Pursuing a degree at a prestigious university abroad can be an exciting step towards achieving one's academic and career goals. Studying abroad provides students with valuable learning experiences and global exposure. However, the costs associated with paying for tuition fees, accommodation, travel, and more can be quite significant. Arranging these funds can be a huge challenge for many students and their families. This is why many students obtain education loans for studying abroad.
Education Loans: An Overview
Education loans are the answer to skyrocketing education expenses. They provide much needed financial support to students to help them navigate through their educational aspirations, whether in India or overseas. Education or student loans are offered by several banks and non-banking financial companies (NBFCs) across India. By securing the right loan, aspiring students can confidently pursue their dream of earning a world-class education and building a successful future.
Types of Education Loans Available in India
Before applying for an education loan, one must understand the difference between secured and unsecured education loans.
- Secured Education Loans: Secured education loans require borrowers to provide an asset as collateral to the lender. This security can be in the form of residential or commercial property, land, fixed deposits, or certain insurance policies. Since the lender has an asset backing the loan, the financial risk involved is lower. As a result, the education loan interest rate for secured loans is often lower than that of unsecured loans. Lenders might also be willing to sanction higher loan amounts, making them a suitable option for students pursuing expensive courses at reputed international universities. The presence of collateral often improves the chances of approval and provides access to more favourable repayment terms.
- Unsecured Education Loans: Unsecured education loans do not require borrowers to pledge any assets as security. Instead of evaluating collateral, lenders assess factors like the student’s academic performance, the reputation of the chosen university, and the employability of the selected course, as well as the financial strength of the co-applicant. Many financial institutions today provide collateral-free education loans for students admitted to globally recognised institutions. While these loans offer greater convenience, they generally come with slightly higher interest rates due to the increased risk for lenders. The sanctioned loan amount largely depends on the university’s ranking, the course’s future career prospects, and the overall eligibility profile of the applicant and co-applicant.
Pre-Application Checklist
Before applying for an education loan, borrowers must have four things in place.
- Confirmed Admission Letter from the University: Before applying for an education loan, students should ensure that they have received a confirmed admission letter from their chosen institution. Most lenders require borrowers to have a confirmed admission before the final disbursal of the loan.
- Co-applicant Identified and Briefed: The co-applicant for the loan should ideally be a parent, guardian, sibling or other blood relative. The co-applicant plays a crucial role in the application process and must be prepared with all necessary income-related documents.
- Co-applicant’s CIBIL Score: A score above 700 is generally preferred by lenders. The co-applicant’s high credit score can improve the odds of loan approval.
- Estimated Cost of Attendance: Students should also obtain a detailed estimate of the total cost of attendance from their institution, including tuition fees, accommodation expenses, books, travel, and day-to-day living costs. This information helps determine the required loan amount.
Having a good understanding of the factors discussed above can help simplify the loan application process.
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