Many youngsters today look forward to going abroad for studies. For studying abroad, parents are their first stop to finance their educational dreams. The cost of education has been going up, and foreign education, in particular, will cost you in dollars. Parents occasionally fail to provide for their children’s education completely. This is where an educational loan comes in handy, filling the gap.
Rajesh Kachave, Chief Business Officer- Student Lending and Insurance Business, Avanse Financial Services in an exclusive interview with Financial Express Online outlines a path for students seeking a foreign education loan as well as ways for parents to chip in.
Are all international courses eligible for education loans for Indian students?
New-age education-focused NBFCs design and offer a wide range of education financing solutions for students who aspire to achieve their academic dreams. The scope of these loans is not only limited to conventional courses such as Science, Technology, Engineering, and Math (STEM) but also extends to non-conventional fields like Aviation, Filmmaking, Sound Engineering, and more. Furthermore, some education-focused lenders also provide education loans for Executive MBA, vocational, skilling, upskilling, and reskilling programs.
Can one get an education loan to study at any university across the globe?
Customer-centric financial institutions ensure that education loans are available for students to study at various universities worldwide in a seamless and affordable way. Student loans provided by new-age NBFCs for higher education cover the entire spectrum of expenses, including tuition fees, accommodation, travelling expenses, the cost of learning devices, living expenses, and other education-related expenses. Education-focused lenders make students’ lives easier by providing access to quality education regardless of the location or nature of their chosen courses, ensuring that financial constraints do not hinder their academic aspirations.
Will interest rates differ as per course, university, or country?
The interest rate has two components – base rate and spread rate. The base rate is pre-determined by the financial institutions and will vary depending on the lender. The second component is floating in nature. This component can change as per the market movements. This is also known as a variable interest rate, as it can vary over the duration of the loan tenure.
Interest rates for education loans can vary based on multiple factors such as the course and university the student has opted for, the country they have chosen, the total loan amount requested, the type of student loan, the chosen tenure, co-borrowers future cash inflow, loan repayment history of the co-borrower and more.
Financial institutions assess various elements before determining the interest rate for a particular loan. To design the perfect financing solution, education-focused lenders examine parameters such as the pedigree of the university, academic scores, entrance exam scores, and continuity in education, among others, to determine the future employability potential of the student.
How can parents chip in while taking foreign education loans?
Parents play a crucial role when their children seek foreign education loans. They should be a part of the journey from the planning stage itself so that they can understand and guide their children in the right direction from the very beginning.
Their life experience will definitely add value to their children’s journey planning, especially when it comes to the financing part of it. Usually, they understand the nuances of financing solutions – how it works, things to keep in mind while applying for a loan, and more.
They can actively support the loan application process by co-signing the loan as co-borrowers. This helps enhance the overall creditworthiness of the loan application.
Additionally, parents can also add massive value when students consider applying for a secured loan by pledging required collateral, such as property or fixed deposits. Their financial support, commitment, and knowledge about the loan can significantly contribute to the successful acquisition of an education loan for their children’s overseas studies.
What are the repayment options for students?
Students who opt for education loans must prioritize the repayment aspect. Maintaining financial discipline is crucial for smooth loan repayment and establishing a healthy credit score right from the beginning.
Although the grace period provides some leeway to initiate repayment, careful planning is essential to ensure on-time payments and avoid any penalties.
Therefore, as a student-centric organisation, we encourage our students to pay a small portion of the interest component in the form of simple interest (SI) or partial interest (PI) during the moratorium period.
The student community must remember that the moratorium period is not an interest-free period, as interest begins accumulating from day one.
Furthermore, settling SI/PI during your academic journey fosters sound financial habits from the outset. Also, students must set some corpus aside for contingency to continue with the education loan repayment even during emergencies such as the pandemic. A well-thought-out strategy should be devised to manage the repayment of the borrowed amount effectively.
Students can select from the following repayment options:
Interest servicing during the course: Pay simple interest during the study program.
Partial interest servicing during the course: Students can pay partial interest while pursuing their education.
Equated Monthly Instalment (EMI): The EMIs, including the interest, will start post-completion of higher education.
How does the process for taking a loan begin – is a visa necessary, is a letter from a foreign university necessary, etc.?
The process of obtaining a loan for international education typically begins with a series of essential steps, irrespective of whether a visa or a letter from a foreign university is ready. These steps aim to ensure a smooth and successful application for education financing.
First and foremost, the prospective student should conduct thorough research to identify suitable financing institutions that meet the financial requirements. Once a choice is made, the application process commences.
Students can apply online by visiting the financier’s website or their branch office. After speaking to their lender’s education loan consultant, students can share the requisite documents. If the students meet all the pre-set criteria of their lender, the education loan will be disbursed.
A visa is often a requisite for students intending to study abroad, although it is not mandatory at the initial loan application stage. Additionally, a letter of admission from a foreign university will be required before the education loan disbursement. It serves as confirmation of the student’s enrollment, course details, and associated expenses, facilitating a more accurate assessment of the loan amount required.
In conclusion, while a visa may not be an immediate necessity for securing an education loan, having one in place is advantageous. Some study-broad destinations will issue a visa only when a student shows the necessary funds in their account for studying abroad.
In such a scenario, the lender transfers the requisite funds to their bank account and lien mark the same. This process enables the student to receive their study-abroad visa without any major hassle. A letter of admission from a foreign university is a valuable document that enhances the education loan journey. Prospective students should meticulously check with the specific lender and the foreign university to ascertain their requirements and ensure a smooth loan application process.
How is the loan sanctioned and will full disbursement for a 2 or 3-year course happen in one go?
When a student applies for an education loan, they have to submit a list of documents that are thoroughly analyzed along with the student’s profile to design and offer a hyper-personalized education financing solution.
Once all the set criteria are met, the loan is sanctioned. The loan disbursement is done in tranches as per the college/university requirement. It is disbursed in Indian currency.
Tuition fees and hostel accommodation costs (if any) are sent directly to the institution as per the agreed-upon payment schedule. The loan amount for other expenses is transferred to the borrower’s or co-borrower’s bank account in installments over the duration of the course.
A few embassies issue a visa only when a student shows the necessary funds in their bank account required to study and stay abroad. In that case, lenders transfer the requisite funds to their bank account and lien mark the same. This process enables the student to get their student visa smoothly. The funds can be used once the student is ready to travel abroad and make the required payments. This further assists lenders in end-use monitoring. Lenders also help students connect with foreign exchange partners to ensure seamless transfer of funds throughout their journey with us.
What are the key things to keep note of while exploring foreign education loan financiers?
Obtaining a student loan is one of the best ways to finance higher education independently without liquidating family savings. It even helps deserving students to fulfil their dreams of pursuing higher studies by earning a self-made badge.
Aspiring students should start their research to select the right education financing partner even before obtaining admission to their chosen university. Students must start planning for their higher education well in advance to experience a seamless and hassle-free journey.
So, they should keep all the documents ready before applying for an education loan and be prepared with soft copies. Students must clear all their doubts by connecting with their financier, which will bring transparency.
Also, many students make the common mistake of shortlisting the lender based only on interest rates. Instead, they must take a holistic approach by considering aspects such as quick loan sanctions, hyper-personalised solutions, 100% financing, and customer service, among others.