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Education Loan for Study Abroad: A Detailed Guide
To meet the high demand for education loans for students pursuing higher education overseas, there are numerous options available in the market. Therefore, it is essential to have a basic understanding of student loans for studying abroad. Having only partial knowledge on this subject can be risky, so it is important to conduct thorough research before making a decision. By doing so, you can choose the best option to finance your education. This article aims to provide a comprehensive guide to education loans, covering all the essential details you need to know when studying abroad.
Education Loan for Abroad Studies
Education Loan can be used to pay for all or part of the education expenses. If a student takes out a study abroad education loan, they can complete their degree program without any financial issues. Loans are often considered bad debt because they involve borrowing money for something that loses value over time. However, an education loan is different from other loans because it is an investment in the borrower. It is believed that through this investment, the borrower will eventually earn much more money than they borrowed.
Types of Education Loans in India to Study Abroad
Collateral security refers to an asset that a borrower pledges to a lender to obtain a loan. In India, education loans for studying abroad are categorized as:
- Secured
- Unsecured,
depending on whether collateral security is required for education loan.
To get a secured education loan, applicants must pledge collateral, while an unsecured loan does not require any collateral. However, obtaining an unsecured education loan can be more challenging, as it is granted based on the student's academic profile and the financial profile of their co-applicant. In India, Non-Banking Finance Companies (NBFCs) and private banks like Axis Bank and ICICI Bank provide unsecured education loans for studying abroad.
Document Required for education loan for Overseas Studies
Check the mandatory documents needed to apply for an education loan for overseas studies with the mentioned list of documents:
|
Documents Name |
Lists of Documents |
|
Mandatory Documents (of the applicant and the co-applicant) |
Application form duly filled and signed in by the applicant 2 passport-size photographs Statement, of course, expenses Offer letter or confirmation of admission letter Aadhar and PAN card of the applicant X-th/XII-th/any other higher education |
|
Academic document |
Educational mark sheet and certificate (X-th/XII-th/Degree/PG) Proof of admission to the course Fee structure IELTS/GMAT/GRE Scorecard University ranking print out form |
|
Proof of identity co-applicant) |
Voter ID PAN ID Passport Driving License Aadhar Card |
|
Proof of residence |
Voter ID Card Passport Electricity Bill Telephone Bill Ration Card Bank account statement Aadhar |
|
Employment or business proof of co-applicant or guarantor |
3 months salary slips (if salaried)6 months' Bank statement (if salaried) Form 16 of the last 2 years Employer ID card 3 years ITR (if self-employed) 6 month Bank statement (if self-employed) Business proof (if self-employed) |
|
Other documents |
A letter stating that leftover expenses, apart from the loan amount will be borne by the co-applicant Cheque or receipt stating the payment of the processing fee Other cheques for Lawyer and evaluator fees (if your legal and valuation process is done by the bank itself) Property collateral owner’s affidavit (on Rs 20 or 100 stamp paper) |
|
Additional documents (if applicable) |
Proforma invoice for travel or Laptop etc if asking for it Receipts of advance payments made if any All loan account statements (1 year if any pending loans) Gap certificate if the student has a break or failure in the study Letter explaining the reason for no ITR of co-applicant if applicable |
|
Legal documentation (in case of collateral) |
Property Title deed Registered sale agreement/ Gift Deed/ Will Original registration receipt for the above agreement Allotment letter by Municipal Corporation/ Authorized Govt. Authority like MHADA, CIDCO, HUDA, DDA, JDA, GIDC, etc (only if applicable) 30 years link document or previous chain of sale deed establishing title or EC is required Latest property tax bill and latest electricity bill bearing the same address |
|
Other important documents (in case of collateral) |
If the joint property is divided into two, a clear segregation report is required If a huge land was registered and later cut into plots, then motherland registration is required If the property value or loan sought is more than 1 cr, two legal and two valuation reports are required |
|
Legal documents required for Gift or Will properties |
Gift deed and Will should have been registered The property should be registered on New owner’s name Two legal reports are required in such cases For will properties, the Death certificate of the person who wrote the will is required (Any Legal Heir Certificate/ Succession Certificate/ Registered Family Tree is required) |
Note: As per the bank-laid norms, documents may differ from bank to bank as per the requirements of the applicant and the co-applicant.
Education Loan Eligibility Criteria for Study Abroad
Most Indian banks offer education loans to deserving students who are unable to afford their education, with flexible terms and conditions and a low-interest rate. These loans help students finance their studies abroad. To be eligible for an education loan, the applicant must meet certain criteria:
- The applicant must be a resident of India.
- The applicant must have received an admission letter from a recognized university in India or abroad.
- The age of the applicant should be between 18 and 35 years at the time of applying for the loan.
- The applicant must have a satisfactory academic record.
- The applicant must have gained admission to a reputable university or accredited educational institution.
Basic Fundamental Education Loan Terminology
This table is your trusted guide to exploring and understanding the many different terms, abbreviations, and financial jargon that is associated with education loans.
|
Academic Year |
The time period each academic year that students attend an educational institution is usually from August to May. |
|
Accrued interest |
The process of interest adds up. When student loans are in repayment, interest accrues on them every day, and (depending on the loan type) interest may accrue while they're in deferment and/or while you're in school. If you don't pay the interest accruing on your loans, it may be added (or capitalized) into your principal balance. If that happens, you'll begin being charged interest on your unpaid interest. |
|
Amortization |
The process of paying off your loans in regular installments over some time. |
|
Annual Loan Limit |
The maximum loan amount allowed by a lender (or a loan program) during a calendar or academic year. |
|
APR (Annual Percentage Rate) |
The annual cost to you to borrow money for your student loan. |
|
Award Letter
|
A letter you receive from a school that details the types of financial aid you are eligible to receive. This includes details about the grants and scholarships. You'll receive an award letter every year you attend school if you apply for financial aid. |
|
Award Year
|
The academic year to which financial aid may be applied. |
|
Borrower |
The person who signed and agreed to be responsible for repaying a loan. |
|
Cancellation |
Cancellation of your student loan means you are no longer required to repay some or all of your loan. |
|
Capitalization
|
Capitalization happens when the accrued interest is added to the principal balance, thus increasing the overall balance owed. |
|
Capitalized Interest
|
The process that occurs when unpaid interest is added to the principal balance of your loan (increasing the overall principal balance that your future interest will accrue on). |
|
Co-signer or Co-applicant
|
A cosigner is a creditworthy individual who agrees to share repayment responsibility for the student loan alongside the primary borrower. |
|
Consolidation
|
The process of combining multiple student loans into one loan. |
|
Cost of Attendance (COA) |
An estimate of the total cost provided by a school to attend for a specific period. |
|
Credit Report |
A detailed report of an individual's credit history compiled by one of the credit reporting agencies. It includes the type of credit you use, the length of time your accounts have been open, and your payment history. |
|
Credit Score |
An indicator of your ability to repay your debt. Your credit score takes into account the information on your credit report. Lenders may use a credit score to determine whether you're eligible for a loan and the interest rate. Typically a higher score makes it easier to qualify for a loan and may result in a better interest rate. Most credit scores range from 300-850. |
|
Debt-to-Income-Ratio |
A calculation used by some lenders to determine a person's ability to repay debt. To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. |
|
Default |
Failure to make payments on a loan according to your loan terms. A loan can also go into default if you fail to meet other terms of your promissory note or written agreements with the loan holder. Refer to your loan's promissory note to determine its default time frame. |
|
Deferment |
Deferment allows you to temporarily stop making payments or to temporarily reduce your monthly payment amount for a specified period on a student loan. |
|
Delinquency
|
The status a loan enters if you fail to make even a single full payment on time. If you miss a few payments, your loan will most likely remain in delinquency until it enters default. You should contact your lender or servicer right away if you fall behind on your repayment to discuss a plan to get back on track. |
|
Direct Loan
|
Direct Loan is for eligible students and parents who borrow directly from the U.S. Department of Education at participating schools. Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans are types of Direct Loans. |
|
Disbursement
|
A student loan has been disbursed when your lender sends money to your school gives money to you directly, or a combination of both. A single loan may have multiple disbursements, for example, one payment for fall and one payment for spring. |
|
Discharge
|
The official name of the cancellation of some or all of your student loan debt due to certain circumstances like a school closure, death of the borrower, or total permanent disability. |
|
Discretionary Income
|
The amount of money you have left over after paying for your basic expenses. You may need to provide this information when applying for certain student loan repayment plans that determine your monthly payment amounts based on how much you earn. Note: The government defines discretionary income in different ways for different repayment plans. |
|
Endorser
|
Similar to a co-signer, an endorser is someone who agrees to repay the student loan if you do not repay it. |
|
Enrollment Status
|
Reported by the school the student attended, indicates whether the student is (or was) full-time, three-quarter time, half-time, less than half-time, withdrawn, graduated, etc. |
|
Expected Family Contribution (EFC)
|
The amount of money a family is expected to pay for their student's college education each academic year. Your school uses the number to calculate the amount of student aid you are eligible to receive. This number results from the financial information you provided in your FAFSA application. Your EFC is reported to you on your Student Aid Report (SAR). |
|
Financial Aid
|
Assistance is provided through grants, scholarships, work-study, and loans to provide funding for education. |
|
Financial Aid Package
|
The entire combination of grants, scholarships, loans, and work-study funding you can receive from all sources (state, institutional, and private). Your financial aid package is detailed in the financial aid award letter you receive each academic year. |
|
Financial Need
|
Your cost of attendance minus your EFC. This determines your eligibility for financial aid such as Stafford loans, Perkins loans, work-study, grants, and scholarships. |
|
Fixed Interest Rate
|
An interest rate that stays the same for the entire repayment period. |
|
Forbearance
|
A forbearance allows you to temporarily stop making payments on your loan or reduce your monthly payment. Each loan servicer has its own policy on forbearance, meaning some are required to offer you this benefit and others are not. Forbearance does not affect your credit score, however, you will continue to accrue interest during your forbearance period, which will increase the amount you owe overall. |
|
Forgiveness
|
Forgiveness of your student loan means you are no longer required to repay some or all of your loan. |
|
Grace Period
|
The time you get before you have to start making payments on your loan. It typically starts the day after your graduate, leave school, or drop below half-time enrollment, and lasts for six to nine months. While you're not required to make payments during this time, it certainly doesn't hurt to, you will be responsible for paying any interest that accrues during your grace period. If you choose not to pay the interest that accrues during your grace period, the interest will be added to your principal balance. Grace periods are unfortunately not available for every loan out there, so be sure to check if your loan has a grace period before you assume you're in the clear. |
|
Grad PLUS Loans
|
PLUS loans that are only available to eligible graduate or professional students. They have a higher interest rate than Stafford loans, but fewer limitations on how much you can borrow. You must apply for these loans, and they take your credit history into account, which Stafford loans do not. |
|
Graduate or Professional Student |
A student who is enrolled in a program or course of study above the baccalaureate level at an institution of higher education. |
|
Graduated Repayment Plan
|
A repayment plan that allows you to make small monthly payments that increase over time, ensuring you still repay your student loan within a given time in years. However, during those 10 years, you will pay more interest than you would with standard repayment. |
|
Grant
|
A type of financial aid that you do not have to repay. You may be able to qualify for grants based on your academic or financial need. |
|
In-School Deferment
|
An option that allows you to postpone your student loan payments until after you graduate college or until your enrollment status drops below half-time (as specified by your school). |
|
Interest
|
The cost to borrow money. It is calculated as a percentage of the principal (the amount you borrow). |
|
Interest Deduction
|
An income tax deduction that covers some or all of the money you pay in interest on student loans each year. This means that you don't have to pay taxes on the money you pay in student loan interest. Eligibility for this tax benefit is based on your student loan payments, your income, and other tax factors. Ask your tax professional for details. |
|
Lender
|
A company or organization that lends money. A lender could be the borrower's school; a bank, credit union, or other lending institution; or the U.S. Department of Education. |
|
LIBOR (London Inter-Bank Offer Rate)
|
The interest rate banks charge each other for loans. LIBOR was most commonly used as an interest rate index for variable interest rate loans but will be retired by 2023. It will be replaced by a new, more reliable index called SOFR. |
|
Loan |
Money that you borrow and must repay. |
|
Loan Period
|
The portion of the academic year that the requested loan will cover. |
|
Master Promissory Note(MPN)
|
A legal document in which you promise to repay your student loan(s) and any accrued interest and fees to your lender or loan holder. There is one MPN for Direct Subsidized/Unsubsidized Loans and a different MPN for Direct PLUS Loans. Most schools are authorized to make multiple student loans under one MPN for up to 10 years. The MPN contains a Borrower's Rights and Responsibilities Statement that explains the terms and conditions of the loan(s) you receive. |
|
Merit-Based Aid
|
Money for college - usually in the form of scholarships or grants - that schools and other organizations award based on your academic and extracurricular achievements, not necessarily your financial need. This is aid that does not have to be paid back. |
|
Origination Fee
|
An upfront fee charged by a lender for processing a new loan. |
|
Part-Time Enrollment
|
Your enrollment status if you take less than a full course load. Not every school uses the same standards, so check with your school to find out your enrollment status. |
|
Prepayment
|
When a loan is prepaid in part or in full before the loan maturity date. There is typically no penalty associated with doing this, although we recommend that you check with your lender or review your promissory note. As a result, you may save yourself significant interest. |
|
Prime Rate
|
The Prime Rate, as published in The Wall Street Journal, is the interest rate banks charge their most creditworthy customers. |
|
Principal Balance
|
The total amount you currently owe, minus any interest that's yet to accrue. Every time you make a payment, a portion of that money goes toward the interest that is accruing on your loan and any fees you may have been charged, and the rest is used to pay down your principal balance. |
|
Private Student Loan
|
Student loans are provided by private lenders (like College Ave Student Loans) instead of the federal government. |
|
Repayment
|
To pay back the money you borrowed by making scheduled payments to a loan holder or servicer. |
|
Repayment Period
|
The length of time you have to repay your student loans. In general, the longer you take to repay your loans, the more you'll wind up paying in interest over the course of your repayment period. |
|
Scholarship
|
Money you're awarded to attend an academic institution. You don't have to repay scholarships - it's free money. |
|
Servicer
|
The organization that sends you your student loan bills, collects your loan payments and provides customer service on behalf of your lender. In other words, they handle the billing for your loan. |
|
SOFR (Secured Overnight Financing Rate)
|
The Secured Overnight Financing Rate (SOFR) is a secured interbank overnight interest rate and reference rate established as an alternative to LIBOR, which is published in several currencies and is the foundation of financial contracts all over the world. It is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. |
|
Student Aid Report (SAR)
|
A list of all the financial and personal information that you and your family reported on your FAFSA. You and your school both get a copy of the SAR. After you receive your SAR, you may be able to make corrections or changes to your information before your final award is processed. |
|
Tuition
|
A charge for receiving instruction at an educational institution can include a cost per class or credit hour but also may include the costs of materials or supplies required of all students in the same course of study. |
|
Undergraduate Student
|
A student who is enrolled in an undergraduate course of study at a college/university or career school that usually doesn't exceed four years and that leads to an undergraduate degree. |
|
Variable Interest Rate |
An interest rate can change during the life of the loan. Changes to the rate are typically based on a publicly available interest rate index such as the prime rate or LIBOR. |
Education Loan Scheme in India for Abroad Studies
Education loan concessions in India for abroad studies may vary based on factors such as financial background, merit, and the specific policies of different banks and financial institutions. There might be some provisions related to reservations, gender, and disability, but these could vary over time and by region. It's recommended to check with banks, government sources, or educational institutions for the most up-to-date and accurate information regarding education loan concessions for abroad studies in India. The Government of India has implemented various schemes to provide financial assistance and interest subsidies to students pursuing further studies abroad. These initiatives are designed to support students from economically weaker sections and marginalized communities in their educational pursuits. Get to know each of the government subsidy schemes for abroad study in detail:
1. Dr. Ambedkar Central Sector Scheme
The Dr. Ambedkar Central Sector Scheme provides interest subsidies on education loans for overseas studies to students who belong to Other Backward Classes (OBCs) or Economically Backward Classes (EBCs).
This scheme is available for meritorious students who have secured admission in the approved courses at Masters, M.Phil, or Ph.D. courses abroad.
Eligibility criteria: You should either belong to EBC or OBC.
For OBC candidates, total family income shall not exceed INR 8 Lakh per annum.
For EBC candidates, total family income shall not exceed INR 2.50 Lakh per annum.
2. Central Sector Interest Subsidy (CSIS)
The Ministry of Human Resources Development and the Department of Higher Education has formulated this education loan interest subsidy for the students of economically weaker sections (EWS) for pursuing technical/professional courses in India.
Eligibility criteria: You should have secured admission to a recognized Indian/foreign university. Your total family income shall not exceed INR 4.5 Lakh per annum.
3. Interest Subsidy Scheme on Education Loan by the Government of Gujarat
Education loan for study abroad by the Gujarat government offers a 100% interest subsidy to economically weaker students from Gujarat who wish to pursue higher studies abroad. Through this loan scheme, students can get up to INR 15 Lakh for overseas study. This scheme is available for professional courses at graduate, post-graduate, and diploma levels.
Eligibility criteria: You must have secured at least 60% in your 12th grade.
The total family income should be less than or equal to INR 6 Lakh annually.
The interest subsidy under this scheme will not be available to the students who have left study in the middle of the curriculum or have been expelled from the institutions.
4. National Handicapped Finance & Development Corporation (NHFDC)
The NHFDC was formulated by the Ministry of Social Justice and Empowerment. Students with disabilities are eligible for availing education loans to study in India or abroad for professional undergraduate & postgraduate courses under this scheme.
Eligibility criteria:
- Minimum 40% and above disability
- A mentally retarded person may also avail the loan through parents, spouse or legal guardian.
For loans up to INR 4 Lakh, collateral is not required. For loans up to INR 7.5 Lakh, tangible collateral of suitable value is required.
Note: In exceptional cases, the collateral requirement can be waived off if the officer granting the loan is satisfied with the net worth of parents who would be executing the documents as ‘joint borrowers’.
5. National Backward Classes Finance & Development Corporation (NBCFDC)
The NBCFDC is a government undertaking that provides education loans for both studies in India and abroad. For study in India loans, 90% of total expenses are covered, whereas, loans for abroad education cover 85% of the total expenses.
Eligibility criteria: The applicant should be a member of a backward class (as notified by the Central Government/State Government).
The per annum income of the family should not exceed INR 3 Lakh.
The applicant should have secured admission to a professional or technical course through an entrance test/merit-based selection process.
Applying for Education Loan in India for Abroad Studies Online Mode & Offline Mode
Both online and offline modes are available for applying for education loans in India for abroad studies. Here's a general overview of both options:
Online Mode: Many banks and financial institutions offer the option to apply for education loans online through their official websites. You would typically need to visit the bank's education loan section on their website, fill out the online application form, and submit the required documents electronically. This method can provide convenience and speed in the application process.
Offline Mode: You can also apply for an education loan by visiting a branch of the bank or financial institution in person. You would need to collect the application form from the bank, fill it out, and submit the required documents along with the form to the bank's representative at the branch. This method may require more time and effort compared to the online option.
Keep in mind that the specific procedures and requirements for education loan applications can vary among different banks and financial institutions. It's recommended to visit the official website of the bank you're interested in or contact their customer service to get the most accurate and up-to-date information on the application process for education loans for abroad studies. Additionally, policies and processes update, so it's wise to double-check the current methods before proceeding.
Interview with the Bank Officer for an Education Loan
Certainly, when preparing for an interview with a bank officer for an education loan in India for abroad studies, here are some important points to consider:
Documentation: Ensure you have all necessary documents, such as an admission offer letter from the foreign university, proof of admission fees, course details, cost of living estimates, etc. These documents are crucial for the bank's assessment of your loan application.
Loan Amount and Repayment: Be prepared to discuss the specific loan amount you require and how you plan to repay the loan after completing your studies. Understand the terms and conditions of the loan repayment, interest rates, and any grace period provided by the bank.
Collateral and Security: Inquire about the collateral or security requirements for the loan. Different banks may have varying policies regarding collateral, and it's important to have a clear understanding of this aspect.
Interest Rates and Moratorium: Discuss the interest rates offered by the bank and whether there is a moratorium period (grace period) during your study period before you start repaying the loan. Clarify any questions you have about interest accrual during this period.
Co-applicant or Guarantor: Understand whether the bank requires a co-applicant or guarantor for the loan application. If so, discuss the eligibility criteria and responsibilities of the co-applicant or guarantor.
Loan Approval Process: Ask about the timeline and process for loan approval. Inquire about any additional steps you may need to take during the process and how the bank communicates with applicants.
Loan Disbursement: Understand how the loan disbursement process works. Will the bank pay the tuition fees directly to the university, or will they provide the funds to you for payment?
Prepayment and Foreclosure: Discuss whether there are any prepayment or foreclosure penalties if you decide to repay the loan before the agreed-upon term.
Additional Charges: Inquire about any additional charges, fees, or insurance associated with the loan.
Repayment Plan: Be prepared to present a feasible repayment plan to the bank officer. This could include details about your expected income after completing your studies and how you intend to manage the loan repayment.
Remember to be well-prepared, professional, and courteous during the interview. It's a good idea to jot down any questions you have before the interview and take notes during the discussion to refer back to later. Each bank may have its own specific policies and requirements, so adapt your questions and conversation accordingly.
Top 10 Education Loan Providers in India for Abroad Studies
To help you find the best education loan provider in India for studying abroad, here we listed top 10 education loan providers:
|
Name of Bank |
Loan Amount |
Student Loan Interest Rates |
|
State Bank of India |
Upto 1.5 Crores |
10.5% |
|
Punjab National Bank |
Based on Requirement |
Upto 7.5 Lakhs - 11.25% Above 7.5 Lakhs - 11.85% For Education at Premier Universities - 9.85% |
|
HDFC |
Upto 30 Lakhs |
14% |
|
Canara Bank |
Upto 40 Lakhs |
6.90 to 8.80% |
|
IDBI Bank |
Depends on requirement |
Upto 40 lakhs- 8.4% Above 75 lakhs-8.75% |
|
Indian Overseas Bank (IOB) |
Upto 40 lakhs |
As per the bank's discretion |
|
Axis Bank |
40 lakhs and beyond depending on the requirement |
40 lakhs and beyond depending on the requirement |
|
Bank of Baroda |
Upto 1.5 Crores |
8.50-9.15% |
|
Avanse Financial Services |
No limit Depends on the requirement |
11.5%+ floating rate (depends on the risks points of the applicant) |
|
Union Bank of India |
up to 30 lakhs |
6.90 to 8.80% |
To know some more information on education loans as eligibility criteria and documents required for a particular bank we have discussed this topic in our previous blog on Updated Guide on Education Loan for Abroad Studies.
Conclusion
This education loan guide will assist you in understanding all the necessary information. It is recommended that students conduct their own research before applying for an education loan and ensure they meet the eligibility criteria, as banks will not grant loans without proper documentation.
Who are we!
At Career Clinic, our team comprehends the university's requirements and values students' time and efforts. Therefore, we provide assistance to pursue the best universities for studying abroad. We will help you find the most suitable lender for your study abroad journey based on your profile. Connect with us today for the upcoming intake in 2024.
Frequently Asked Questions
In most situations, you can pay off your education loan for your abroad studies early without penalty or prepayment costs. It is critical to review the education’s loan terms and conditions to ensure that there are no prepayment restrictions. Paying off your education loan early can help you save money in the long term by lowering your overall interest costs.
The documents required for a student loan for abroad studies may vary depending on the lender, but typically include proof of admission to a foreign university, proof of identity and address, academic transcripts, and income proof of the co-signer (if applicable). It's important to check with the loan provider for the specific document requirements and ensure that all documents are submitted accurately and on time.
The loan terms and conditions, as well as your personal situation, will determine the best option for you. Generally, government banks in the US offer loans with lower interest rates and longer repayment periods. However, the loan approval process may take longer. On the other hand, private banks may have higher interest rates and shorter repayment periods, but their loan approval process is usually quicker. It is essential to consult with our financial experts to conduct an analysis beforehand. This will help you make an informed decision that is easily understandable for most people.
There are several benefits to obtaining a student loan for studying abroad instead of borrowing money from family or friends. Firstly, student loans generally have lower interest rates compared to personal loans. Secondly, student loans are specifically tailored for educational expenses, while personal loans may come with limitations on how the funds can be utilized. Lastly, obtaining a student loan can aid in establishing your credit history and credit score, which can be advantageous for future financial transactions.
