Education Loan in India: International Lenders vs Indian Lenders

Education loan in India aims to provide funds to meritorious students who are willing to pursue their dream of studying abroad but for that students need to check their eligibility to qualify for one. The process of borrowing an education loan in India has become way more complicated due to the various education loan policies of the loan lenders in India. With the emergence of foreign lenders also known as foreign lenders like Prodigy Finance, MPower Financing in India has put students in a quagmire where they face trouble in choosing the best lender to fund their student loan in India. This article sheds light on all the reasons why borrowing an education loan in India can be a major advantage for Indian students who wish to study abroad.

Therefore, the comparison between the Indian lenders and foreign lenders will be explained in terms of factors that play an important role in determining the reliability, as well as the quality of services provided by any education loan lender. Before that, you can also watch our Loanflix episode to get a better understanding of the subject- International education loan lenders vs Indian Banks - Whom to choose for study abroad. In this episode, Ms Damini Mahajan has weighed up different factors to compare lenders who lend in USD, Euro, or GBP with Indian lenders who lend in INR. 

However, before we begin with the education loan details, let us try to understand the basic nature of education loans in India.

Education loans in India are majorly divided into two different categories. Namely, 

Secured Loans: Secured loans are also known as loans with collateral security. These education loans in India are granted based on collateral security which means the student is required to pledge property, liquid assets, or any commercial property to avail of an education loan in India. These loans are mainly offered by nationalized banks like SBI, BOB, etc. 

Unsecured Loans: Unsecured loans are also known as loans without collateral security. These education loans in India are granted based on the eligibility criteria. These loans are mainly offered by NBFCs, private banks, and foreign lenders like ICICI, Incred, Avanse, Prodigy Finance, etc. 
These are the two major types of education loans in India. Now let's understand the types of education loan providers in India.

A typical education loan in India majorly depends on the type of education loan provider. There are four main categories of providers for education loans in India: 

• Government banks/Public Banks- Government
• Private banks
• Non-Banking Financial Companies (NBFCs )
• International Lenders

Education loans in India by Govt are secured in nature i.e. the student has to pledge tangible collateral in order to avail of a student loan in India. The education loan in India provided by NBFCs, private banks, and foreign lenders are unsecured in nature which means that the student is not required to pledge any collateral security in order to avail of a student loan in India. But kindly remember that the policies validated by the lenders are based on different principles and conditions. So, make sure to go through the terms and conditions of the respective before taking a study loan in India. Most of the students misapprehend the policies and then later on regret choosing the lender. Therefore, we always suggest you process through WeMakeScholars as our financial officer will be able to help you out in the entire study loan in India process. 

Let us take a look at the different factors which play a crucial role in determining the education loan in India details of each of these lenders. -

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 education loan in India, often consider only the education loan interest rate before deciding on a lender. 

a. Education Loan in India for study abroad Interest Rate from Indian lenders:

When a student is applying for an education loan in India to study abroad, students must understand the concept of interest rates and the best suitable one for their profile. But for that students must have sufficient knowledge of the interest rates provided for education loans in India by Govt and other Indian lenders. Most of the Indian lenders calculate abroad education loan interest rates on the basis of MCLR plus spread. This 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. This spread percentage is a premium amount levied by banks in addition to the MCLR value. The abroad education loan interest rate of government banks falls in the range of 8% to 10%.

b. Education Loan in India for study abroad Interest Rate from International lenders:

The education loan interest rates of foreign lenders like Prodigy Finance and MPower Finance are calculated based on benchmark rates called LIBOR (London Inter-Bank Offered Rate). LIBOR is the average value of the interest rates submitted by different banks and NBFCs located globally. International lenders follow a different set of education loan terms and conditions. This is also applicable to the education loan interest rate for study abroad offered by foreign lenders. The abroad education loan interest rates are calculated on the account of LIBOR rates. LIBOR means the London Interbank Offered Rate is an interest rate average calculated from estimates submitted by the leading banks in London. LIBOR values differ almost every 2 months and this variation influences the final abroad education loan interest rate offered by foreign lenders. The difference in currency values also plays an important role in deciding their education loan for abroad studies interest rate. 

The education loan interest rate offered by government banks for secured education loans lies between 8% to 10% p.a. 
The education loan interest rate offered by NBFCs and private banks for unsecured education loans lies between 11.9% to 14.5%. 
The education loan interest rate offered by international lenders like Prodigy Finance and MPower Finance lies between 9.25 % to 16.00%.

The very first and the most essential component which should be considered while deciding between Indian lenders and International lenders is interest rate parity.

Interest rate parity is the connection between the interest rates and the movement of currency values i.e. the difference between the interest rate between two countries is equal to the difference between the forward exchange rate and the spot exchange rate. Therefore, when you avail of an education loan in India, kindly note that the education loan terms of international lenders are decided based on the USD while those of Indian lenders are considered on the account of the Indian rupee. The difference in the values of both currencies affects the study loan in India interest rates provided by both types of lenders.

For eg: If you consider taking an education loan from a foreign lender like Prodigy Finance which offers an education loan in India at 10% per annum. But when you compare it in terms of the INR, the total interest amount can be calculated as 15% per annum. Therefore, the difference in interest rate is the result of the huge difference in the values of both currencies. 

To avoid getting in trouble, request a callback to get in touch with our financial team of WeMakeScholars, who will explain to you the difference in the interest rates of these lenders which affects the overall education loan process.

As we all know the higher education loan process in India is not a cheap affair, therefore we must understand the importance of the processing fees charged by lenders for education loans in India. 

When you compare the processing fees charged by international lenders and Indian lenders, you may notice the difference as international lenders charge in terms of USD whereas Indian lenders charge in terms of INR. 

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

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

Processing fees of NBFCs & Private Banks are 0.9% to 2% of the total education loan amount. These figures may seem to be slightly on the higher side in comparison to the processing fees charged by government banks. 0.9% to 2% of the total 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 or public is always lesser as compared to international lenders.

Government banks provide education loans only based on collateral security. The maximum loan amount granted by Indian lenders is 1.5 Cr. This amount can be granted by one of the prominent Government banks State Bank of India which is the top education loan provider in India.

NBFCs and private banks usually grant education loans in India without collateral security.  The maximum loan amount granted by NBFCs and private banks is up to INR 50 Lakhs as an education loan in India for study abroad. It may vary from case to case depending on the eligibility criteria of the applicant. 

But when it comes to International Lenders, the final loan amount offered by international lenders like Prodigy Finance only provides the loan amount that can cover the expenses of the first year. The education loan for the remaining course duration will be granted once the students prosperously finish their first year of the course. Therefore, students must understand that Prodigy Finance provides a complete education loan dependent on the candidate's performance in the first year of their course. The maximum education loan offered by  MPower Finance is a USD 25,000 education loan in India to students who are enrolled for courses in prestigious universities in the USA only.

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 i.e. nationalized banks grant a moratorium period for students who have borrowed their abroad education loan in India. The moratorium period is a repayment holiday that 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 of an education loan in India for study abroad. 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

This is one of the other prime factors that encourage students to borrow an education loan in India for study abroad courses. The Government of India has introduced multiple advantages 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 to study abroad are eligible to claim an interest subsidy on their education loan under certain subsidy schemes introduced by the Government of India, especially for students coming from economically weaker sections of society. You can learn all about it by 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. Therefore, this is the major disadvantage that students get when they process education loans in India through international lenders like Prodigy Finance and MPower Finance.

One of the compelling factors in processing your education loan in India through international lenders is that of no requirement or no need for a co-applicant. Indian lenders have set the eligibility criteria for education loan co-applicants in a quite flexible way. They require loan applicants to name a co-borrower/ co-obligator/co-applicant to be eligible for an education loan in India. 

Education loan in India by Govt also accepts retired professionals, individuals in the farming industry, or even those who do not have a fixed income, as primary co-applicants for collateralized education loans in India. Therefore, watch the 39th episode of Loanflix Season 1 to know the eligibility criteria set by Indian lenders for co-applicants. 

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

Education loan in India for study abroad, especially through Government banks solely requires a tangible collateral security. However, Government banks also accept third party collateral. There is a special provision given by education loan in India by Govt especially SBI and Bank of Baroda where they allow individuals who are not part of the candidate’s immediate family like uncle, aunt, friends etc.  

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.

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

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 out on watching these videos before you begin your abroad education loan process.

When students directly approach banks for inquiries regarding the 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 in 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 about how to go about the abroad education loan process, do get in touch with our team now.