How Indian students can select the best education loan to study abroad

If you are an Indian student aspiring to study at your dream overseas university, then chances are you are looking for an easy way to finance your education. Students can finance their education abroad in cost-effective ways through education loans and scholarships.  

When looking for financial aid and deciding which loan is right for you, it’s important to consider and compare the following features: 

• The loan amount limit 

• The interest rate offered by the lender  

• Repayment during the study period  

• Administrative charges/processing fees 

• Loan tenure  

• Prepayment penalty 

• Tax benefits 

Let’s take a closer look at how you can ensure you select the best education loan for your study abroad experience. 

Choose a course with a high ROI 

Before you start exploring study abroad education loans and lenders to finance your higher education, research the job market for your target course. Taking an education loan is an investment in your future that should pay off with a high-paying job in a field with upscaling opportunities.  

In most cases, lenders evaluate your future earning potential and employability prospects in your chosen field before approving the loan.  

Decide the loan amount  

Before applying for the loan, make a list of expenses you are likely to incur, such as fees, accommodation, meal plan or feed, health insurance, internet and phone bills, travel and personal care expenses. Some overhead expenses like entertainment, vacation travel, eating out are discretionary expenditures.  

Next, make a separate list for the annual budget, including family contributions, loans, external scholarships, financial aid from the university and income that you may generate through part-time jobs. Figure out how much of these expenses you can manage through your pocket and apply for an education loan for the remaining amount.  

Most students overlook currency fluctuations while planning their education abroad. A mistake they pay heavily for, quite literally. So, figure it in when devising your budget.  

Research different types of lenders 

Different lenders offer different types of education loans. For example, public sector banks offer education loans with collateral that supports the loan amount you want to borrow. Private banks and lenders offer loans with and without collateral. Then some international lenders offer education loans exclusively on students’ loan applications.  

• If you can pledge collateral, it is best to opt for public sector banks.  

• If you cannot pledge collateral, arrange an earning co-applicant, and opt for private banks and lenders.  

• Do not have collateral and no eligible co-applicant? International lenders are the best option.  

Check loan eligibility 

Loan eligibility depends on several factors.  

• To be eligible for loans with collateral, the collateral value should be equal to or more than the loan amount required.  

• If taking an unsecured education loan, the co-applicant should have sufficient income to take on the additional liability of making interest payments during the study period.  

• Your academic scores, ranking of the target course and college and financial history are other eligibility criteria.  

Check loan amount coverage 

Education loans offered by every lender covers a range of expenses such as tuition fees, living expenses, accommodation cost, purchase of equipment, books, course materials and travel passage expenses. Lenders have customised loan products to cover the maximum cost of education abroad, though the amount can vary depending on the type of loan you select. In any case, the maximum loan amount the lender offers should cover your entire cost of education. 

Interest rate offered  

A key thing to remember is that the lower the interest rate is, the better the loan product will be. Indian lenders offer interest rates starting from 7.65 percent for women candidates and 8.15 percent for male candidates. The interest rate will be low in loans with collateral, which is the other way around for loans without collateral.  

Loan repayment or prepayment 

Depending on your financial situation, you can decide on an optimum repayment plan. Lenders allow students to prepay the loan in bulk payments, considerably reducing the interest burden.  

Loan duration and the total EMI cost 

The maximum loan duration for an education loan is 10-15 years. However, you should consider that a longer loan duration means you’ll have to make more interest repayments. A shorter loan duration may make the EMI amount high but will have fewer interest payments. Students should use online EMI calculators, calculate the total interest payment they will make and then decide on the loan duration and repayment plan.  

Tax benefits on education loans 

Under Section 80E of the Income Tax Act of India, students can receive tax exemption on the interest paid on an education loan if the loan is taken from public sector banks. Remember to factor this into any calculations. 

Students should have a clear plan in mind and then apply for a loan. Perform due diligence, research the loan products available for study abroad aspirants, and check the loan eligibility. Getting in touch with alternate channels like GyanDhan will help clarify your doubts. GyanDhan education loan counselors are a credible source of loan information and suggest an optimum lender keeping in line with your requirements.