Your primer on education loans for study abroad
Because of the exponentially rising cost of higher education and unpredictable currency fluctuations, most Indian students going abroad are compelled to take an education loan to fund their degree and living costs. But finding affordable education loans for study abroad has proven difficult for them. In the past year, roughly 750,000 Indian students were pursuing a higher education degree overseas. Unfortunately, around 80% of those students missed out on savings because of bad loans.
With inputs from experts in higher-ed and loan financing, this short guide helps you select a student loan which minimizes your future debt and maximizes your return on investment.
Education Loans for Study Abroad: Introduction, How to choose?
For most traditional personal loans, the amount is secured against what you borrow it for. For example, the security for a loan you take to buy a car is the car itself. If you are unable to pay back what you owe your lender, they can take your car away to cover the loss.
But, when you approach a lender to avail education loans for study abroad, you’re essentially pitching yourself and your future success to them. If the lender deems you ‘worthy’ of the loan, they ‘invest’ in your future, with an agreement to reap the rewards of your income through the interest you pay.
Understand that the risk is high for these ‘investors’. In the event that you are unable to pay back your loan, lenders come after what was promised to them: a share of the money you earn. Hence you should always borrow wisely.
Where Do You Get Student Loans?
Student loans are provided by a range of lenders with different lending criteria and governing rules of regulation. The types of lenders include traditional banks (eg. State Bank of India), Non-Banking Financial Companies (eg. HDFC Credila), and private fin-tech companies (eg. Prodigy Finance).
The lenders who provide education loans for study abroad can broadly be classified into two types: public and private lenders. Depending on their location, private and public lenders follow either the domestic or international banking regulations to decide loan terms like interest rate. If a lender (public or private) is located in India, it follows the RBI’s regulations (eg. ICICI, SBI). Whereas, if the lender is located outside India, it follows either the local banking regulations or international regulations like LIBOR.
The option to choose between domestic, international, public or private lender depends entirely on your personal requirements and preferences. To make a truly informed choice, you must carefully consider the pros and cons of all the options on your table.
You can find more information about different types of lenders and their pros and cons in the article here.
What Should You Consider Before Taking an education loan for study abroad?
The true bearings of a great student loan lie in the details. It is important to look at all the facts and figures going into a student loan to spot one which fits all your needs and is affordable.
Because there are so many different types of lenders following differing regulations, lending criteria and terms tend to vary a lot. But as a rule of thumb, there still remains a list of general details that you must not ignore while evaluating student loans:
Interest Rate:
The interest rate of your loan is how much it costs you to borrow it as a percentage of the total amount sanctioned.
Type:
Student loans, like many other loans, are either secured or unsecured. A secured loan is one in which you have to provide collateral as security (which can be seized in case you’re unable to pay). On the other hand, an unsecured loan is one where you aren’t required to provide any collateral. You can learn more about the differences between unsecured and secured loans in detail here.
Processing Fees:
Processing fees is essentially a servicing fee you pay the bank for processing your loan amount. It is usually a small percentage of the total sanctioned amount you get, and tends to vary between different types of lenders.
Total Coverage:
Some lenders give you loan offers which only cover a certain set of expenses such as tuition. Your loan offers may also come with strict disbursement policies. Arrangements like these may restrict your ability to utilize the loan amount per your convenience, hence it’s important that you only choose those loan offers which meet your needs and fit your preferences.
Repayment Policy:
The repayment policy of your loan determines how you will be returning the amount you’d borrowed. Most loans come with a grace period (called a moratorium) of 6 months to a year, during which you’re not required to make any payments. The repayment policy differs between lenders and is something you should always compare among loans.
So, What Does It Take To Find Great Education Loans for Study Abroad?
Finding a good student loan can be hard, but it isn’t impossible by any means. Searching for an affordable loan can be thought of as a three step process. The key to being successful in your search is to ask yourself “Have I done enough of this?” at every stage.
Step 1: Plan ahead and anticipate your expenses
While student loans are often called ‘good debt’, they’re still debt. And taking on debt is a huge responsibility which comes with its own pressures. When you set out to find a loan to fund your studies, you should plan and account for all sorts of costs that you may incur apart from tuition. These costs differ from student to student due to personal circumstances. Make sure you consider your specific requirements, anticipate what you may have to pay and then embark on your loan search.
Step 2: Research your options
The Greek philosopher Aristotle once famously said “The more you know, the more you’ll realize you don’t know”. As you research your options, you’ll come across many different ones you were never familiar with. With good research, there’s no guarantee that you’ll find a loan which magically fits all your requirements. But you’ll definitely get close to discovering loan options which fulfill most of your needs at an affordable cost.
Step 3: Consult professionals and trusted sources
Despite all your planning and research, you can still fall short and choose an offer which doesn’t suit your particular circumstances. This probably won’t happen the next time. But with loans, there isn’t a ‘next’ time. Given how high the stakes are, you should definitely consult professionals and trusted advisors before committing to a loan that can possibly dictate your financial future.
Conclusion
If you’ve made it this far in the guide, you’ve already started on the right way of going about selecting the right education loans for study abroad, by future-proofing yourself! Searching for the right education loan for study abroad is quite literally a ‘taxing’ experience. However, it can be made quicker and easier if you rely on data analysis and expert advice.
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