Student Loan For Abroad Studies, Important Points to Remember Before You Apply

A lot of students who plan on pursuing their higher education often tend to opt for an education loan for funding due to the rising costs. A student loan for abroad studies is the ultimate solution to your funding woes if you are looking for one. However, going through the entire process of getting a student loan for abroad studies without complete information can prove to be a real headache. This article aims to give you a complete lowdown of the essential points you need to keep in mind about the different phases of an abroad education loan process.

The process of obtaining a student loan for abroad studies is conducted in three major phases. These phases are:

1. Application processing phase
2. Disbursement
3. Repayment

Each of these phases takes place over a period of time ranging from two weeks to a month, depending on the type of overseas education loan you wish to fund your higher studies with. Before we give you an explanation about the various phases of a student loan for abroad studies, it is crucial to understand the two different types of abroad education loans available in India.

Read about Education loan for abroad: Public banks vs. Private banks/NBFCs

Collateral security is basically some sort of asset that is pledged to the lender by a borrower in order to obtain some kind of loan. Abroad education loans in India are divided into secured loans and unsecured loans, based on the need for this collateral security. In order to obtain a secured education loan to study abroad, applicants are required to pledge collateral security. On the other hand, 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. 

As the name suggests, unsecured education loans are granted without the involvement of any kind of collateral security. Lenders of unsecured education loans always take a good look at the loan applicant’s profile before making a concrete decision to grant the education loan. 

NBFCs and private banks are some of the major providers of unsecured education loans in India. Since these loans do not involve collateral security of any kind, the interest rate of education loans without collateral is higher as compared to those of government bank education loan interest rates. The education loan interest rate charged by private banks and NBFCs varies depending on numerous factors. One of them is the country of study chosen by loan applicants. Here is an overview of the estimated education loan interest rate levied by NBFCs and private banks for the following countries:

1. USA: 11.5% to 12.75%
2. Canada: 12% to 13%
3. Germany, UK, France, Ireland, etc: 13% to 14.5%

Overall, the interest rate of education loans without collateral from NBFCs and private banks may roughly vary between 11.5% to 14.9%. 

As there is no collateral security involved in the non-collateral education loan process, lenders, especially the NBFCs, pay close attention to the universities into which the students have been accepted for an MBBS course. This is why NBFCs and private banks maintain a list of universities and countries which are approved for an education loan by them. In order to know about the complete list, get in touch with the WeMakeScholars financial team at the earliest possible instance. Let us move on to understanding the various points to remember while going through the important phases of an abroad education loan process.

A successful student loan for abroad studies application process involves a thorough understanding of the basic actions involved in it. Your application for a student loan for abroad studies undergoes several steps before it is finally approved for sanction. Before beginning your education loan application process, you need to keep the following points in mind.

• Ensure that there are no breaks in your academic records

Most lenders would take a good look at your academic performance before forwarding your application to the next phase of the application process. If your records show a gap year, provide a letter that contains a  valid explanation regarding the same along with your application form.

• Keep all the Education Loan Documents Handy

When it comes to a student loan for abroad studies, especially from government banks, it is important to go through the education loan documents checklist provided by your lender. Since a secured student loan for abroad studies involves collateral security, pay close attention to the type of documents that apply to your assets. Episode 2 of the Loanflix web series on YouTube will give you a sufficient idea about the various assets that can be pledged as collateral for a government bank education loan. So make it a point to watch it before you proceed with the application.

• Loan Margin

If you are heading to the nearest government bank branch to apply for a student loan for abroad studies, be prepared to hear this term. Loan Margin or margin money is a concept that is applicable only to secured education loans. According to its definition, Margin money refers to a student’s contribution to their total expenditure to study abroad. A student loan for abroad studies from most government banks covers approximately 90% of the total expenses to study abroad. The student is expected to contribute the remaining 10% of the amount. This can be declared in the form of:

1. A scholarship/ grant
2. Fixed deposits
3. Other intangible assets such as a government bond, a life insurance policy, etc.

In order to know more about how Loan Margin plays an important role in your education loan process, watch episode 14 of the Loanflix web series or get in touch with the financial team of WeMakeScholars for a one-on-one analysis of your profile.

• Know the Different Types of Collateral Security Accepted by Your Lender

A government bank education loan process is considered to be complicated due to two factors:

1. The long list of documents
2. Improper knowledge of the different types of collateral security that can be pledged.

One of the biggest misconceptions believed by loan applicants when it comes to a student loan for abroad studies is their knowledge of collateral security. It is crucial to note that all government banks accept three different types of assets as collateral security for secured education loans.

1. Immovable property
2. Liquid assets
3. A third-party’s assets

In order to know more about what can be included in each of the above categories, head over to YouTube and watch episode two of Loanflix, a web series developed by the WeMakeScholars team for your benefit or get in touch with their financial team for more personalized evaluation of your profile for an education loan.

• Check Your Eligibility

Yes, you heard it right! One of the cardinal mistakes committed by first-timers is not researching their eligibility criteria thoroughly. Public lenders and private lenders of student loans for abroad studies have different policies when it comes to education loan eligibility criteria. Watch episodes 39 and 40 of Loanflix to know these criteria in detail.

Please feel free to reach out to the WeMakeScholars team regarding any doubts you may have during your education loan process.

The education loan disbursement is perhaps one of the most awaited phases of the process. Education loan disbursement refers to the release of funds from your lending bank. There are several small factors that play a pivotal role in an education loan disbursement process.

• Living Expenses & Tuition Fees

To all of you who wonder whether your education loan covers your living expenses such as accommodation, food, library fees, etc. here is a tiny fact. Whether you are funding higher studies with the help of a secured education loan or an education loan without collateral, both will help you cover both living expenses, as well as tuition fees. When lenders disburse your education loan, the tuition fees are transferred to your university either directly or through third-party sources. The rules of disbursement followed by government banks for secured education loans and private banks for unsecured education loans are different. In order to understand them, watch episode 28 of the Loanflix web series or get in touch with the WeMakeScholars team for a better understanding of the same.

• The Disbursement Process of Government Banks & Private Lenders are Different

It is very important to note that the process for education loan disbursement followed by both types of financial institutions is different due to several factors, the primary factor being the type of overseas education loan provided by both parties. When you borrow an overseas education loan from government banks, there are certain formalities that you are required to complete before the funds are released. The steps involved in the government bank education loan disbursement process are more as compared to those involved in the process of disbursement of an education loan without collateral. In order to know each of these steps, get in touch with the abroad education loan team of WeMakeScholars. Their services are absolutely free of cost.

Education loan repayment is the last phase of the process of getting a student loan for abroad studies. When you have an idea about the education loan repayment policies of both government banks, as well as private lenders, you can plan the entire process systematically and with a clear understanding. 

• The Concept of a Moratorium Period

A moratorium refers to a gap in tenure. In the education loan process, a moratorium period on loan repayment refers to a loan holiday granted to the applicants before their repayment process begins. 

Now, the major reason why this can be seen as a benefit is that the moratorium period is applicable only in the case of education loans. This provision is not granted for loans of any other nature. This moratorium period generally refers to a certain period in your loan tenure during which you will not be expected to commence your loan repayment. Students can commence their interest payment during this period (this depends on their lender’s policies), however, the EMI payment strictly begins after the moratorium period.

• Education Loan Repayment Policies of Government Banks for Secured Education Loans

Most government banks grant a payment-free moratorium period. That is, candidates who have borrowed their education loans from government banks, need not begin contributing towards their loan repayment till the end of the moratorium period.

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. 

• Education Repayment Policies of NBFCs

NBFCs offer a moratorium period on education loan repayment as government banks do. However, unlike government banks, this period is not payment-free for those who have borrowed unsecured education loans to study abroad. So, ideally, the education loan repayment of unsecured education loans borrowed from prominent NBFCs begins once candidates receive the first disbursement of their education loan.

NBFCs require students to make their interest payments during the moratorium period. The good news is that NBFCs accept partial payments of interest during the moratorium period. Partial payment is when candidates are allowed to partially pay the interest charged during the moratorium period. This means that if you are being charged a monthly interest of Rs.10,000 per month during your moratorium period and you are unable to do so, NBFCs allow you to pay only Rs.4000 to Rs.5000, depending on their policies.

All of the points mentioned above can help you prepare for some of the most crucial points in the abroad education loan process. We hope that the information provided here will help you plan your actions better, hence facilitating an easy process. If you have any doubts regarding the points mentioned above or are stuck at any point in the phases mentioned above, do not hesitate to contact our team.