In today’s globalised world, studying abroad is a dream for many students. Top-notch education, diverse cultures, and better career prospects are some of the driving forces behind this aspiration. However, the high costs of international education often leave students pondering a crucial question: Are education loans to study abroad a bad idea? The answer depends on your circumstances, goals, and financial planning. Let’s check and understand the pros, cons, and factors to consider before an education loan to study abroad.
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Are Education Loans to Study Abroad a Bad Idea?
Getting an education loan to study abroad is not a bad idea, but it requires careful consideration. Education loans can provide the financial support needed to pursue a world-class education and enhance career prospects. However, they come with challenges like high interest rates, currency risks, and the uncertainty of securing a high-paying job post-graduation. The key lies in evaluating your chosen course’s return on investment (ROI), understanding how to repay education loan, researching loan terms, and exploring alternatives like scholarships or part-time work. With proper planning, an education loan can be a smart investment in your future rather than a financial burden.
Also Read: Planning to get an education loan? Check here which bank is best for education loan for abroad
Why Do Students Opt for Education Loans?
The cost of studying abroad is very high in major countries of the world. Countries like the USA, UK, Canada, and Australia are known for their world-class education but come with hefty tuition fees. On average, studying abroad can cost anywhere between INR 20-50 lakhs per year, including living expenses.
- For many middle-class Indian families, it’s difficult to fund international education from savings alone. Education loans provide an accessible means to bridge this financial gap.
- A degree from a reputed foreign university can open doors to high-paying jobs, making loans appear like an investment in the future.
- You can also claim income tax rebate on education loan under section 80/E of the Income Tax Act for up to 8 years on the interest paid on loans.
Advantages of Education Loans to Study Abroad
Education loan to study abroad comes with a lot of advantages for the students. You can study in the university and the country of your choice that is best suited for your future goals. The government also provide multiple schemes through which you can get an education loan easily at low rate of interest. Check some major advantages of education loans to study abroad below:
- Education loans allow you to pursue your dream course in top global universities without upfront financial strain.
- Most banks in India offer flexible repayment options, including moratorium periods (where repayment starts after completing the course).
- Under Section 80E of the Income Tax Act, you can claim tax deductions on the interest paid on an education loan.
- Timely repayment of your loan helps you establish a good credit score, beneficial for future financial needs.
Also Read: Compare the education loan interest rates of different lenders and avail study abroad education loans at the lowest interest rates in 2024
Disadvantages of Education Loans to Study Abroad
Education loan provides you with quick financial assistance but it also comes with certain limitations if not managed properly. Since most education loans come with a floating interest rate, it may increase from time to time. However, these disadvantages may compel you to think that are education loans to study abroad a bad idea but it depends on how you manage the loan. Check some possible limitations of education loans below:
- Indian banks charge interest rates ranging from 8% to 14% on education loans. Over time, this can significantly increase your repayment amount.
- The depreciation of the Indian rupee can inflate your loan burden, as tuition fees and living expenses are paid in foreign currencies.
- Securing a high-paying job post-graduation is not guaranteed, especially in volatile global markets.
- If you default on repayments, the co-applicant (often parents) may face financial stress, as most loans require collateral or a guarantor.
Things to Consider Before Taking an Education Loan
Before applying for an education loan you just consider all the factors involved so that you can make the right decision. You need to consider the terms and conditions of the loan, rate of interest, repayment period etc. Check some important factors to be considered before taking an education loan below:
- Compare interest rates, repayment terms, and additional charges from banks and financial institutions. Some specialised lenders like Avanse Education Loan or Prodigy Finance cater to students studying abroad.
- Explore scholarships, fellowships, or part-time job opportunities that can reduce your dependence on loans.
- Assess the potential ROI of your chosen course. A degree in fields like STEM or healthcare may offer better job prospects than non-specialized courses.
- Be aware of currency fluctuations and how they can impact your repayment amount.
- Research visa regulations and post-study work options in your destination country to ensure you can secure employment to repay the loan.
Conclusion: Is It a Bad Idea?
Education loans to study abroad are not inherently a bad idea, but they require meticulous planning. If you choose a high-ROI course, secure part-time work or scholarships, and plan your finances well, loans can be a stepping stone to a brighter future. However, misjudging costs or career opportunities can turn this dream into a financial nightmare.
FAQs
It depends on your financial situation and career goals. If your chosen course offers good ROI and you have a clear repayment plan, it can be a smart move.
Interest rates usually range between 8% to 14%, depending on the lender and loan type. Compare options to get the best rate.
Yes, most banks require collateral for loans above INR 7.5 lakhs. Some non-banking financial companies (NBFCs) offer unsecured loans but with higher interest rates.
The moratorium period allows you to start repayment after completing your course, typically 6-12 months post-graduation or when you secure a job.
Most lenders require a co-applicant, usually a parent or guardian, for education loans. Some NBFCs might waive this requirement under certain conditions.
Yes, under Section 80E of the Income Tax Act, you can claim tax deductions on the interest paid for up to 8 years.
Loan default can affect your credit score and burden your co-applicant. Banks may also seize the collateral if applicable.
You can apply for scholarships, opt for part-time jobs, or manage expenses wisely to reduce dependency on loans.
Repayment terms vary but usually span 5-15 years. Flexible EMIs and restructuring options are available with most lenders.
Yes, education loans typically cover tuition fees, living expenses, travel costs, and even books or laptops needed for the course.
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.
