✓ Is Self-Financing Better Than Education Loan?
✓ Is Collateral Compulsory for Education Loans?
“Sometimes, a myth is just a misspoken fact. Other times, a myth is simply guessing.”
We have all been taken in, at some point or another, by a myth. This article has mainly to do with the fact that despite the many benefits of financing abroad higher studies with an overseas education loan, certain myths make the concept of borrowing an education loan for the same, a scary process.
Fortunately, we're here to help you by debunking many of the below-mentioned myths once and for all! Let’s get into it.
It's all too reasonable to believe that a student pursuing a degree abroad must come from an affluent family. In fact, the majority of the population still thinks that only rich families can afford to send their children overseas to study.
THE TRUTH: No, being rich is not one of the requirements!
The cost associated with education abroad made this myth more reasonable as this was true a decade ago. But now things are changing, students can now apply for scholarships and various education loan schemes provided by various loan lenders.
Government banks also have education loan interest subsidy schemes for students coming from financially weaker households. At the end of the day, prime importance is given to a student's caliber and not their economical status.
The thought that self-financing is better than taking an education loan is mostly prevalent among wealthy families as they do not wish to visit the banks, arrange the documents and wait for the loan to sanction wherein they can arrange all the funds themself.
THE TRUTH: Opting for education loans provides more benefits than you think.
Abroad education loan has many benefits, one of the prominent ones being the education loan income tax exemption, stated in Section 80E of the Income-Tax Act of 1961. Under this section, a certain percentage of the interest paid towards your education loan can be claimed while filing ITR.
You will also have to pay much less if opted for an education loan as per TCS on foreign remittances, and the whole amount of TCS can be claimed back. Because of all these, many students who could self-fund their higher education also started borrowing education loans to avail of this interest subsidy.
As people frequently hear that any loan, such as a home loan or a car loan, requires collateral as security, we then generalized it to education loans spreading the message that having collateral is compulsory for education loans.
THE TRUTH: Having collateral isn't important.
Education loans indeed involve collateral security. However, this does not always have to be the case. In the abroad student loan process, education loans are categorized into two different types based on the requirement of collateral – Secured loans (Which require collateral) & Unsecured Loans (Which do not require collateral).
An unsecured education loan is an education loan without collateral. These kinds of loans are mainly lent by private banks and NBFCs (Non-Banking Finance Companies). Government banks lend unsecured education loans of up to Rs.7.5 Lakhs too, whereas Private banks and NBFCs can offer up to 60 lakhs unsecured.
Read More: Is it necessary to put collateral security for education loans?
The entire abroad student loan process for both types of education loans has been described in great detail in previous blogs as well as the LoanFlix playlist on YouTube.
At first glance, it seems that taking an unsecured loan is better because they don't have to pledge any collateral, it's less time taking, and requires less paperwork.
THE TRUTH: In comparison, secured loans are always better than unsecured loans.
Unsecured education loans are usually lent by private banks and NBFCs. The ROI(Rate of Interest) that they charge goes up to a maximum of 13.5%, whereas the ROI of public banks goes up to a maximum of 9%. Not only the ROI, but the private banks also have a designated list of universities only for which they provide education loans.
If you opt for a secured education loan from a government bank, you can get a larger loan amount at a lower ROI with additional benefits like a payment-free moratorium period, a longer repayment period, and much more.
Don't get us wrong, an unsecured education loan is by no means a bad deal, it's simply that secured education loans are better in comparison.
This myth makes its place on the list due to a lack of knowledge. People think only home and land can be pledged as collateral because they do not know liquid securities ( FDs, Insurance policies, and Govt. Bonds) can also be used.
THE TRUTH: Both Immovable properties and liquid securities are accepted as collateral.
Immovable property is just one among many things you can put as security for a collateral loan. There are 7 types of collateral security that an applicant can use while opting for the loan.
House/ Plot (with boundaries)
It is one of the myths that most students along with their parents assume to be true. They think since the house is pledged with a bank for an education loan, the bank holds the right to ask them any time to leave.
THE TRUTH: The bank keeps only the property papers, not the physical property.
Please note that, when collateral is pledged by the applicant, the bank does take the property documents into their possession, but they can not ask you to vacate the property. However, you are not supposed/allowed to make any kind of alterations to the property.
The bank has the right to take away the property only if the student fails to repay the loan amount within the repayment deadline. But don't worry, you get an ample amount of time and chances before actually the bank confiscates and auctions the collateral.
Many students are still under the impression that education loans only cover their tuition fees abroad and they are supposed to arrange funds for their living expenses themself.
THE TRUTH: An education loan can cover all the expenses related to your education!
When lenders calculate how much your loan requirement is, they also calculate your living expenses abroad, travel tickets, laptop, books cost, etc along with the tuition fee. In short, expenses covered in education loans include all the expenses students require during their course duration abroad.
Generally, all the applicants have this misconception that taking an education loan means they can borrow as much money as they need from the bank. Please note that it doesn't work that way. There are certain regulations that the banks evaluate to sanction a particular amount of money to the student.
THE TRUTH: The loan is sanctioned based on various factors.
The banks ask for your tuition fees as shown in the offer letter, and also consider the living expenses released by the embassy of that particular country along with any other miscellaneous expenses and then decide the sanctioned amount that will be ideal for you to complete your studies in the stipulated time.
In the case of public banks, the sanctioned amount depends on the value of the collateral, and in the case of private banks and lenders, it depends on eligibility criteria set by lenders for unsecured education loans.
Well, this statement is partially true in the case of private lenders like private banks and NBFCs. However, it is not true in the case of Government banks.
THE TRUTH: Repayment of loan does not begin until the moratorium period ends!
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. (course duration + 6 to12 months)
Whereas in the case of private lenders, the student/co-applicant needs to start paying the interest during the moratorium period itself, but not the EMIs (Rarely do private lenders ask for EMIs payment right after the first disbursement).
Due to this myth, many students have avoided taking an education loan for their abroad studies as they thought the decided ROI by the banks is supposed to be paid every month.
THE TRUTH: The ROI decided by banks is a yearly interest, not monthly.
Yes, you read it right! It is calculated on a yearly basis. For example, if you get a sanction of 25 Lakhs from any bank with an ROI of 10%, then 10% of 25 lakhs has to be paid yearly till the loan is repaid.
The amount will need to be paid monthly as EMIs, but the ROI is calculated on a per-annum basis.
Many students do not want a larger loan amount to be sanctioned even though they need the money. These are those students who think they'll take up a part-time job abroad and so do not require the amount. They think since they will not use the sanctioned amount, they will still be required to pay interest on the entire sanctioned amount.
THE TRUTH: ROI and repayment have to be done only on the amount disbursed/used.
The sanctioned amount is merely a conclusion of how much money you would require to fund your studies abroad. You aren't required to pay the decided ROI on the whole sanction amount. Consider it as a credit card limit, you pay back only how much you take.
For example: If you've gotten a sanction of 20 lakhs, and by the end of your course, you've used only 10 lakhs, then you're liable to repay only the 10 lakhs after the moratorium period ends.
This is yet another illogical myth that most students and parents believe.
THE TRUTH: If you are eligible, you can take both scholarships and an education loan together.
We have a lot of such students who have approached WeMakeScholars for an education loan after getting a scholarship and have got their loans sanctioned. So yes, this is a mere myth.
As human beings, we tend to remember negative news more than positive ones. There are far more students who have better handled their finances and been able to repay their loans on time. But by hearing about a few students who fail to repay their loans, many people assumed education loan repayment to be a burden.
THE TRUTH: Repaying the education loan will not be a burden if budgeted properly.
As the education loan covers all the living and miscellaneous expenses of the student, the student can always earn weekly wages by taking up part-time jobs and on-campus jobs to save it to be able to have a kickstart to pay the EMIs and interests during the moratorium period(in case of private banks and lenders).
The huge loan amount might seem unachievable or difficult at the beginning phase of your career, but if you develop the correct budgeting skills as a student, repaying your education loan becomes a piece of cake!
Must read: How to Plan Your Student Loan Repayment?
Getting an opportunity to study abroad is not always an easy accomplishment, as we already know. The entire process of higher education abroad involves many important steps, securing sufficient funds is one of them. Keep yourself updated with the knowledge and don't fall for myths around education loans. If you are someone looking for assistance in your education loan process, you can get in touch with our team by requesting a callback.
We hope we managed to bust all the common myths regarding the abroad education loan process for you. So what are you waiting for? Request a callback from our team at WeMakeScholars today and avail our team’s assistance for an uninterrupted education loan process!
Is it true that you can't get an education loan without collateral in India?
While many banks may require collateral for study loans, there are options for unsecured loans without collateral for eligible students. Some banks also offer loans with lower collateral requirements, such as requiring collateral only for loan amounts above a certain threshold. In addition, the government of India also offers various education loan schemes with lower collateral requirements for eligible students.
Are education loans only available for higher education courses?
No, education loans are available for a variety of courses, including vocational courses, skill development courses, and diploma courses. The loan amount and interest rate may vary based on the course type and duration. But verify with WeMakeScholars financial officers regarding your course, acceptance, and additional documents required for your education loan.
Do you need to have excellent academic records to get an education loan?
While academic records can be a factor in determining loan eligibility, it is not the only criteria. Banks also consider the student's potential for future income and their creditworthiness. Some banks may also consider the reputation of the educational institution and the course that the student is pursuing. You can even get a better rate of interest if your academic record is excellent. The only thing you have to do is to get in touch with our experts they will provide you with detailed information.
Do you need to come from a wealthy family to get an education loan
No, education loans are designed to help all students, regardless of their family's financial status. However, the loan amount and interest rate may vary based on the student's financial need, the course type and duration, and the location of the educational institution.
Does an education loan only cover tuition fees?
No, education loans can cover various expenses like tuition fees, accommodation charges, travel expenses, and other study-related expenses. However, the loan amount and the expenses covered may vary based on the lender and the course type and duration.