Personal Loans to Finance Higher Education Abroad: Good or Bad?
Pursuing a higher education course outside of India is not a cheap affair. Hence, a lot of students seek out reliable options to finance higher education abroad. An education loan is considered by many to be one of the reliable sources of higher education funding. However, one of the biggest flaws of the entire education loan process is the fact that it takes students have to wait longer to get their education loans sanctioned from the respective banks.
As personal loans are granted quickly, students who are in immediate requirement of higher education funding, often borrow them. This article aims to elaborate the different ways in which an education loan benefits students who wish to study abroad and how personal loans are not a viable option of higher education funding.
This topic is at the center of discussion of the latest episode of Loanflix Inshorts, which is given below.
Some Alternate Ways To Finance Higher Education & Why People Turn To Them
If you have spoken to students about their experience of borrowing an education loan for their higher education funding, you will come across many who say that getting banks to sanction education loans within a short period of time is a task that is easier said than done. Before we go ahead with elaborating why students tend to opt for alternate ways to finance higher education, here is a brief explanation about the two important categories of education loans provided within India.
In India, education loans are categorized into secured and unsecured loans based on the need of collateral security. This is similar to how personal loans are divided into two similar categories. Now, secured education loans are granted by prominent government banks in India, like the SBI, the Bank of Baroda, the PNB, etc. Whereas, unsecured education loans are provided by private banks like Axis Bank, ICICI Bank and NBFCs like Incred, Avanse and Auxilo.
When it comes to choosing the right education loan to fund higher education, students and parents often tend to opt for secured education loans provided by government banks because of the numerous benefits they offer. However, the process of obtaining secured education loans can be a long one for all applicants, as it involves the pledging of collateral security with the lending banks. This is what hinders students from choosing secured education loans to finance higher education. When it comes to pledging collateral security, every government bank has set their own set of rules and regulations regarding the type of assets that can be pledged by the borrowers. This is when borrowers come across the biggest hassle in the process to finance higher education. It is at this point that students turn to alternate options like personal loans, gold loans, a home loan extension, a loan on fixed deposit, etc to fund higher education.
There is another point which students, especially those who wish to study in countries like Germany, Canada, Australia and New Zealand need to keep in mind. All of the countries which are mentioned above, require migrant students to deposit a certain amount of money which could either be used towards their tuition fees or living expenses, even before their visa process begins. This disbursement of higher education funding before the visa process is also referred to as the pre-visa disbursement process.
Now, when students approach their respective government bank lenders, a lot of officials, due to their lack of knowledge regarding the respective education loan product, often mislead these students by telling them that it is impossible for them to approve of such disbursements in the absence of a visa, and that they should try borrowing a personal loan instead to finance higher education. This is the second reason why many students end up borrowing personal loans to finance higher education abroad.
Why Choose Education Loans Over Personal Loans To Fund Higher Education?
A personal loan is designed to cover only certain short-term financial needs of individuals. Hence, the terms and conditions of personal loan schemes are designed to cover these expenses. Higher education funding is another ball-game altogether. Education loans offer several benefits to students which are not covered by personal loans. Here are a few of the benefits which are exclusively applicable to the borrowers of abroad education loans.
Education loan moratorium period: When you choose to finance higher education with the help of an education loan, it caters for the fact that students cannot become financially independent soon after completing their education abroad. In order to compensate for this, most secured education loan lenders grant a moratorium period or a loan holiday to their education loan applicants. This moratorium period lasts for the student’s entire course duration. A grace period of six months to a year is granted to students in addition to the moratorium period, so that they get the chance to become employed before their repayment period begins.
Loan Tenure: It is common knowledge that the cost of higher education has been on an increase since the past few years.Hence, students who apply for education loans, especially for their higher education abroad, often tend to apply for amounts which exceed INR 10 Lakhs. This is why the total education loan tenure is longer than a personal loan tenure. Education loans can be repaid within a span of 10 years to 15 years, depending on the lending institution’s policies.
Education loan interest rates: The interest rates of education loans are lesser than those of personal loans. The interest rates of education loans vary depending on the type of education loan. For secured education loans, government banks charge 9% to 10% interest rates and for unsecured education loans, private banks and NBFCs charge 11.5% to 14.9%.
Income Tax Benefit: All education loan applicants get to enjoy a certain amount of income tax exemption, depending on their salary bracket, under Section 80 E of the Income Tax Act. Under the old income tax regime, candidates who have borrowed an education loan to fund their higher studies are eligible for an income tax exemption on their education loan repayment. The percentage of exempted amount depends on the co-applicant’s salary bracket.
Eligibility for Subsidy: The Indian government has introduced a number of education loan interest subsidy schemes for the benefit of the students belonging to certain categories of the society. This exemption can only be availed by eligible students who have borrowed an education loan for higher education abroad from prominent government banks.
All of the above mentioned benefits are applicable only to candidates who borrow education loans to fund their higher studies in India or abroad. If you wish to know further details about the same, do not hesitate to register a callback with the financial team of WeMakeScholars today.
A Comparison of The Loan Terms of Personal Loans Vs Education Loans
The below table will give you a rough comparison of personal loans vs education loans with respect to certain common terms. This will help you get a better idea of funding your education abroad with the help of education loans is a better option as opposed to opting for personal loans.
|Loan Type||Interest Rates||Total Loan Tenure||Total Education Loan Amount||Moratorium Period||Flexible Disbursements||Grace period|
|Education Loans||Secured: 8.5% to 10%Unsecured11.9% to 14.5%||10 years to 15 years||Secured: upto INR 1.5 CrUnsecured: up to INR 50 Lakhs||Yes||Yes||Yes|
|Personal Loans||11.49% to 13%||1 year to 5 years||INR 25 Lakhs||No||No||No|
Why Approach WeMakeScholars For Your Abroad Education Loan Process?
When students directly approach banks for inquiries regarding abroad education loan process, most of them are given only partial information regarding the same. The financial team of WeMakeScholars has sufficient knowledge about the abroad education loan process due to their experience of tackling even the most complicated cases. As a result, close to 3000+ students have benefited from their services. In the abroad education loan process, most students who have planned their higher studies in countries like Germany and Canada are mostly concerned about their pre-visa disbursements from government banks as many of these banks are often not aware of the education loan provisions for these countries and as a result, delay the pre-visa disbursement. When you apply through WeMakeScholars, our financial officers ensure that this does not happen and often try their level best to get such loans sanctioned well in time. So, if you are confused on how to go about the abroad education loan process, do get in touch with our team now.
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