Personal Loans to Finance Higher Education Abroad

Students planning to study abroad often think about how will they fund their education abroad, since pursuing higher education abroad is not a cheap affair.

Hence, a lot of students seek out reliable options for finance. An abroad 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 sometimes takes longer to get the education loans sanctioned, or sometimes students are not deemed eligible for the education loan as per the eligibility criteria. 

As personal loans are granted quickly and have few qualifying requirements, students who are in immediate requirement of higher education funding, often borrow personal loans. 

This article aims to elaborate on the different ways in which an education loan benefits students who wish to study abroad and how personal loans are not a viable option for higher education abroad. 

This topic is at the centre of discussion in the latest episode of Loanflix Inshorts, which is given below.

A personal loan basically refers to an amount of money that is borrowed by individuals to fulfil their personal needs. The reason for borrowing a personal loan can vary depending on the individual’s needs at the time of applying. Personal loans can be used to meet a variety of expenses including funding higher education.

One of the biggest benefits of borrowing a personal loan is the fact that candidates are not required to pledge anything against them. These loans are unsecured loans that are granted by lenders after considering factors such as the applicant’s income, credit, financial history, capability of repayment, etc. 

However, personal loans have the highest interest rates due to the amount of risk involved in the entire process and these are not a suitable funding option for long-term expenses. Personal loans are repaid in installments and candidates are not allowed any moratorium on the repayment of the same.

Education loans are a type of loan used to fund studies. One of the highlights of any education loan is a student getting a moratorium period. 

Several lenders have several education loan schemes which cater to the financial needs of various groups of students. Education loans can be utilized to fund both education abroad, as well as within India. These loans are bifurcated into two different categories based on the requirement of collateral security for education loans, which is-(Click on the type of loan to read in detail)

1. Secured education loans from Government banks require candidates to pledge collateral of some kind. Most students prefer government banks' education loans due to their reliability and easy policies.
2. Unsecured education loans from private lenders. Due to the absence of collateral security, the interest rate of unsecured education loans is higher compared to secured education loans. Hence, students who do not possess valuable collateral to pledge are the ones who choose to fund their education abroad with the help of unsecured education loans.

Reason 1

• When it comes to choosing the right education loan, 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 requiring legal and valuation of the property, and every government bank has its own set of rules and regulations regarding the type of assets that can be pledged by the borrowers.
• This is what hinders students from choosing secured education loans to finance higher education as it is at this point that students turn to alternative options like personal loans to fund higher education.

Reason 2

• There is another point that 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 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 they can't approve 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.

Reason 3

• For an abroad education loan, students and their co-applicants have to meet specific eligibility parameters set by lenders. And not everyone can be eligible for education loans as these eligibility criteria are very stringent. 
• Lenders are very particular about the types of courses, countries, age of the students, financial profile of the co-applicants, etc for which they would fund.
• In comparison to education loans, personal loan eligibility is significantly less strict. If you have a good CIBIL record, you can just as easily get a personal loan.

Reason 4 

• Students who wish to study in countries like Germany, where universities charge close to zero tuition fees, students are only required to fund their living expenses. When such candidates approach government banks for secured education loans, many a time, due to the lack of awareness of the various education loan features, officials often tend to misguide them by advising them to fund their education abroad with the help of personal loans. 

It is very important to note that funding higher education abroad with the help of a personal loan is never recommended by experts. This is because personal loans do not cover any of the benefits (mentioned Below).

Here are a few of the many benefits that are exclusively applicable to the borrowers of abroad education loans. 

• Education loan moratorium period: This is one of the significant advantages of education loans. Unlike personal loans where a borrower is expected to start paying the incurred EMIs from the next months, education loan schemes come with a moratorium period. When students opt to finance higher education with an education loan, it caters to the fact that students cannot become financially independent soon after completing their education abroad. This moratorium period lasts for the student’s entire course duration plus 6-12 months so that the students can concentrate on their studies and 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 the increase over the past few years. Hence, students who apply for education loans, especially for their higher education abroad, often tend to apply for amounts that 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 lower than those of personal loans. The interest rates of education loans vary depending on the type of education loan. Also, Government banks provide an additional concession of 0.5% to all female students.
• 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 the 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 students belonging to certain categories of society. This exemption can only be availed by eligible students who have borrowed an education loan for higher education abroad from prominent government banks.
• Tax collection at source (TCS): On foreign remittance As per TCS on foreign remittance, a person sending money more than 7 lakhs abroad in a financial year, has to pay an extra tax on amounts exceeding 7 lakhs. 

To provide relief to students who have taken education loans through a financial institution in India i.e. banks or NBFCs, the rate of TCS shall be 0% on amounts exceeding Rs 7 lakh.

This however does not apply to a personal loan.

All of the above-mentioned benefits apply only to candidates who borrow education loans to fund their higher studies in India or abroad.

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.

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 30000+ students have benefited from the services. 

Also, 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 as a result, delaying 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.