Education loans are a saviour for students who want to complete their education or pursue higher studies but who do not have enough financial support to do so. Financial lenders in India provide education loans for studies in India as well as overseas. According to UNESCO Institute for Statistics 2016, a total of 181,872 Indian students pursued their higher education abroad. That’s a whopping number of students. Essentially, the utmost important aspect to achieve the feat of studying overseas is arranging finance. Since the number of people studying abroad has been steadily increasing, the number of banks providing education loan for abroad studies has been increasing. If you are looking for some help on education loan for abroad studies, then you are at the right place!
What is an Education loan?
Money that is borrowed by a person to finance education-related expenses.
Benefits of applying for an education loan:
Repayment tenure usually starts 6 months after course completion
Entire education-related expense coverage – tuition fee, admission fee, living expenses etc.
Available for a wide range of courses.
What are the different aspects of an education loan?
An education loan for abroad studies essentially contains the following features:
Let’s look into each of these aspects so that you can make an informed decision on which education loan you should choose:
What is interest rate?
It is the cost of borrowing money, expressed as a percentage of the loan’s principal amount. Different banks charge different interest rates on education loan for studies abroad. For more information refer to education loan interest rates provided by different financiers.
What is Collateral?
Collateral is an Immovable property (House, Flat or Land) or any other asset, preferably liquid asset, such as FD, shares, bonds, gold etc. that a borrower offers to a financier to secure the loan.
Whether you should opt for collateral-based (secured) loans or not depends if you have an asset that has a value equivalent to the loan amount you want to avail. Education loan without collateral (unsecured loans) are preferable if you don’t own any security and are not eligible for scholarships.
There are two reports involved if you avail a loan with immovable property as collateral. They are:
Legal Opinion or search report: This report is given by the bank’s approved lawyer. The lawyer states whether the property can be mortgaged or not. For this, you need to provide original property papers and a lot of supporting documents. Lawyers visit the property to inspect it.
Valuation Report: This report is given by the bank’s approved engineer. The value of the property to be considered for the loan is mentioned here. The report has 2 values: Market value and Deferred value. Deferred value is the lowest possible value of the property which the bank can get if they mortgage it. For old constructions, the deferred value will be much lower than the market value.
What is loan margin?
Generally, Banks don’t offer 100% expense coverage. Loan margin is the amount that the student/borrower needs to incur in order to cover the entire education expenses. Public sector banks such as SBI provide 90% expense coverage, the remaining 10% is the margin. Private Banks and non-banking finance companies (NBFC) provide 100% expense coverage.
What is Moratorium period?
The moratorium period refers to a time period during the loan term when the borrower is not required to repay the loan amount or EMI. Usually, the moratorium period is course duration plus 6 months or a year.
What is Repayment tenure?
The period during which you are allowed to make payment via EMI in order to repay the loan amount. The average repayment period is for 5 to 7 years as per our market survey. However, most of the banks that provide education loan for abroad studies have 10 to 15 years as the repayment tenure.
Who is a co-applicant?
A co-applicant is a person who will qualify for repayment of the loan, in case, the primary borrower of the loan is unable to do so. Parents; Spouse; Parents-in-law or Guardian; Siblings are accepted as co-applicants. SBI accepts third party co-applicant (friends, neighbours etc.) if required.
What is processing fee?
Banks charge an application processing fee which is at times refundable, depending on the bank you will avail a loan from. It is between INR 5000 to INR 10,000 for public and private banks but for NBFCs, it is usually 1% to 1.5% of the loan amount.
What is the education loan procedure?
Depending on collateral-based education loan for abroad studies and collateral-free education loan, the procedure varies slightly.
Procedure for collateral-based education loan for abroad studies:
Fill the online application form
WeMakeScholars provides the list of documents and connects you with the nearest bank branch.
Go to the bank branch with required documents and acquire details of the lawyer and valuator.
Obtain Legal Opinion from the lawyer and Valuation report from valuator
The lawyer and the valuator will submit the reports to the bank branch
Complete documents are sent to RACPC or RBO.
Processing officer verifies the application and sanctions the loan.
After the loan is sanctioned, you will be required to sign the documents.
Post visa approval, student visits the bank and completes the property mortgage process (Students prefer to complete this process after visa approval in order to avoid risk.)
Disbursement agreement is signed and disbursement of loan amount takes place.
If you do not own any security – property; liquid security; then you can look at unsecured education loan process.
What are the documents required for an education loan?
This is a list of the documents required by banks for education loan for abroad studies:
Filled Application Form
Photos – Applicant and Co-Applicant
Photo ID (Applicant and Co-Applicant)- Provide any one of the following
PAN card, Aadhaar card, Driving license, Passport or voter’s ID
Proof of Residence
Proof of Admission in a university
Documents related to your Academics
Co-Applicant’s Income Proof
Immovable Property Documentation, if collateral is needed
There are many banks, private banks, public banks and non-banking finance companies (NBFC) that provide education loan for abroad studies. Some of the renowned public sector banks are SBI, Canara Bank, Bank of Baroda, and Punjab National Bank. Some private sector banks – Axis, ICICI. Some known NBFCs – Incred, Avanse, HDFC Credila, Mpower, Prodigy Finance.