Getting an Education Loan for Study Abroad in 2023

Studying abroad is a dream for many Indian students today. In fact, recently, the Ministry of Finance revealed a rise in the number of students availing loans for overseas education. A report based on the data shared by Public Sector Banks (PSBs) said that over 4.60 lakh people availed an education loan for study abroad in the past decade.

For students, the idea of studying abroad comes with the promise of exploring new opportunities. It offers them hope for a safe future through better education. However, due to a comparatively higher cost of education outside India, studying abroad feels like a distant dream for students from low-income families.

The facility of education loan enables students to afford foreign education and brighten their career prospects. This article covers every detail about student loans for studying abroad. Everything from types of student loans to eligibility criteria to the application process will be discussed. You can also learn about education loan schemes by the government and loan repayment methods.

Should you take an education loan to study abroad?

There can be times when your family’s income isn’t sufficient to cover overseas education. In that situation, education loans for studying abroad are your best bet. While it can make your dreams come true, it also saves you money. Wonder how? Section 80E of the Income Tax Act, of 1961 makes it possible.

As per this facility, you can claim tax deductions on your education loan interest payments for up to 8 years. This saves you some money that you would have to pay as an interest amount otherwise. Also, the loan will cover all the expenses during the course period. Therefore, you will not face financial issues while you are pursuing the course.

Types of Education Loans for Study Abroad

Generally, there are two types of education loans for studying abroad – secured and unsecured education loans. They are also known as collateral and non-collateral loans respectively.

Both have their advantages and disadvantages. Hence, you should choose the one that works best for you.

Secured Education Loans

When you apply for loans that exceed certain amounts, public/private banks, and NBFCs will ask for collateral. This collateral can be in the form of fixed deposits, property, or other investments. It is considered a guarantee for the bank. If you fail to pay the loan back, they have the right to withhold it.

Advantages of secured loan

• A larger amount can be borrowed because of reduced risk to the lender.
• Longer repayment terms and lower interest rates because of the presence of collateral.
• Compared to unsecured loans, it’s easier to get a secured loan.

Disadvantages of secured loan

• Loss of collateral in case of default on loan payment.
• The loan decision time can be longer because of the need to assess the value of the asset.

Unsecured Education Loans

Sometimes, the knowledge that you are going abroad for studies is enough for the bank to provide a loan. They trust you to repay the loan along with interest as you start earning after graduation.

However, documents that show your caliber should be presented for granting loans. This can include college transcripts, standardized exam scores, and your University admits. Once they are convinced that you are capable of completing your education and earning a job, they approve the loan.

Advantages of unsecured loan

• Don’t have to leverage any assets.
• Loan approval takes less time as there’s no asset to be valued.
• A better option for borrowing small amounts of money.

Disadvantages of unsecured loan

• Loan repayment time is short.
• Higher interest rate.
• Harder to get approved for a huge sum of money.

Major differences between secured and unsecured loans:

Eligibility Criteria for Education Loans for Study Abroad

The factors that determine eligibility for availing education loans are:

Age

You should be an Indian national of 18 years of age and above. Check the lender’s education loan information to learn more about age rules for specific courses. For instance, you should be between 18-27 years of age to apply for a UG program.

Academic Performance

You should have a good academic history with a minimum of 50% marks in your 10th and 12th standard examinations.

If you have appeared for any important exam apart from the above-mentioned, submit your mark scores. CAT, TOEFL, CMAT, and GMAT are some examples. The higher you score, the better your chances of securing an education loan.

Co-applicants Credit Score

Mostly, you will have to apply for the loan with a co-applicant. This co-applicant can be your parent, spouse, guardian, or even parent-in-law. They should have a good CIBIL or credit score.

They will have to present documents such as Form 16, bank statements, and ITR for the last two years.

Availability of Collateral

You can offer a house as collateral. Make sure that it meets the lender’s documentation requirements. In the case of land, it should be non-agricultural land with boundaries. Also, it has to be free from legal disputes. Fixed deposits and government bonds can also be used as collateral.

Other Factors

Your choice of course will be considered by the lender. They prefer technical or professional programs that prepare you to earn a job. You should also get admission to a reputable overseas college or university.

Documentation Required for Education Loans for Study Abroad

To apply for an education loan for studying abroad, first, fill out the KYC form. KYC stands for Know Your Client. You will need the following documentation to fill out the details in the KYC form:

Identity Proof

This includes the documentation required to identify your details such as name, age, address, etc. Documents that verify this are:

• Birth Certificate
• Aadhar card
• PAN card
• Driver’s license
• Voter ID
• Valid Passport

Academic Certificates

Keep your class 10th and 12th graduation certificates. If you have graduated college, make sure to include the relevant certificates and mark sheets. Results of admission tests such as IELTS, GMAT, GRE, SAT, etc. should be attached as well.

Remember to carry the acceptance letter from the university to which you got admission.

Income Proof

The latest salary slips for the past 3 months should be submitted. You will have to submit your bank statement for the last 6 months. Copy of Form 16 or IT returns for the last two years should be submitted.

This is to ensure that you are capable of supporting yourself and will be able to repay the loan. If you are not financially independent, your co-applicant should submit these documents.

Collateral Documents

Most lenders will require the following documents:

• Property Title Deed
• Registered Sale Agreement
• Original registration receipt of the Sale Agreement
• Allotment Letter by Municipal Corporation or any Authorized Government authority such as CIDCO, MHDA, HUDA, JDA, DDA, GIDC, etc.
• Last property tax bill
• Approved plan of the property
• Documents that show the ownership details of the property for the past 30 years
• Occupancy proof

Other Documents

Make sure to carry two passport-size photos. The co-applicants should also submit their KYC form along with proof of residency and consent letter. If your co-applicant is NRI, carry copies of work permits and visas additionally.

A power of attorney is also required. Apart from that, documents from financial institutions like college fee receipts should be presented.

How to Apply for an Education Loan for Studying Abroad

The first step in applying for a student loan for studying abroad is choosing the right lender. There are different types of lenders and they include:

• Public banks

Public Sector Banks (PBS) like SBI are the ideal option if you want a secured loan. They offer loans with low-interest rates. However, their document processing time is longer than other options. Hence, it is best to apply for a loan here 20-25 days in advance.

• Private Banks

Unlike PBS, private banks such as Axis and HDFC offer higher amounts of non-collateral loans. However, they are strict with their acceptance criteria. They also ask for a slightly higher amount of interest. Quite contrary to PBS, they don’t take much time for document processing.

• NBFCs

NBFCs are your best bet if you want to secure an unsecured loan in a short period. Here, the documentation process is simple. Loan approval will only depend on the income and CIBIL score of your co-applicant. That being said, their interest rates are higher than both public and private banks.

Top Education Loan Lenders in India

Some of the lenders that provide the best education loan in India for studying abroad are:

State Bank of India (SBI)

SBI provides students looking to study abroad with an education loan up to Rs. 30 lakhs with a 15% lending margin. Based on their current base rate, the interest rates can be up to 2%. The loan repayment tenure for education loans for abroad studies in SBI can vary from 1-15 years.

HDFC Bank

HDFC Bank is amongst the largest private banks providing student loans for studying abroad. The bank offers loans up to Rs. 20 lakhs. One of the advantages here is that the bank provides a loan even before you secure admission. This way, you can avoid the last-minute rush to secure a loan.

Axis Bank

The bank offers up to Rs. 20 lakhs as an education loan for study abroad. But, if the loan amount exceeds Rs. 4 lakhs, you will have to arrange a loan margin of 15%. The bank covers different kinds of costs like tuition, books, accommodation, etc.

ICICI Bank

Here, you can avail of a maximum amount of Rs. 1 crore for overseas education. The interest rates will be 9.50% every year. Fixed deposits, fresh property, and cross-collateralization with existing mortgages are considered exceptional collateral.

Punjab National Bank

Punjab National Bank’s education loan scheme for abroad studies is called ‘PNB Udaan’. For a loan amount that exceeds Rs. 4 lakhs, you will have to present a margin of 15%. If you get into one of the top 200 universities across the world, your interest rates will be the same as the bank’s current base rate.

Online Application Process

The steps below explain the process to apply for an education loan online. Read the following steps while applying for an education loan to study abroad.

1. Select the bank:

Choosing a lender that best fits your financial situation is crucial. Know the terms and conditions, interest rates, and other loan formalities of every bank. Based on this information, do the comparison and choose the right option for you.

2. Know the loan details:

Look further into every detail of the education loan for studying abroad. This includes bank policies, interest rates, benefits, etc. Also, have a conversation with the bank executives about the processing fee and hidden charges.

3. Double-check the eligibility criteria:

Make sure that you meet all the eligibility conditions of the bank applicable to an education loan for study abroad. This is the final step before filling out the application form for the loan.

4. Apply for the loan:

You can apply for an education loan for study abroad through the bank’s website. You need to submit details like name, email ID, and phone number. Later the bank officials will get in touch with you to discuss it further.

5. Loan Disbursement:

Once the loan gets approved, the bank issues a loan document that contains different elements of the loan. The bank will disburse the money after signing the loan document. The disbursement will be either in installments or as asked by the college/university.

Required Steps for Loan Application

Here’s the step-by-step procedure for an education loan for study abroad:

1. Fill out the online application form.
2. Visit your preferred bank and submit all the documents needed for an education loan for study abroad.
3. Acquire the details of the lawyer and valuator from the bank’s nearest branch.
4. Get the Legal Opinion and Valuation Report from the lawyer and valuator respectively. Both of them will submit their reports to the bank branch.
5. All these documents are then sent to the education loan processing cell of the bank.
6. The processing officer looks at the application and verifies all the documents and details.
7. Once the processing officer is done verifying the application and is satisfied, the loan is sanctioned.
8. After sanctioning the loan, you will be asked to visit the bank to sign the documents.
9. Applicants should visit the bank post visa approval and complete the property mortgage process.
10. The funds are disbursed after signing the disbursement agreement.

Processing Time

The processing time for sanctioning an education loan for study abroad can be around 45 days to 2 months.

Education Loan Schemes by the Indian Government

These are some of the schemes for education loans for abroad studies by the Indian government:

Vidya Lakshmi Education Loan

This loan is available for students seeking foreign education at undergraduate, postgraduate, and doctoral levels. The maximum amount offered is Rs. 30 lakhs. It will be disbursed in installments throughout the course.

You should complete your 12th and 10th standards under a recognized board to be eligible for this loan. Distance learning qualifications will not be taken into consideration here. Proof of acceptance from your university should also be presented to avail of the loan.

Dr. Ambedkar Central Sector Scheme

This is one of the most popular education loan schemes in India. This loan focuses on providing access to the minority community for overseas education. The loan offers a 100% interest subsidy.

However, the scheme is available only for higher levels of education. This includes Master, M.Phil, and PhD courses. Moreover, this scheme will be available only once for higher education.

Padho Pardesh Education Loan Scheme

It is another government loan scheme offered to support minority groups. This is to aid the economically weak communities and these include:

• Buddhists
• Jains
• Sikhs
• Zoroastrians
• Christians
• Muslims

This is also available only for higher education levels. Your annual family income should be over Rs. 6 lakhs to avail of this loan.

Education Loan Scheme of the NBCFDC

This loan scheme aids the OBC category. It applies to undergraduate and postgraduate programs available abroad. Different professional and technical courses also can be pursued using this loan.

You will be offered up to Rs. 20 lakhs under this scheme. The interest rate is 4% and female students are provided with a concession of 0.5%. You should provide a copy of the OBC certificate to be eligible for this loan.

Also, your annual family income should be over Rs. 3.5 lakhs to be eligible for this loan.

Repayment of Education Loan for Study Abroad

Usually, loan repayment starts 12 months after graduation or 6 months after securing a job. Equated Monthly Instalments or EMIs are the most effective way to repay education loans. Here you will have to pay a fixed amount every month. This fixed amount involves both principal amount and interest rates.

You can also pay simple interest or partial interest during the moratorium period. The moratorium period is also known as the grace period. It is the time when you are not obligated to repay the loan EMI. This period is not interest-free.

Prepayment charges are the penalty fee that borrowers pay if they want to pay off the loan early. Student loan for overseas education doesn’t come with a prepayment charge.

On the other hand, late payment charges are the penalty fee imposed when you fail to make timely EMI payments. Usually, you will be charged 2-3% of the EMI amount together with GST.

Apply for Studying Abroad

If you wish to study abroad and are worried about the huge expenses, opt for an education loan. Make sure you do the market research and meet all the eligibility criteria. This is because banks will reject your loan application in case there is a lack of documents.

Analyze your financial situation and choose a bank that ticks off your requirements. You should compare and evaluate the policies and interest rates of loans from different lenders. Upon selecting the bank, keep the documents ready and apply for a loan.

Do not fail to pay your EMIs. Late payments will lead to penalty charges. You can also avail of loans under different education loan schemes by the government.

Evaluate numerous career choices to choose the right career path for yourself. Dive in to our guide on Career Advice.

Frequently Asked Questions (FAQ’s)

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