Studying abroad is one of the life-changing experiences in a student’s life. However, every student cannot afford to study in a foreign country without financial support because overseas studies usually have a hefty price tag. Education loans are one of the best resources to fund your higher studies abroad. In this set of FAQs, we will address some of the common queries and doubts that hit the minds of aspirants while planning to study abroad.
Table of contents
- What is an education loan for studying abroad?
- Who is eligible for an education loan to study abroad?
- What expenses are covered by an education loan?
- How much can I borrow with an education loan for studying abroad?
- What is the interest rate for education loans?
- Do I need a co-signer or guarantor for an education loan?
- What documents are required to apply for an education loan?
- Can I get a loan without collateral?
- What is the repayment period for education loans?
- When does the repayment of the loan start?
- Are there any tax benefits on education loans?
- What happens if I change my course or institution after getting the loan?
- Can I prepay my education loan?
- What happens if I am unable to repay my loan?
What is an education loan for studying abroad?
An education loan for studying abroad is a financial product designed to cover the various expenses associated with pursuing higher education in a foreign country. Most of the education loan covers tuition fees, accommodation, travel, two-wheeler costs, laptop charges, living expenses etc. Student loans can be availed from banks, financial institutions, or even government programs. The major purpose of education loans is to provide financial support to students who aspire to gain international exposure and academic excellence but may not have sufficient funds readily available.
Also Read: Comparing different loans to study abroad? Check here all about the differences between education loans and personal loans for education
Who is eligible for an education loan to study abroad?
Eligibility criteria for education loans to study abroad vary by lender and the country where you want to study. Generally, the primary requirements for availing an education loan are being a citizen of India, having confirmed admission to a recognised foreign university, and visa approval. Banks or lenders often look for a good academic record, a sound financial background, a strong credit history etc. You will also require a co-applicant, a guarantor (for loans above INR 4 lakhs) and a collateral (for loans above INR 7.5 lakh).
What expenses are covered by an education loan?
Education loans for studying abroad are designed to be comprehensive. It covers a wide range of expenses like tuition fees, accommodation expenses (whether on-campus or off-campus), travel expenses, study materials such as books and equipment, living expenses food and utilities, health insurance etc. Education loan also covers costs like visa fees and study tours. This ensures that the student can focus on their studies without worrying about financial constraints.
How much can I borrow with an education loan for studying abroad?
The amount you can borrow with an education loan for studying abroad depends on various factors like the bank or the lender’s policies, the course you are pursuing, and the country of study. Some banks and financial institutions offer loans up to INR 1.5 crore or more, especially for expensive programs in countries like the USA, the UK, or Germany. Others might have a determined upper limit of the total estimated cost of education up to INR 40 lakh or 50 lakh.. It is essential to discuss with the lender to understand the maximum amount you can borrow based on your requirements.
What is the interest rate for education loans?
Interest rates on education loans can vary depending on the lender, the type of loan, and the borrower’s credit history. Interest rates can be either fixed or floating. The floating interest rate keeps changing with market conditions. Interest rates for education loans range from 4% to 15% per annum. It’s also worth noting that the government also offer subsidies for interest rates to make education more accessible. Always compare different loan products and their interest rates to find the best option for you.
Do I need a co-signer or guarantor for an education loan?
In most cases, you will need a co-signer or guarantor for an education loan. As per the RBI guidelines on education loans, any amount above INR 4 lakh and below INR 7.5 lakh will require a guarantor or co-signer. A co-signer, often a parent or guardian, provides an additional layer of security for the lender, ensuring that the loan will be repaid even if the primary borrower faces financial difficulties. The credit report of the guarantor is also taken into account, which can sometimes help in securing a lower interest rate or better loan terms.
What documents are required to apply for an education loan?
Applying for an education loan involves submitting a variety of documents to prove your eligibility and financial requirements. Some of the common documents required for an education loan are proof of admission to the university, academic records such as transcripts and certificates, and proof of identity and residence (e.g., passport, ID card). Other important documents required for an education loan are financial statements like bank statements and income proofs of both the applicant and the co-signer, detailed cost breakdown of the tuition fees and living expenses.
Can I get a loan without collateral?
Yes, it is possible to obtain an education loan without collateral. Loan without a collateral is known as an unsecured loan. However, these loans usually come with higher interest rates and more stringent eligibility criteria compared to secured loans, which require collateral. As per the RBI guidelines on unsecured education loans, any amount below INR 7.5 lakh shall be without any collateral. Unsecured loans are offered based on the borrower’s creditworthiness and the co-signer’s financial background.
What is the repayment period for education loans?
The repayment period for education loans can vary depending on the lender and the loan agreement. Generally, repayment periods range from 5 to 15 years. Many lenders offer a grace period in student loans which is also called the moratorium period. During this period, you don’t have to start repaying the principal amount immediately after graduation. Indian banks usually provide a moratorium of 1 year or 6 months after getting a job, whichever is earlier. The purpose of the grace period of student loans is to provide relaxation to students so that they can study peacefully.
When does the repayment of the loan start?
Repayment of the education loan usually begins 6 to 12 months after the completion of your course or once you start earning, whichever comes first. This grace period allows graduates to secure employment and become financially stable before beginning repayment. The exact start time for repayment can vary by lender and loan terms.
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Are there any tax benefits on education loans?
In many countries, there are tax benefits associated with education loans, particularly on the interest paid. In India, under Section 80E of the Income Tax Act, the interest paid on an education loan is eligible for a tax deduction. These benefits can significantly reduce the financial burden of repaying the loan. The maximum tenure for claiming tax deduction under section 80/E is 8 years.
What happens if I change my course or institution after getting the loan?
If you decide to change your course or institution after securing an education loan, you must inform your lender immediately. The lender will reassess your loan terms based on the new course or institution. However, it’s not necessary that the bank agree to this demand. It also depends on your university whether they are ready to refund the fees. However, you can also apply for a top-up education loan from the existing lender for another course. The bank will provide it subject to the eligibility and other terms and conditions.
Can I prepay my education loan?
Yes, most lenders allow prepayment of education loans. Also, most banks do not implement any early repayment charges on education loans. You can foreclose the loan at any point in time at your convenience. Prepaying your loan can save you money on interest payments over the life of the loan.
What happens if I am unable to repay my loan?
In India, there is no provision for education loan forgiveness. Not repaying your education loan on time will impact your credit score negatively. Also, the bank or the lender may initiate legal actions for education loan default. If you have taken a secured loan, the bank is legally obligated to auction your asset to recover the loan amount. If you are facing financial difficulties, you can ask your bank for an education loan restructure. The bank will revise the terms and conditions of the loan and increase the repayment period so that the EMI amount can decrease.
Education loans are the best way to finance your studies if you don’t have sufficient funds. Make sure to research and compare different lenders, read the terms and conditions carefully, and choose the loan that best fits your needs.
To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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