Abroad Education: Scholarship v/s. Self-funding v/s. Education loans

Funding an abroad education program is not a cheap process. A lot of students stop themselves from even dreaming of going for an abroad education program due to funding issues. This article explores the pros and cons of the three major ways of funding an abroad education program. Before diving into details, Here's a quick revision of the three funding options available in India. We begin by describing the most common method adopted by students, which is "International education Scholarships".

Scholarships in colleges abroad work differently as compared to scholarships in your home country. While looking for scholarships, look out for the following essential points.

• Nature of funding: It is very essential to pay attention to the nature of funding provided by the scholarship program. Students should check whether the concerned scholarship program is fully funded, partially funded, or if they just help fund their tuition fees.
• Course & Intake Period: The other two very important aspects of a scholarship are the course and the intake period. Students should always remember that universities do not accept scholarship applications throughout the year. Hence it is absolutely essential for them to keep checking their university website for scholarship deadlines. Similarly, students must have an idea of which courses they plan to pursue abroad.

What if a student is not eligible for a scholarship? Do they self-finance or do they borrow an education loan? There are many students who cannot afford an abroad education program without a scholarship. In such a case where they are not accepted, education loans are the next viable option for such students.

Read More about Best Study Abroad Scholarships For Indian Students 

Most students generally go for education loans in India. Some do so even though they have the means to fund their higher education abroad, just to avail the benefits of an abroad education loan. Here's how education loans work in India. Education loans are mainly divided into two different categories.

• Secured/ Collateral education loan: A collateral-based education loan is where a student has to place collateral security with their financial institution or the public bank. In India, nationalized banks or public-sector banks are the major providers of secured education loans.
• Unsecured/Non-collateral education loan: An unsecured education loan or an education loan without collateral means that a student does not need to pledge any collateral with the respective financial institutions or banks. Non-Banking Financial Companies or NBFCs are the major providers of unsecured education loans in India.

Self-funding an abroad education is a very good method of avoiding debts as a student. The decision to self-fund your education is a sure-shot way to spend your course in a peaceful,debt-free manner. Let's take a look at how you can successfully fund your way through college.

1. Planning your finances well in advance can help save you from facing a lot of distress in the future. It is extremely essential that you plan well in advance for the financial contingencies that are likely to happen in the duration of your course.
2. Scanning university websites for scholarships and grants that may benefit you is recommended. This way, every financial aspect of your higher education course can be covered. Although scholarships cannot be technically called a method of self-funding, they help students having a weak financial background achieve their dreams.
3. Going for part-time jobs while doing your course is an excellent way to pay for your living expenses. A part-time job will not only contribute to your work-related skillset but also help you with your living expenses.

Self-funding is an amazing way to finish your course with no financial baggage. However, going bankrupt in order to fund your way through an abroad education course is not advised. There are numerous reasons why an education loan is a clear winner when you compare them both.

Despite a myriad of scholarships being offered by a lot of universities abroad, a lot of students who wish to pursue an abroad education course, don’t qualify for them. Such students are left with only two choices, self-funding their higher studies or borrowing an education loan. Every decision regarding the funding of a student’s abroad education needs to be taken carefully. While those who come from financially stronger backgrounds can still consider self-funding, most students are only left with one option-abroad education loans.

Here are a few points on the basis of which one can compare education loans with self-funding. Although self-funding is an excellent option to have an abroad education without any financial baggage, it is not the recommended method of funding your abroad education. Here’s why.

• Easy visa approval:

1. An education loan greatly increases the chances of your visa approval as compared to funding your abroad education by yourself.
2. This is because most visa authorities need to ensure that the source of funding of the visa applicant is reliable and that the flow of funds remains steady. Government banks have proved themselves to be reliable time and again and hence most universities consider applications from student loan candidates on a priority basis.

•  Arranging large funds:

1. Most embassies require students to show that they are capable of funding their course for the entire duration. It is for this reason alone that these embassies ask students to submit documents showing proof of their funds. Self-funding students need to deposit the entire amount in their bank accounts in order to get the relevant documents so that they get their visas without any obstacles from their respective embassies' part. This is not an easy task. When you borrow an education loan, your course fees are disbursed every year or semester from the bank to your university’s account.

• Living expenses:

1. While planning the expenses, it is essential that self-funding students cater to their living expenses which comprise 50% of the student’s total expenses.
2. Many a time, it so happens that candidates fall short of funds to cater for their living expenses. Most of them find a part-time job that helps solve this problem. A part-time job is beneficial to students in the long run.
3. As a student’s living expenses are generally covered under an education loan, they don’t have to look for other sources to cater to this part.

• Arrangement of funds in a short period:

1. In self-funding, many universities ask students to submit proof showing their entire course fees at the beginning of their course itself.
2. Many candidates, without having done sufficient research, face a lot of stress due to this.
3. On the other hand, when a candidate borrows an education loan, the banks disburse the required tuition fee periodically into the student’s university account or into the forex account. Hence, the student can be free of worries about arranging for money in a small amount of time.

• Fluctuation in currency rates:

1. Currency values change on a day-to-day basis. Sometimes, when there is a steep increase in currency values, universities increase the tuition fees accordingly. This change may seem sudden to those who are self-financing their abroad education. Hence, they need to keep up with the fluctuation in currency values that happen from time to time.
2. On the other hand, while borrowing an education loan, most students do not disburse 100% of the loan amount from the bank, all at once. Hence, in such situations, they can still request the bank to release the remaining loan amount to compensate for this.

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

• Govt. Subsidies:

1. The Govt. of India, in cooperation with the Ministry of HR Development, has started many education loan interest subsidy schemes for education loan applicants.
2. The education loan interest subsidy schemes are aimed at students coming from different social communities. For eg., the Padho Pardesh education loan interest subsidy scheme enables students coming from economically backward classes coming from notable minority communities to pursue their dream of an abroad education without having to pay the moratorium period interest amount.
   However, students can only avail themselves of the benefits of such schemes if they borrow an education loan.

• Section 80E:

1. The education loan income-tax exemption under Section 80 E has proved to be a boon to many education loan applicants, especially those who have taken education loans from nationalized banks. Only those who have borrowed education loans from public-sector banks are eligible for this interest subsidy scheme.
2. Since this interest subsidy scheme is not applicable to self-funding students, many of them who had initially decided to fund their abroad education by themselves turned to education loans to avail of this benefit.

• Moratorium period

1. This is the biggest advantage for students borrowing an education loan from government banks.
2. A moratorium period is a loan repayment holiday granted by public sector banks to their loan applicants. This is not applicable to self-funding students.
3. Also, candidates have the option to extend their loan tenure up to 15 years after the course, when they borrow from nationalized banks.

The education loan policies of government banks have proved to be extremely reliable, time and again. Apart from providing time to students to arrange for their education loan repayment amount, they also support numerous subsidy schemes, which helps you save a significant amount of money.

1. In the case of scholarships, universities choose applicants in a very arbitrary way.
2. Getting accepted into a scholarship program that provides full funding for your course is not guaranteed.
3. Many factors may or may not work in your favour while opting for scholarships. Hence, it is always recommended that students should simultaneously apply for an abroad education loan while filling out their scholarship applications.
4. This way, even if they don’t get accepted for a scholarship program, they will always have a Plan B to fund their abroad education.
5. Those who are capable of self-funding their education despite not being accepted into a scholarship program may do so too. However, this is not recommended unless you have planned your finances accordingly.

Financing is a major deciding factor while planning your studies, especially when you decide to study abroad. Not everyone is capable of funding themselves while studying abroad, and not many students are lucky enough to win scholarships that help them navigate their way through a good course. A lot of students have the wrong notion of not borrowing an education loan to avoid debts. Government banks are reliable as they deal with education loans in a very transparent manner. Also, the numerous revisions in education loan policies made by them now ensure that a student goes through his abroad education course without any financial obstacles. This is why borrowing an education loan is your best bet towards achieving your academic goals.