Loan

Students pursuing masters abroad has increased significantly in the recent years, with almost 1/3rds of the GRE takers to be Indians(1) and according to Ministry of External Affair, as of 2023 around 1.5million students are pursuing their education abroad(2).

Given the number of students travelling abroad for their education, financing becomes a topic of grave importance since pursuing masters costs approximately INR 42lacs(3). 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:

Education loans

Scholarships/Fellowships based on need or merit by the government/university/sports

Part time job/TA/RA

In this article however we wish to cover the education loans. However before we delve into different education loan options available, keep the answers to the below questions handy(12):

Ballpark amount of loan needed

Tuition fees
Living expenses
Insurance and other expenses

University admit

Possible job placements post your degree, relevant repayment plan

Academic background(10th, 12th, Undergrad(if applicable))

CREDIT score of student(primary applicant), co-applicants(parent/sibling of parents in certain banks)

Collaterals available(we will cover why collateral loans might be better in some scenarios)

Urgency to avail funds

Comparison chart and which works for whom

Public banks vs Private Banks vs NBFC (Foreign lenders + Indian lenders)

ㅤ	Public Banks	Private Banks	NBFC(Indian)(7)(8)	NBFC(Foreign)
Examples(Better to use icons when implementing artcile)	State Bank of India(Recommended) Union Bank(Recommended) Bank of Baroda Punjab National Bank Indian Bank List of public sector banks here.	Axis Bank Ltd HDFC Bank Ltd ICICI Bank Ltd IndusInd Bank Ltd List of private sector banks here.	HDFC Credila Avanse Financials InCred Auxila	Prodigy Finance Leap Finance MPower Finance
Amount	INR 7.5Lakhs - 1.5cr	INR 7.5 Lakhs - 1.5cr	INR 60Lakhs - 75Lakhs	10 Lacs - No upper cap
Collateral	No collateral upto 7.5 lakhs. Post which collateral is needed	No collateral upto 40lakhs. Post which collateral is needed.	Not required(might be asked post a certain amount)	Not required
Co-applicant/co-signer	Required	Required	Required	Not required
APR/Interest rate	8.7% - 11.5%	10.5-14%	11.25-14%	14-15%
Loan coverage	Upto 90%	Upto 100%	Upto 100%	Upto 100%
Processing fees	Max upto INR 10,000 Rs	1-1.5%	0.5-2%(generally 1-2%)	upto 5%
Average approval & Disbursement time	Time taking(might even take 2months to get the disbursal)	Quick processing(1-2 weeks post documents submission)	Quick processing(1-2 weeks post documents submission)	Quick processing(1-2 weeks post documents submission)
Documentation Required	Extensive applicant & co-applicant documentation needed	Applicant - academic records, KYC, admission letter(not always applicable), expenses for college Co-Applicant - Income proofs, brief statement of assets & liabilities	Applicant - academic records, KYC, admission letter(not always applicable), expenses for college Co-Applicant - Income proofs, brief statement of assets & liabilities	Applicant - academic background, future income projection, university admit, CIBIL and credit history
Moratorium period	6 months post degree	6-12 months post degree completion	12 months post degree completion	6 months post degree*(interest might need to be paid during moratorium period as well)
Repayment period	upto 15 years	upto 15 years	10-15 years	upto 20 years
Prepayment penalty	Not applicable	Applicable	Applicable	Might be applicable(nbfc specific)
In our opinion, Ideal option for	1. Students with excellent academic background 2. Admit to good universities 3. Co-applicant with good credit history 4. Have a collateral(non-agricultural land) handy 5. Have 10% amount for immediate down payment 6. Have time to go through the complex loan process	1. Students with good academic background 2. With a co-applicant with steady income(high importance on co-applicant’s credit history) 3. Interest wise its in between the public banks and NBFCs 4. Process in terms of documentation, disbursements, etc., is simpler when compared to Public banks and more aligned with NBFCs procedures.	1. Students with good academic background 2. With a co-applicant with steady income(high importance on co-applicant’s credit history) 3. Needs huge unsecured loan 4. Wants 100% expense coverage including living expenses 5. University is not in bank’s approved list of colleges.	1. Students with good academic background 2. No co-applicant/collateral 3. In need of huge unsecured amount

***Detailed loan terms can be found in the respective lender’s website(13)(14)(16)

Enquire thorough on the following before proceeding with a financing partner:

tax benefits(80E considerations),

interest rates & processing fees,

Hidden charges(penalties, pre-payment charges, etc),

Moratorium period payments(some lenders might ask for interest payments during moratorium periods and there might also be difference on the interest calculated during moratorium periods vs post moratorium)

Fixed interest vs floating interest rate(To avoid paying higher amounts of interest, prefer lenders with fixed interest rates)

University admit might result in lower interest rates along with gender(SBI offers lowers interest rates to girls(11))

Alternates: Loan bidding platforms(gradright, wescholars, gyandhan)(4)

Another way to secure your financing is using a loan bidding platform such as gradright, wescholars(18) & gyandhan. They upload your profile, banks/NBFCs bid and provide a financing option, you can choose which option suits you best, even vet the option with the help of the bidding platform for nominal fees. This is especially beneficial with Ivy/best college admits and good credit scores.

Common feedback across board:

Why are Public Sector Banks better?

90% of education loans disbursed for Indian students planning for their study abroad are done by Public Sector banks(5). This is due to lesser and more stable interest rates along with reduction in interest rates with collateral(non-agricultural lands)(15). As seen above a there’s a difference of 1-2% in interest rates with collateral loans.

The trap of LIBOR vs MCLR

One of the common mistakes is the conversion of LIBOR(London Interbank Offered Rate) to MCLR(Marginal Cost of Funds based Lending Rate). Indian banks/lenders use MCLR, where as foreign lenders such as Prodigy, Leap finance, etc use LIBOR. So an interest rate of 9.25% (LIBOR) offered by such lenders, when converted to INR, result in 14-15% interest rates. Also the loans are disbursed in USD, hence the interest rate is calculated accordingly, resulting in paying higher interest based on exchange rate changes between INR & USD(6)

Please find below the some reddit/discord groups to clarify your queries regarding loans/abroad education queries: