Is it Worth Taking a Loan for Higher Education Abroad?

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Mrunmayai Bobade
Updated on Sep 15, 2022 08:32 PM IST

Education loans for students attending a foreign university often cover the whole cost of tuition as well as a certain percentage of living expenses and other incidentals. If this question is spinning in your mind ‘is it worth taking a loan for higher education abroad?’, then read the article below to make an informed decision.

Is it Worth Taking a Loan for Higher Education Abroad?

The immediate financial strain of paying for higher education abroad is eliminated by education loans. Due to the idea that it is a costly endeavour, dreams of pursuing higher education abroad sometimes end prematurely. Another widespread misconception is that only wealthy people can afford to study abroad.

Although there are costs associated with studying abroad, they are manageable with careful planning, as evidenced by the statistics on foreign education. As per a recent Redseer research, before the pandemic, more than 7,50,000 Indian students were enrolled in institutions abroad and contributed USD 24 billion to economies outside of India. By 2024, this student population is anticipated to increase to almost 1.8 million, resulting in expenditures of close to USD 80 billion.

Studying abroad is a desirable option due to the high return on investment, globally recognised degrees, and admirable educational quality. While the demand for international education is raging upwards, loans and additional options have made international education more accessible. The majority of Indian students used to travel to the US, Australia, the UK, and Canada; but, in recent years, countries including Spain, France, Germany, Italy, the Netherlands, and Malaysia have also gained popularity among international students.

Planning your higher education abroad but unsure of how to start or manage your funds? Let our experts help you understandhow to make your education loan process easy to study abroad!

Get an Expert's AdviceBefore You Opt for an Education Loan!

How to Choose An Education Loan for Higher Education Abroad?

Selecting a college and a course abroad is difficult, but so is choosing an education loan to pay for international education. The number of students who wish to pursue their higher education overseas has increased due to the growing career benefits of foreign education as well as the enriching global exposure. Despite the numerous benefits of studying abroad, the prohibitive costs deter students from pursuing their aspirations.

Education loans have made it possible for many parents to allow their children to pursue higher education in foreign countries. Education loans are a suitable option because of their extended moratoria periods, low-interest rates, and flexible repayment schedules. Therefore, before choosing a certain loan provider, one should take into account the following factors:

Rate of Interest

When choosing any reputable institution or bank for an education loan, the interest rate is a crucial factor to take into account because even a small variation might result in cost savings. Choose the alternative that is most cost-effective by understanding the difference between floating and fixed interest rates, and comparing the rates that various organisations, institutes and banks offer.

Eligibility & Documents

Most banks and financial institutions have a set procedure for determining a borrower's eligibility for an education loan. An applicant's creditworthiness, academic background, family income, and co-applicant information are all considered during the application process. The type of coursebeing taken and the likelihood of finding work once the programme has been completed both affect the amount of education loanthat will be disbursed.

To make the process of gathering the required documents quicker, it is also advised to compile the list of documents required for a loan. Various institutions and banks typically need copies of previous academic transcripts, address verification, income verification for co-applicants, passport-size photos, etc. While some institutions require a letter confirming admittance, others grant the loan without one.

Tax Benefits

Under Section 80E of the Income Tax Act, 1961, interest on student loans obtained from foreign financial institutions and Indian banks may be deducted from taxable income. Tax deductions are available for eight years in a row, starting with the year the loan was obtained and continuing for seven years, or until the loan's interest is fully repaid, whichever comes first.

Costs Covered

The overall sum disbursed is determined by a number of variables, including the standing of the university, the applicant's academic credentials, any co-applicants, and others. While some banks pay the entire cost of schooling, others merely pay a portion of it. Always inquire with your loan provider about the expenses that are covered. Lab fees, library costs, equipment costs, tuition, exam costs, and personal expenditures may all be reimbursed.

Prepayment Terms

The more interest on the principal amount you pay off early, the more money you will save. Inquire about any penalties for early payment. As a result, a plan can be developed for finding employment to pay off the loan as quickly as possible.

Total Cost Over EMI

EMIs are used to repay education loans, and they are dispersed evenly across the loan tenure. Some consumers select lengthier terms in order to reduce their monthly payments. Although it might be practical in the near run, the total cost of the loan will increase annually. Find a lender who makes your studies convenient and provides the lowest interest rate.

Moratorium Extension

The period of time after course completion that financial institutions and banks allot for prepayment is known as a moratorium and typically ranges from six to twelve months. Before making payments on an education loan, students must have some time to secure employment and financial safety. A period extension may be necessary for some circumstances due to unexpected financial demands and employment inaccessibility. Learn all there is to know about these policies and charges.

Loan Processing Time

When submitting an application to a university abroad, the deadline is crucial. If you are seeking a visa or admission, you must have the loan sanction letter as proof of your financial stability. Ask the lender how long the processing will take so that the loan can be disbursed.

Things to Consider Before Taking Education Loan to Study Abroad

Education loans are structured differently by different lenders and have varying expenses. Therefore, there are several things you can do to optimise the process and reduce the effective debt obligation.

The amount disbursed varies depending upon the factors like co-borrowers credit history. These also include their EMI burdens, the institution's credibility, whether they are able to provide a capital asset as collateral (if requested by the lender), and if they have been admitted by the university or college. Here are some vital things to consider before taking the education load to study abroad:

Explore all possible scholarship opportunities

This has been shown to be the most effective strategy to lower overall costs when studying abroad. This is because numerous commercial and government-sponsored organisations grant sizeable funds through a variety of scholarship opportunities that may lower your overall costs.

Given that the majority of scholarship programmes are not extensively advertised, this step requires extensive research. You must thus look further to learn about the direct grants and scholarships that the individual state governments provide to international students.

Terms of the loan

Applicants should check the quantum of the loan amount available after the eligibility check has been completed. Additionally, they must also check if they are eligible for an income tax deduction, the interest rate, the moratorium period, the repayment schedule, the length of the loan, and whether or not co-payments are available. In addition, the applicant should take the loan in instalments, which means that the amount of the loan is disbursed after the semester fee is paid.

Compare the overall cost of education

When deciding whether to apply for an education loan to pay for your studies abroad, this should be the first and most important difference to take into account. Along with tuition fees, a student should also think about travel costs, living expenses, and other ancillary costs. There may be other institutions offering comparable courses with generally identical pedagogies, however, the tuition fees and cost of living might vary greatly.

Selecting the financial institution for your loan

Since most education loan financiers only offer an education loan if the student has been accepted into a prestigious university, narrowing down the lender that meets your loan needs might be challenging. The applicant should confirm that the institution and programme for which they are applying for a loan are approved for funding. They should confirm if the loan is safeguarded by collateral or is unsecured.

Servicing of the loan

The applicant should also take the loan's simplicity of servicing into account. They should be more explicit about issues like the possibility of partial payment and loan pre-closure. Additionally, whether the lender can service the loan through digital channels or if branch office visits are necessary. Since the loan applicant may very well wind up working abroad, this is of utmost relevance.

Interested to know more about how to apply for a loan for Higher Education Abroad, eligibility criteria, documents required and more? Check out the following links for detailed information:

Basic Criteria for Student Loan to Fund Higher Education Overseas

Documents Required for Education Loan to Study Abroad

Impact Your Credit Score With an Effective Student Loan Repayment Strategy

Education Loan Repayment - How to do it Faster?

How to Apply for an Education Loan to Study Abroad?

Need an Education Loan? Here Are Some Quick Tips Before You Apply

Advantages and Disadvantages of Taking an Education Loan

The days when students were forced to abandon their education due to severe financial limitations are long gone. This is primarily due to the fact that education loans are becoming a godsend to students from all backgrounds who want to pursue their dreams of higher education worldwide.

Advantages of Taking an Education Loan

Education loans have various advantages, which encourage many students to opt for one. Here are some of them:

  • Education loans assist in addressing the mounting financial demands of students for a particular higher study degree.

  • Depending on the sort of loan the applicants have taken out, the education loan includes tuition fees, accommodation charges, travel expenses, and other advantages.

  • The loan amount can be easily repaid because the terms and circumstances are adaptable. After finishing the course, candidates can repay the loan amount using simple instalment plans.

  • Medical support and safety will unavoidably be covered by education loans for international students.

Disadvantages of Taking an Education Loan

Students sometimes become caught in a web of improper loan schemes due to a lack of adequate guidance or knowledge about loan procedures and interest rates. The following are specific disadvantages of education loans:

  • Depending on the type and the particular financial institution from whom the loan has been accepted, educational loans may or may not include a certain percentage of interest for the loan amount. Private student loans will have higher annual interest rates.

  • Even if the student has not consistently finished the professional degree, student debts must be reimbursed. When a student's monthly salary is less than the EMI amount, it will be challenging for them to make their EMI payments.

  • Students who borrow for education incur long-term debt. It will become burdensome for the student to pay back the overall loan amount as well as the interest accrued during the loan term.

Educational loans are the most popular shortcut for financial aid that students choose nowadays as the expense of higher-level professional education has risen. To lessen the economic strain in the future, it is essential to make a wise decision when selecting the type of education loan.

Is It Really Worth Taking Education Loan to Study Abroad?

The ideology of studying abroad is generally considered posh and visionary. The rising number of visa applications from Indians seeking to study abroad is enough evidence that many are attracted to the idea. Studying abroad is superior in many ways, but there are expenses involved, and handling them is not always seamless. With banks approving more education loans nowadays, more individuals are enjoying this circus. Here are some pointers which we are going to discuss to help you find the optimum solution:

Understand the Risk

As you know, studying abroad costs a lot of money, and if your parents have not planned for you from the beginning, it is difficult to bare the overall costs associated with it. You will have to continue putting up high-value collateral like your house or jewellery stores. You must be aware of the risk before accepting the challenge because not everyone student or parent can work under this kind of strain.

And what is the challenge?

The United States and the United Kingdom are two popular countries for Indians to study abroad. This does not, however, mean that it will definitely be difficult for you to obtain employment once you complete your studies, but this may also be the case. Due to visa concerns, many businesses do not want to hire immigrants. On the other hand, other businesses do not provide enough support for their staff. If you do not move swiftly, you can find yourself in a precarious situation and compelled to return to India without a job.

Prepare Yourself for an Alarming Situation

In the event that nothing turns out well, you must have a plan. To pay the EMIs, you must have a backup strategy. Many students choose seasonal work, part-time jobs, etc. Although it might initially be helpful, this will be insufficient. Create a strategy to repay the loan even in an alarming situation possible.

If you are aware of the risk, willing to accept the challenge, and ready for this alarming situation. Then you ought to speak with someone who has been to study abroad. If they concur with you, taking out a student loan is the risk you should be willing to take.

In the end, an entirely new and successful life depends on having received a good education. For many, it is equivalent to having a degree from a prestigious university. In light of the rapid rise in education costs, one may encounter financial difficulties. In such a case, an education loan bridges the gap between the desired university and the amount of money required.

Are you still confused about whether you should take an education loan to study abroad or not? Write to us at abroad@collegedekho.com. and let our experts help you make an informed decision.

Unsure If Taking An Education Loan Is Right for You?

FAQs

Can I get a scholarship after taking an education loan to study abroad?

Yes, you can get a scholarship after taking an education loan to study abroad. There is no restriction on applying for both educational loans and scholarships. While you must eventually pay back the education loan, scholarships are provided to students for free in acknowledgement of their academic achievements.

What is the difference between a student loan and an education loan to study abroad?

There is a thin line difference between a student loan and an education loan to study abroad. Typically, students are given some time between when they accept the loan and when they must begin making payments. Education loans are unsecured loans that can be used to pay for expenditures associated with pursuing an education, including tuition fees, living expenses, books, and other similar charges like transport, etc.

Is it a good idea to take an education loan to study abroad?

It depends on the need or requirement of the student whether it seems a good idea to take an education loan to study abroad or not. As per experts, an education loan to study abroad must always fulfil the need of the applicant. Experts advise that before accepting an offer, you should consider a number of other aspects, including your budget, the country, the college, the course and its duration, the rate of interest, and other aspects.

How much education loan should I take to study abroad?

The amount of education loan you should take to study abroad depends on your preferred bank. However, it varies from one bank to another. Banks are not restricted in how much money they can lend to students who desire to pursue higher education abroad. Almost all banks provide loans up to INR 20 to 30 lakhs. Furthermore, the rate of interest increases if the amount of the loan exceeds INR 20 lakhs.

Can I get an education loan without interest to study abroad?

No, you cannot get an education loan without interest to study abroad. Obtaining a bank education loan with a 0% interest rate is not possible. To obtain an interest-free education loan, students can, however, submit an application for several scholarships or look into government subsidies.

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