Education Loan Guide for Studying Abroad
Students pursuing masters abroad has increased significantly in recent years, with almost 1/3rds of the GRE takers being Indians and according to Ministry of External Affairs, as of 2023 around 1.5 million students are pursuing their education abroad.
Given the number of students travelling abroad for their education, financing becomes a topic of grave importance since pursuing masters costs approximately INR 42 lakhs. In Indian households while most expenditures are catered to by savings, insurance schemes, etc., funding for education entirely through one's/parents' savings isn't ideal for many. This aspect hinders many individuals from pursuing their education abroad. Hence the need for other financing options such as:
Disclaimer: The opinions and suggestions mentioned in the article are those of the authors based upon their experience and observations in graduate education. The article is not meant to endorse any specific university, program, or career path.
Financing Options:
- Education loans
- Scholarships/Fellowships based on need or merit by the government/university/sports
- Part time job/TA/RA
Questions to Consider Before Applying
Before delving into different education loan options, keep the answers to these questions handy:
Essential Information:
- Ballpark amount of loan needed (tuition fees, living expenses, insurance)
- University admit status
- Possible job placements post your degree, relevant repayment plan
- Academic background (10th, 12th, Undergrad)
- CREDIT score of student (primary applicant), co-applicants
- Collaterals available
- Urgency to avail funds
Loan Provider Comparison
| Provider Type | Amount | Interest Rate | Collateral | Processing Time |
|---|---|---|---|---|
| Public Banks | 7.5L - 1.5Cr | 8.7% - 11.5% | No collateral upto 7.5L | 2 months |
| Private Banks | 7.5L - 1.5Cr | 10.5% - 14% | No collateral upto 40L | 1-2 weeks |
| NBFC (Indian) | 60L - 75L | 11.25% - 14% | Not required | 1-2 weeks |
| NBFC (Foreign) | 10L - No upper cap | 14% - 15% | Not required | 1-2 weeks |
Key Considerations Before Choosing
1. Tax Benefits (80E considerations)
Check if the loan qualifies for tax deductions under section 80E of the Income Tax Act.
2. Interest Rates & Processing Fees
Compare both fixed and floating interest rates, and understand all fee structures.
3. Hidden Charges
Look for penalties, pre-payment charges, and other hidden costs.
4. Moratorium Period Payments
Some lenders may ask for interest payments during moratorium periods.
5. Fixed vs Floating Interest Rate
Prefer lenders with fixed interest rates to avoid paying higher amounts due to market fluctuations.
Alternative: Loan Bidding Platforms
Another way to secure your financing is using loan bidding platforms such as GradRight, WeScholars, and Gyandhan. They upload your profile, banks/NBFCs bid and provide financing options, and you can choose which option suits you best.
Benefits of Loan Bidding Platforms:
- Multiple options to choose from
- Competitive interest rates
- Expert guidance throughout the process
- Especially beneficial for Ivy League admits
- Nominal fees for comprehensive service
Important Considerations
The LIBOR vs MCLR Trap:
One common mistake is the conversion of LIBOR (London Interbank Offered Rate) to MCLR (Marginal Cost of Funds based Lending Rate). Indian banks use MCLR, while foreign lenders use LIBOR. An interest rate of 9.25% (LIBOR) when converted to INR results in 14-15% interest rates. Also, loans are disbursed in USD, resulting in higher interest based on exchange rate changes.
Key Takeaways:
- Public sector banks offer the most stable interest rates
- 90% of education loans are disbursed by public sector banks
- Collateral loans offer 1-2% lower interest rates
- Compare all options thoroughly before making a decision
- Consider your repayment capacity and timeline
- Be aware of exchange rate fluctuations for foreign lenders
If you found this article helpful, feel free to connect with us on admits.com for more insights on graduate education and university selection.