- From public banks, you can get only up to 7.5 lakhs unsecured loan and from 10 lac to 1.5 crores secured loan depending on your pledged collateral value and your total loan requirement.
- Public bank's rate of interest is between 8-9%.
- The processing fee will be 10k+GST on top of that around 10k for legal and valuation of the collateral (not needed in the case of liquid security)
- You get your course term+ 6 months to 12 months as a moratorium period, and during your moratorium period, you need not have to pay anything to the bank, albeit simple interests will be charged but you pay after the moratorium period and you will get up to 15 years as a repayment period.
2. Private banks-
Private banks are more suitable for an unsecured loan but as mentioned for unsecured loans they prefer a promising profile of both applicant and co-applicant.
- From private banks, you can get up to 40 lac unsecured loan depending upon your selected university.
- Private bank's rate of interest is 10% and above
- The processing fee is 1% on the loan amount +GST and for some private banks, it is 15k +GST.
- The moratorium period with private banks is the course term + 6 months. But private banks do not give an option for a no-payment moratorium period, you need to pay either full or partial interest and you will get from 10 to 15 years to repay the loan amount.
NBFCs are Non-Banking Financial Company and there are 4 NBFCs in India that provide non-collateral/unsecured loans and partially secured loans
- You can get up to 60 lacs for the US, 40 lacs for the UK, 25 lacs for Canada, 20 lacs for Germany, 15 lacs for Australia, Ireland. and can also get up to 30 lacs for some top universities in other countries.
- NBFCs ROI varies with country, for the US- 11-12%, Canada- 12- 13%, others- 12- 14.5%
- NBFCs charge a processing fee of 0.95% to 1.5% on the loan amount.
- The moratorium period is the course term+ 12 months and you will get up to 10 years for repaying the loan amount.
4. Foreign lenders
Foreign lenders like Prodigy finance, leap finance, etc funds in US Dollar not in Rupee. But where a co-applicant is mandatory with Indian lenders for foreign education loan, these USD lenders don't ask for it.
- Students opting for master's in top universities(mostly the US) are eligible to get a loan from these foreign lenders.
- These USD lenders can offer up to 80% of your cost of education.
- The rate of interest is 9-10.5% in USD but this 9% is equivalent to 14% in Indian currency.
Few drawbacks of the USD loan
- Currency fluctuation with INR depreciation (Ex: 1$ was 64 in Jan 2018 and today 1$ is above 70) ultimately you repay way more than what you borrow today
- There are no income tax benefits under section 80E
USD loan from foreign lenders should be the last choice for any Indian student but with no other options, students can proceed with foreign lenders for their foreign education loan.
Mistakes to avoid when taking an education loan for foreign studies
Succinctly we'll heed some of the avoidable mistakes students make while opting for foreign education loan
- Wrong estimation of expenses - This is a very common mistake students make by assuming they'll get a part-time job once they go abroad and will manage their living expenses, so they apply for only half of the total loan requirement. It could be perilous as it is not guaranteed that students will get part-time jobs, like this year so many students couldn't get part-time jobs abroad due to the pandemic.
One misconception many students and parents hold is that they have to pay interest for the sanctioned loan amount but you only have to pay interest on the disbursed amount, not the sanctioned amount.
- Last-minute rush - Students make mistakes by not starting their loan process on time, and when the deadline arrives, they panic and accept offers by private lenders at much higher interest rates. A difference of even 0.5 % in interest rates can make a huge difference in the future. You can apply early via WeMakeScholars as we can speed up the loan process by effectively coordinating with the bank's loan processing department
- Relying on just one lender - It could be very risky to just stick with one lender for foreign education loan. What if for some reason the lender rejects the application at the last moment. It is important to check with multiple lenders in order to get the best deal. So when you apply via WeMakeScholars, we connect you with multiple lenders as backup options and assist you with the entire loan process.
Note: WeMakeScholars is an organization funded and supported by the Government of India that focuses on International Education finance. We are associated with 10+ public/Pvt banks/ NBFCs in India and help you get the best abroad education loan matching your profile. As this initiative is under the Digital India campaign, it's free of cost. The organization has vast experience dealing with students going to various abroad education destinations like the US, Canada, UK, Australia, Germany, Sweden, Italy, China, France among others.