How to Get an Educational Loan in India For NRI Applicants
There are many ways to fund higher education abroad. Despite there being multiple sources which help finance a higher education course abroad or in India, many students often turn to an educational loan. This is because an educational loan offers a lot of advantages to higher education aspirants who wish to study abroad. One of the biggest plus points of borrowing a student loan to fund higher studies is the fact that students can expect a systematic flow of funds during their course of study.
Most of the articles in this blog address various aspects of a typical educational loan process. Many of the articles posted here highlight the pros and cons of the entire educational loan system from the perspective of applicants who reside within India. For example, episode 5 of Loanflix Inshorts shed light on the various eligibility criteria which the co-applicants of NRI students are required to fulfil in order to be considered as eligible to apply for educational loans in India. This article will give you an account of how even NRI students are allowed to borrow educational loans from Indian lenders.
Types of Abroad Educational Loans in India
Before proceeding to understand the procedure of applying for educational loans in India, it is essential to get to know how an educational loan is categorized. The process of applying for one varies according to the type of educational loan chosen by applicants. An educational loan in India is categorized into two different types depending on the need of collateral security. Collateral security essentially refers to different types of assets which are pledged by borrowers to lenders against any type of loans. When it comes to student loans, they are classified as secured educational loan and unsecured educational loan. The following paragraphs will give you a deeper understanding of both categories of educational loans.
Secured Educational Loan/ Government Student Loans
As mentioned in the previous paragraph, borrowers may or may not be required to pledge collateral with their respective lenders in order to secure an educational loan. Government student loans or secured educational loans are lent on the basis of collateral security.
Prominent government banks in India accept immovable property and liquid security as collateral against an educational loan. A flat, non-agricultural land, a non-commercial house, a plot with defined boundaries, etc. are some forms of immovable property accepted by well-known government banks in India. Liquid security includes intangible assets such as fixed deposits, life insurance policies, government bonds, etc.
Certain government banks also accept assets belonging to someone other than the borrower as collateral security. This category of collateral security is often referred to as third-party collateral security. However, this provision is only applicable to borrowers who do not possess any assets of their own and are unable to arrange for one at the time of applying for a government student loan in India.
Despite all of the above conditions, government student loans are one of the most preferred sources of an educational loan for many students in India. Since the loan providers are directly governed by the RBI which is an institution that governs all of the financial institutions in India, many borrowers often consider collateral-based education loans from banks to be more reliable sources of funding. Apart from reliability, flexibility in their policies and low-cost terms are also some of the reasons why a government student loan is a famous choice of higher education funding among applicants in India and Indians living abroad. Some of the major highlights of a typical government student loan scheme are as follows:
- The education loan interest rates offered by some of the government banks which are considered to be the best bank in India for an education loan, do not go beyond 10%.
- One of the best parts about a typical government bank student loan scheme is that the education loan interest rates do not change at the time of education loan repayment.
- Due to the nature of their funding, government banks have fixed an amount as processing fees for secured education loans. All government banks have a fixed processing charge of INR 10,000 for education loans provided by them. All government banks charge a certain fee for the legal and monetary evaluation of the collateral pledged by loan applicants. However, even with the additional charges in the picture, the maximum amount charged as processing fees for government student loans does not go beyond INR 18,000.
- One of the biggest plus points of the repayment policies of government bank education loans is the feature of a payment-free moratorium period. A moratorium period essentially refers to a loan holiday before the repayment tenure begins. During this time period, students are not expected to begin their education loan repayment for their entire course duration, plus six months post the course.
- Government banks allow students to name individuals who are retired, those in the farming industry, etc. as co-applicants. As an alternative, the education loan eligibility criteria for co-applicants in government banks allow students to name a third-party (someone other than the prescribed list of primary co-applicants) with a decent income status, as financial co-applicants.
- The government of India had introduced three very important education loan interest subsidy schemes which allow students belonging to certain communities to claim an exemption on their education loan interest payment. The terms and conditions to avail this provision is different for each of these education loan interest subsidy schemes.
The education loan subsidy 2020 is applicable to the following schemes:
- The Central Sector Interest Subsidy Scheme (CSIS)
- The Padho Pardesh Scheme of Interest Subsidy for Abroad Education Loans
- The Dr Ambedkar Central Scheme of Interest subsidy on education loans for Other Backward Classes and Economically Backward classes
Each one of the above education loan subsidy 2020 schemes is aimed to enable students who belong to various sections of the society, a chance to fund their higher education in India as well as abroad with a government bank education loan.
Unsecured Education Loans/NBFC Education Loan
As their name goes, unsecured education loans are basically education loans which are provided by private lenders without the need of any collateral security. An unsecured education loan to study abroad does not require applicants to pledge anything. In fact, students have a tougher time trying to secure unsecured education loans, as these loans are granted on the basis of a student’s academic profile and their co-applicant’s financial profile. In India, such unsecured education loans for abroad studies are provided by Non-Banking Finance Companies (NBFCs) and private banks such as the Axis Bank, ICICI Bank, etc.
Since unsecured education loans are not based on the pledging of collateral security, the lenders pay close attention to factors such as the global ranking of the universities into which the applicants have been accepted, the overall financial capability of their co-applicants to repay their education loan, etc.
An important factor to be considered here is the fact that most lenders of an education loan without collateral do not lend education loans to study abroad when approached directly, as it is not present on their list of eligible countries for an abroad education loan without collateral. Students who had applied for an education loan without collateral through WeMakeScholars, however, did not face this problem.
Some of the other features of unsecured education loans in India are as follows:
- Interest rates fall in the range of 11.9% to 14.5%.
- Most lenders of an unsecured educational loan in India charge 0.9% to 2% of the entire education loan amount as processing fees.
- The maximum education loan which can be secured by students amounts to INR 50 Lakhs.
- The total repayment tenure granted to borrowers by the lenders is 10 years.
- Private lenders do grant a moratorium period. However, this time is not payment-free for students. Candidates are expected to begin the repayment within one month of availing their first disbursement.
- Students are eligible to avail an income-tax exemption on their education loan interest rate. However, this is only applicable to those who opt to pay their taxes under the old regime.
Now that you have understood the basics of education loans, let us move on to understanding the education loan process for NRI students.
How to Get an Educational Loan For NRI Students
There are several reasons why Indian citizens who reside abroad or NRIs (Non Resident Indian), as they are more commonly known, opt to fund their higher education with the help of an educational loan from Indian lenders. One of the primary reasons behind this is that the education loan policies of Indian lenders are feasible as compared to those of international lenders. The student loan policies of most international lenders are implemented by keeping international practices in mind. Besides, the difference in the values of the currencies of the countries abroad and that of India also plays an important factor behind students choosing to go with Indian lenders.
A co-applicant is an integral part of the process of applying for an educational loan. So, when NRIs apply for an educational loan, it is important to fully understand the numerous criteria which their co-applicants are expected to fulfil. Let us take a look at them.
The education loan co applicant requirements stated by the lenders of both secured education loans, as well as education loan without collateral seldom clarify anything about naming NRIs as co applicants. Hence, a lot of students who had their parents working abroad would turn up to the WeMakeScholars team for help with their education loan application. Sometimes it would so happen that entire families that resided abroad would approach our team to apply for an education loan in India. However, as the education loan co applicant requirements of the lenders did not have any provision to cater for an NRI co applicant, getting such education loan applications sanctioned by the respective lenders would become a huge task.
NRI Education Loan Co applicant Requirements
After several discussions with our associate banks as well as NBFCs, it was concluded that NRIs could be named as education loan co applicants for abroad education loans in India, provided they hand over their signatory rights to a power of attorney. Finally, lenders did make a provision in the education loan co applicant requirements terms, thus making it possible for an NRI to become an education loan co applicant.
Once declared a power of attorney, the individual who has been given the responsibility is expected to provide all the necessary documents to the bank, as and when required. A power of attorney also has the power to sign on behalf of the education loan co applicant. If the students themselves are NRIs, a power of attorney has the obligation to sign on behalf of such students as well.
If you are looking to name an NRI as your education loan co applicant, do get in touch with the WeMakeScholars team for a quicker education loan process.
Different possible situations involving an NRI education loan co applicant
Now that lenders had relaxed their terms regarding the education loan co applicant requirements, students found it easier to get abroad education loans in India. However, while handing over the Power of Attorney, students are expected to follow a certain protocol. Now, there are two major situations in which students have approached our team for abroad education loans. The protocol to apply for a Power of Attorney is different for each of these scenarios.
Situation 1: Student, as well as the education loan co-applicant, is set to leave to go abroad and the abroad education loan is not getting sanctioned any time soon.
This is one of the most common scenarios faced by most education loan applicants. It is because a lot of students or their parents who are NRIs, often commit the mistake of underestimating the processing time of lenders in India. The education loan sanction process in India, especially that of government banks sometimes takes over a month. NRI families who visit India for the purpose of applying for an abroad education loan, often come for a limited period of time and expect the process to be over by the time they are set to go. In such cases where it is too late to hand over the power of attorney, the wiser thing to do is to either postpone the trip and complete all the formalities or transfer the power of attorney to a friend or a family member at the earliest opportunity.
When you apply through WeMakeScholars, you can rest assured that the education loan sanction process will not go beyond a period of more than 12 days.
Situation 2: The student seeking the education loan or his/her co applicant is already abroad and requires an abroad education loan immediately.
In the above situation, when students or their education loan co applicants are unable to physically visit India to complete the education loan formalities, it is possible to hand over the Power of Attorney through the Indian embassy.
It is necessary to remember that the format of the documentation to hand over the Power of attorney is different for each of the above-mentioned situations. In order to know further about the education loan co applicant requirements for NRIs and to know the format of the documentation for a power of attorney, get in touch with the WeMakeScholars team.
How to Get Education Loan Easily?
Getting an education loan has become convenient for borrowers as many lenders accept applications for a student loan online. However, once they have completed some of the preliminary formalities for applying for a student loan online, students are expected to visit their respective bank branches for further processing. When you apply through WeMakeScholars, the entire dilemma of how to get education loan easily is solved, as students can save on their visit to the bank branch and also eliminate the requirement of having to personally meet bank officials to ensure that their education loan will be processed in the right time.
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 at 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