Education Loan in India: International Lenders Vs Indian Lenders

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education loan in IndiaFunding is one of the major concerns of many students who wish to study abroad. The process of borrowing an education loan in India has become all the more complicated due to the various education loan policies of education loan lenders in India. With the advent of international lenders like Prodigy Finance and MPower Finance in India, a lot of students often face the dilemma of who they should choose for an education loan in India. This article lists all of the reasons why borrowing an education loan in India can be a major benefit for Indian students who wish to study abroad.

The comparison between the education loan details of Indian lenders and international lenders will be explained in terms of factors which play an important role in determining the reliability, as well as the quality of services rendered by any education loan lender. However, before we begin with the education loan details, let us try to understand the basic nature of education loan in India.

Types of Education Loan in India

There are three major types of lenders who grant education loan in India. Government banks, NBFCs/Private banks and international education loan lenders. Education loan in India provided by government banks is secured in nature. This means that such education loans are provided on the basis of tangible collateral security only.

The education loans provided by NBFCs, private banks and international lenders like Prodigy Finance and MPower Finance are unsecured in nature. This means that these loans do not involve the pledging of any collateral security. Despite the fact that both Indian NBFCs, as well as international NBFCs, grant unsecured education loans to students, the policies adopted by both lenders are different as they are based on different principles. Let us take a look at the different factors which play a crucial role in determining the education loan details of each of these lenders. 

abroad education loan

Education Loan For Abroad Studies Interest Rate

Education loan for abroad studies interest rate plays a major role in the process of getting an education loan in India. Most students who avail of an abroad education loan in India, often consider only the education loan interest rate before deciding on a lender. 

 

Education Loan Interest Rate of International Lenders

The education loan interest rates of international lenders like Prodigy Finance and MPower Finance are calculated on the basis of benchmark rates called LIBOR (London Inter-Bank Offered Rate).

The LIBOR is an average value of the interest rates submitted by different banks and NBFCs located globally. The below table shows the progress in LIBOR interest rates, and you may observe that it is increasing very fast. The table will help you get a clear understanding of the fluctuation in their rates in recent years. LIBOR is expected to increase by 1% in the next 2 yrs.

LIBOR (USD)
Year LIBOR rate
2014 0.5%
2018 2.3%
2019 2.8% (now)
2021* 3.8% (forecast)

 

The interest rates offered by these international lenders for education loans to study abroad fall in the range of 9% to 10.5%. 

 

Education Loan Interest Rate of Indian Lenders

Education Loan Interest Rate of Education Loans in India: The education loan interest rates in India are calculated on the basis of the MCLR (Marginal Cost of Funds Based Lending Rate) which is the Indian counterpart of LIBOR. The MCLR is determined on the basis of the base lending rates of the RBI which is the main institution that governs all the financial institutions in India.

MCLR (INR)
Year MCLR rate
2011 8%
2019 8.55% (now)
2021* 8.67% (forecast)

 

In the table above, you may observe that the increase in MCLR  over a period of almost a decade is only 0.55%. And the MCLR is expected to go up by only 0.12% in the next couple of years. 

The education loan interest rate offered by government banks for secured education loans lies between 8% to 10% p.a. And those offered by NBFCs lies between 11.9% to 14.5%. Although the interest rates offered by Indian NBFCs may seem high, the interest amount is relatively less as compared to that charged by international lenders.

The Concept of Interest Rate Parity

The very first important factor which should be considered while deciding between Indian lenders and International lenders is interest rate parity.

It is important to note that the education loan terms of international lenders are decided on the basis of the USD while those of Indian lenders are determined on the basis of the Indian rupee. The difference in values of both currencies affects the education loan interest rates offered by both types of lenders.

So, when Prodigy Finance offers abroad education loans at 10% p.a. When you compare it in terms of the INR, the total interest amount can be calculated to 15% p.a. This difference in interest rate is the result of the huge difference in values of both the currencies.

 

Education Loan Processing Fees

It is common knowledge that the higher education loan process is not a cheap affair. Hence it is very important to take note of the processing fees charged by lenders of education loan in India. Again, the processing fees charged by international lenders is in terms of USD and Indian lenders charge processing fees in terms of the INR. 

International lenders like Prodigy Finance and MPower Finance charge 2.5% to 5% of the total education loan as processing fees. When translated in terms of the INR, the amount is much more higher due to the difference in values of the amount.

Processing fees of government banks for education loan in India: INR 10,000 (fixed) + Other charges applicable to extra services

Processing fees of NBFCs & Private Banks: 0.9% to 2% of the entire education loan amount. These figures may seem to be slightly on the higher side in comparison to the processing fees charged by government banks. However, the amount charged by Indian lenders, whether private o  

Total Loan Amount Granted To Students

Indian Lenders:

The maximum education loan amount in India is INR 1.5 Cr. which is granted by SBI, which is one of the prominent government banks which lends education loan in India. NBFCs and private banks can grant unsecured education loans amounting to INR 50 Lakhs as education loan in India for study abroad.

International Lenders:

When it comes to the final loan amount offered by international lenders, Prodigy Finance only provides the loan amount which can cover the deignated expenses of the first year. The education loan for the remaining course period is only granted once students successfully complete their first year. So, the final education loan amount granted by Prodigy Finance is, in short, dependent on the basis of candidates’ performance in the first year of their course. MPower Finance offers a maximum education loan of USD 25,000 education loan to students who are enrolled for courses in prestigious universities in the USA only.

 

Education Loan Repayment Policies

The education loan repayment policies of International student loan lenders are more or less similar to those of Indian NBFCs and private banks. Students who borrow their loans from international lenders are expected to begin their education loan interest payment from the very next month which follows their first disbursement.

However, unlike international lenders, Indian lenders grant a moratorium period for students who have borrowed their abroad education loan in India. The moratorium period is basically a repayment holiday which is granted to students before the EMI payment period begins. This holiday period includes the loan applicant’s entire course period, plus six months post that. Government banks in India grant a payment-free moratorium period to students availing an education loan in India for study abroad from them. Although Indian NBFCs do not grant the same, students are allowed to make a partial payment of the education loan interest amount during this moratorium period for unsecured education loans.

Read about the Education Loan Repayment: Process- Steps to know

 

Education Loan Income Tax Exemption & Other Benefits

This is one of the other major factors which encourages students to borrow an education loan in India for study abroad courses. The government of India has introduced numerous benefits for students who plan to study with the help of an education loan in India for study abroad courses. One of these benefits includes the provision for education loan applicants to claim an exemption on the income tax deduction on education loan interest rates under Section 80 E of the Income Tax Act. Only students who borrow an education loan in India are allowed to avail of this provision.

The details of this provision are explained in the 15th episode of the Loanflix web-series. So, do make it a point to watch this episode.

Similarly, students who have borrowed an education loan in India for study abroad are eligible to claim a subsidy on their education loan interest under certain subsidy schemes introduced by the government of India. You can learn all about checking your education loan subsidy status by watching the 16th episode of the Loanflix web-series. Students who borrow their education loans from international lenders are not deemed to be eligible for any of these benefits.

Education Loan Eligibility Criteria For Co-Applicants

One of the biggest factors that motivate students to opt for international lenders is the fact that they provide education loans without the need of a co-applicant. Although Indian lenders require loan applicants to name a co-borrower/co-obligator/co-applicant for education loans, the eligibility criteria for education loan co-applicants,set by Indian lenders are quite flexible. 

In fact, government banks also accept retired professionals, individuals in the farming industry or even those who do not have a fixed income, as primary co-applicants for secured education loans. The education loan eligibility criteria set by Indian lenders for co-applicants is clearly explained in the 39th episode of Loanflix, Season 1.

Also Read about Eligibility for Education Loan: Criteria for Loan Applicants

Need for Collateral

Government student loans in India are solely provided on the basis of tangible collateral security. However, did you know that candidates are also allowed to pledge a third-party’s assets as collateral security for government student loans from prominent banks? 

Even if you eventually hope to borrow a non-collateral education loan, unsecured education loans offered by NBFCs and private banks are the better choice as compared to the education loan terms of International lenders.

In conclusion, it can be said that although the offer of borrowing an abroad education loan from international lenders without naming a co-applicant might seem like a viable option, the reality is different. Despite the shortcomings of the system, the abroad education loans granted by Indian lenders can prove to be way more beneficial in a lot of ways in the long run. The 10th episode of Loanflix discusses this very topic in two different parts. Part 1 of the 10th episode explains some of the basic terms of Indian lenders and International lenders and part 2 discusses the concept of interest rate parity on a deeper level. So do not miss on watching these videos before you begin your abroad education loan process.

A brief comparison of the education loan terms of international lenders and Indian lenders is given in the table below. 

Education Loan Terms International Lenders Indian Public banks Indian Private Banks & NBFCs
Abroad Education Loan Interest Rate 9% to 10.5% p.a 8% to 10% p.a 11.9% to 14.5%
Education Loan Currency USD INR INR
Processing Fees MPower Finance: 5% of loan amountProdigy Finance: 2.5% of Loan amount Max: INR 10,000Min: 0 1% to 1.25% of total loan amount
Repayment  Begins immediately after the first disbursement Begins post moratorium period Partial interest/full interest to be paid in EMI during the moratorium period
Income Tax Benefits under Section 80 E NO Yes Yes
Requirement of Collateral No Yes Yes
Eligible Courses Not applicable to courses of 2+ years duration. Education loan granted only for MBA courses in Europe and MS courses in US & Canada.UG courses are not covered by these loans. Any course, any country Primarily MS/MBA courses in select countries

In conclusion, it can be said that although the offer of borrowing an abroad education loan from international lenders without naming a co-applicant might seem like a viable option, the reality is different. Despite the shortcomings of the system, the abroad education loans granted by Indian lenders can prove to be way more beneficial in a lot of ways in the long run. The 10th episode of Loanflix discusses this very topic in two different parts. Part 1 of the 10th episode explains some of the basic terms of Indian lenders and International lenders and part 2 discusses the concept of interest rate parity on a deeper level. So do not miss on watching these videos before you begin your abroad education loan process.

Why Approach WeMakeScholars For Your Education Loan Process?

When students directly approach banks for enquiries 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 benefitted 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

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Bibliophile, wanderer, major foodie. I write too :)

 

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