If you're on the lookout for that perfect education loan to fund your higher studies abroad and not sure about the student loan process, then I'm sure you have questions & are confused regarding the same. Your search to understand how an education loan process works ends here! 

We have compiled 5 crucial points to help equip you with some strategies that could help you effectively plan your student loan process. 

Let's begin!

 

1) Choose your lender wisely.

It's critical to have a firm idea of what you'll be dealing with before you begin strategizing your education loan process. Education loans in India are categorized into two based on collateral requirements. Here's a quick rundown of the two types of education loans and what you can expect from them.

a. Secured Education Loans:

Secured education loans are granted based on collateral security. As the lenders are government-funded financial institutions, the trustworthiness of secured education loans outweighs those of unsecured education loans in India. One of the eligibility criteria to borrow a secured education loan for abroad studies is the availability of collateral security.

A few of the many features of Secured education loans are as follows:

    • Get lower interest rates
    • Payment-free moratorium period on education loan repayment.
    • Education loan repayment tenure granted to students is of 15 years.
    • The processing fees of government bank education loans do not exceed INR 10,000 + GST.

b. Unsecured Education Loans:

Unsecured education loans are granted without the involvement of any collateral security. Lenders of unsecured education loans always take a good look at the applicants & co-applicants profiles before making a concrete decision to grant the education loan. NBFCs and private banks are some of India's significant providers of unsecured education loans. Since these loans do not involve collateral security of any kind, the interest rate of an unsecured education loan is higher when compared to the latter.

A few of the many features of Unsecured education loans are as follows:

    • Since these loans do not involve collateral security, the interest rate is higher than those of government banks.
    • The education loan interest rate charged by private banks and NBFCs varies depending on numerous factors. 
    • As there is no collateral security involved in the Unsecured loan process, lenders pay close attention to the universities the students have been accepted into. 
    • NBFCs and private banks maintain a list of universities and countries which are approved for an education loan by them.

The details mentioned above may have given you a fair idea about the two different categories of abroad education loans provided by the lenders in India. We have covered the eligibility criteria in detail in our previous article titled Education loan eligibility in India 2022-23.

2) List down your expenses.

This is one of the first steps you need to take if you plan to begin your student loan process soon. The expenses of studying abroad consist of two major components - tuition fees and other living expenses. While listing down the expenses, candidates are also encouraged to add any grant or scholarship that they may have been awarded. It will help you estimate how much you may need as an education loan. By noting your expenses, you get a thorough understanding of the actual education loan amount that you may need from any particular lender.

So, to summarize, before beginning your student loan process, it is vital to make a note of the total expenses which may consist of the following:

    • Tuition fees
    • Living expenses which may consist of
    • Accommodation
    • Travel, which covers the cost of an air ticket from the candidate's native country to that of their studies.
    • Food
    • Caution deposit of any kind
    • Books
    • A Laptop
    • Library fees, etc.

3) Know Your Education Loan Interest Rates.

Education loan interest rate is one of the top factors that help many higher education aspirants decide which education loan scheme they should opt for. Interest rates play a significant role in the student loan process. Hence, if you plan on funding your education abroad with the help of an education loan, it is crucial to have a thorough understanding of the interest rates at which these education loans are being granted.

The education loan interest rates of lenders depend on the type of loan granted by them. Most government banks' education loan interest rates go up to 9%, and private lenders, on the other hand, charge up to 13.5%. 

We have covered detailed information on the comparison of education loan interest rates in our previous article. 

4) Know the banks' education loan repayment policies/tenure.

The repayment of education loans is an essential aspect of the student loan process. Before you borrow money from someone, what is the first thing that crosses your mind? Right, how would you return it! Every borrower is concerned about repaying an education debt. However, being well-informed about the education loan repayment procedure might help make a structured payback plan.

Next, we'll look at the policies of both government and private lenders when it comes to education loan repayment.

a. Loan repayment process of Government Banks:

Due to the flexible repayment terms of governments, it's the first choice of most students who wish to opt for an education loan. 

There are three essential phases regarding the same that you need to know:

    • Most government banks grant a payment-free moratorium period, i.e. repayment holiday, where students are not required to repay anything to the banks.
    • The moratorium period generally consists of the course duration plus six to twelve months after the course (this clause is dependent on your lending bank's policies)
    • The interest for this period is calculated on a simple interest basis by government banks. The EMI payment is expected to begin at the end of this time in the loan tenure.

Almost all government banks grant an education loan repayment period of 12 years to 15 years from the end of your moratorium period. This tenure starts once your loan repayment holiday gets over.

b. Loan repayment process of Private Banks:

Despite having advantages like lesser processing time & no loan margin, the con of paying full simple interest during the moratorium period gets in the way of students wanting an unsecured loan.

There are two critical phases regarding the same that you need to know of :

    • The private banks grant a moratorium period of course duration + 6 months where the students are required to pay full simple interest from the moment they take their first disbursement.
    • These banks grant up to 10 years of repayment time to the applicants.

c. Loan Repayment Process of NBFC's:

NBFCs offer a moratorium period on education loan repayment like government banks do. However, unlike government banks, this period is not payment-free for those who have borrowed unsecured education loans.

There are two essential phases regarding the same that you need to know:

  • NBFCs require students to make their interest payments during the moratorium period. The good news is that NBFCs accept partial interest payments during the moratorium period.
  • If you are being charged a monthly interest of Rs.10,000 per month during your moratorium period and cannot do so, NBFCs allow you to pay only Rs.4000 to Rs.5000, depending on their policies.
  • Depending on your profile, NBFCs may even ask for full interest payment during the moratorium period. This clause is entirely up to their education loan repayment rules.

5)  Create An Amortization Schedule.

An amortization schedule calculator, often known as a loan calculator, allows you to estimate your monthly loan repayments. It also decides how much of your monthly payments will be applied to the principle and how much will be applied to interest. Thanks to technology, most education loan candidates can plan their education loan repayment more systematically.

Several lenders have developed their own education loan EMI calculator to help students plan their student loan process effectively and efficiently. The education loan EMI calculator can estimate how much interest you may have to pay during your repayment period.

Conclusion:

An education loan is one of the highly sought after sources of funding, especially by aspirants who wish to study abroad. One of the major problems students and their parents face is that most of them are not equipped with sufficient knowledge about how the student loan process is carried out in India. As a result, it is easy for them to be confused about many things in the various phases of the student loan process.

We hope our effort to bring you a few insights on how you can efficiently plan your education loan helps you in as many ways as possible!

With this point, we've come to the end of this article. If you still have doubts regarding your student loan process, get in touch with our financial team at WeMakeScholars.