The dreams of pursuing higher education from top universities abroad are catching up amongst the new-gen youth like wildfire. This is the time of the year when a majority of study abroad aspirants would have received the acceptance letters. However, the financing part (especially, education loans to study abroad) remains a major concern among the students and parents in India. So, how to fund study abroad?
Introduction: Why Education Loans?
Scholarships and financial aid are definitely there. But, more often than not, they don’t cover the entire costs of abroad education. Education loans are good alternatives and provide tax benefits as well.
Now, the education loan is a matter of high complexity in India. Then there are other factors as well that have a major impact on the loan and the repayment amounts.
In this post, we will talk about the major things you should know while opting for education loans to study abroad. Moreover, we will also look at other important aspects of study abroad financing – bargaining financial aid, paying loan early, tips on dealing with fluctuating currencies, and reducing expenses while studying abroad.
Education Loans and Financing for Study Abroad
Co-authored by Parinita Gupta
Students who are quite serious about education will definitely have a dream to study abroad. Studying abroad is one of the finest dreams which can change a life. For many, this dream costs really high. Students find it difficult to arrange the financial costs to study abroad. This is due to a lack of knowledge about fundings.
There are many institutions which provide funding to the eligible students and make essential arrangements so that the student can study abroad. Today in this article We are going to cover all the essential things related to financial funding to study abroad.
Top Study Abroad Loan Providers in India
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According to RBI guidelines, the maximum education loan available for pursuing higher studies in the country is Rs.10 lakhs while the limit for studying abroad is Rs.20 lakhs. RBI’s guiding principle states that loans availed up to Rs.4 lakhs are sanctioned without any collateral security. However, if the amount goes beyond, the rule is to provide collateral and a third party guarantee mostly as the parents of the student for whom the loan is applied.
What is Collateral?
The definition states – ‘Collateral is something pledged as security for repayment of a loan, to be forfeited in the event of a default.’
Collateral is an essential check for a bank to be on the safer side. If a loan of a higher denomination is approved without any collateral security, the bank runs the risk of incurring financial loss in case the borrower fails to repay the loan. In order to stay away from such occurrences, collaterals are made mandatory for loans exceeding Rs.4 lakhs.
However, in exceptionally special cases, where a particular student is found to be extraordinarily brilliant and deserving, banks may mull over increase his/her education loan amount without collateral.
Collaterals are very important to get an educational loan. Most of the banks ask for collaterals along with a co-applicant and a guarantor. Other countries like Germany, Sweden and a few parts of Europe does not require any kind of collaterals to get a loan but in India, the system is little different.
If the loan amount is more than 7.5 Lakhs then collateral security is a must for the majority of loan providers.
Abroad Education Loans without Collaterals
But most of the student who is willing to opt professional degrees like an MBA or MS degree, collateral security is not just as the Return of investment (ROI) is maximum. If the parents or the co-applicant is earning well, then the presence of security collaterals are not required.
Prodigy Finance offers non-collateral/no-cosigner loans to students attending MS and MBA programs at the top international universities. More importantly, it covers full tuition fees. Read education loans in India for studying abroad vs Prodigy Finance.
Additionally, there are few other banks and NBFCs that offer abroad education loans without collaterals up to a certain amount.
- SBI and major Government-Undertaken Banks: For loans up to Rs. 4 lakhs
- HDFC Bank: For loans up to Rs. 7.5 lakhs
- HSBC: Loan up to Rs. 5 lakhs
- MPOWER Financing: USD $50, 000 (appx. Rs. 35 Lakhs)
- InCred: Up to Rs. 40 lakhs
Typical Checklist for Study Abroad Education Loan Application
- Offer Letter
- Aadhar Card or Voter ID
- PAN Card
- Academic transcripts and certificates
- Standardized Test Score reports (SAT, LSAT, GRE, GMAT, TOEFL, IELTS, PTE etc.)
- Copy of letter confirming scholarship (if any)
- Schedule of expenses for the course
- Income Tax returns (assessment) of the parent(s) or student (if working) for the last 2 – 3 years
- Bank account statement for the last 6 months
- Passport size photographs
International Students Loan
Global loans have a larger impact. Generally, overseas education is quite expensive and many students find it difficult to cover all the expenses while studying. Most of the loans. Most of the loans cover up all the expenses like:
- Room and board
- Books and supplies
- Travel and transportation
- Health insurance
- Living expenses
Apart from financial aids like scholarships, international loans support a lot to the students. But while taking such loans Annual Percentage Rate (APR), Grace Period, local co-signed or guarantor and currency rate with the home country considered. Read more about the Global Student Loan Corporation.
Education Loan with a Co-signer Abroad (USA)
A cosigner is a person who is legally-bound on a loan application to pay the outstanding debt amount if in case the applicant is unable to pay. Almost all loans for non-US citizens and most US students require the presence of a cosigner to get a loan or to secure a loan.
The cosigner must be the local citizen and must have good credit in the past 2 years. A cosigner can improve the livelihood of the approval and decrease the interest rate to the max. Cosigner generally makes a contract with the applicant or a student and acts as a guarantor to the loan taken by the student.
Cosigning essentially involves getting someone who’s been in the US or UK for an extended duration of time to sign the loan contract ‘together’ with the student. It’s a joint commitment.
Asking for More Scholarships (Financial Aid) from the University
Most of the colleges provide good scholarships to international students which acts as financial aid. If you want to opt for more scholarships, then you have to claim for it.
A student has to show his/her academic performance or extracurricular performance in order to claim for more scholarships.
Applying early, winning a competition, showing up a good attitude can pitch up to the situations where you can receive more scholarships than what you had received before.
Tips on Reducing Loan Burden and Expenses while Studying Abroad
Educational loans fulfill the dream of many students. At times it becomes a burden if proper planning is not done. To reduce the loan burden student should consider a few things before taking admission.
- Selection of the college- College or the university should be selected based on the budget. The tuition fee along with living expenses should be considered well.
- Formulating the repayment strategy- Appropriate planning should be done on how and when the repayment is going to be done.
- After college- Applying for a dream job is a must and foremost thing to do. Landing up in the dream job can fetch up a good career with good salary package which will help in repayment of the loan.
While studying itself, you can save the loan amount by cutting down the expenses. This can happen only when you plan really well. Tips to reduce expenses while studying abroad:
- Booking the air tickets early or at discount, periods can save 20%-30% of travel expenditure.
- Sharing the room or living in a college hostel can reduce living expenses.
- Every country allows the student to do a part-time job. While studying itself if one accommodates himself in finding 2-3 hours will allow you to earn more.
- Cooking at home can decrease restaurant costs and can save a lot of money.
- Doing assignments in the college will cut down the internet bill and can help you took complete your assignments early.
- Carpooling or using rail/public transport can minimize transportation costs.
- Use discount coupons or avail the student discounts more frequently.
- Try to stay in places where the cost of living is quite very less and avoid all sorts of leisure things.
- Prefer selling the things which are not being used or prefer taking second-hand articles if necessary.
- Using discounts on International Student Identity Card.
Apart from this, Selecting a shorter program at foreign universities costs very less than compared to full time or long term courses which reduces the total costs to its max.
Tips on Countering Fluctuating Currencies (USD to INR etc.)
Dollar rate is quite unpredictable. Especially with the Indian currency. Fluctuations in the dollar rate are very annoying when we are in a need of the money.
Here are three few tips on how to deal with these dollar fluctuations.
- Try to understand how the dollar rate is moving in the stock market and try to predict probabilities of the fluctuations, this will help you to take quick action when the dollar rate is low.
- Try to plan your requirement of money or currency at least for a year. This will ensure that there are no disturbances in your life even if the dollar rate is high.
- Try to carry all your foreign invoices carefully. This will reduce the transactions costs and make the products or the service more competitive.
- Never try to exchange the currency at airports as they offer poor exchange rates.
- Try to carry foreign currency card rather than cash. This is the best way to load enough funds even if they is currency fluctuations in the market.
Other than these, trying to save money as much as possible, this will ensure you having three money even if there is any kind of delay in releasing the funds due to currency fluctuations.
Paying Back Loan Early
Paying the loan early will reduce the interest on the principal amount.
- Refinancing the loan.
- Paying more amount for EMI’s
- Making more payments through the bank which gives more discounts and increases the credit score.
All these things will really help in reducing the interests on the principal amount and can reduce the burden of clearing the loan completely.