India’s ‘study abroad’ ecosystem witnessed a sudden jump post pandemic. This was revealed in the sudden multifold increase in study abroad education loan applications. All applicants had a similar objective i.e. gaining admission to some of the best universities in the world.
A Brief Overview of Study Abroad Education
This is amply manifested in 2022 data tabulated below.
| Top Destinations for Indian Students | Tuition Fee per Annum (Approx.) | Number of Indian Students |
| United States of America | ₹40 lakh | 1,90,512 |
| Canada | ₹19 lakh | 1,85,955 |
| United Kingdom | ₹10 lakh | 1,32,709 |
| Australia | ₹10 lakh | 59,044 |
| Germany | ₹2.5 lakh | 20,684 |
| Year(s) | Number of Indian Students Going Abroad |
| 2017 | 4,54,009 |
| 2020 | 2,59,655 |
| 2022 | 7,50,365 |
| 2023 | 1,300,000 |
(Note:- The data is based on the reports released in the major newspapers.)
Thus we see that the data speaks for themselves and the trend points to the global aspirations of India’s growing population.
Earlier, this was not the case as it was mostly the elite who could afford to send their children abroad. One of the biggest stumbling blocks for students willing to pursue their studies abroad is financing. Applicants devote almost nine months to a year to completing the entire application process. They actually secure their admission, however, they are left with little time to figure out their visa and funding. It leads to urgency and the students and their families end up going with the first bank that comes their way to secure education loans even when offered at exorbitant interest rates.
But now, a large number of middle and upper middle class families have begun to opt for foreign education. This can be simply attributed to easy financing from banks and NBFCs (Non-Banking Financial Companies) seeing value in the potential of study-abroad lending.
The CEO and MD of Auxilo shares an important point in this regard that lenders fund students primarily on the basis of future potential. Their financial background becomes secondary. Applicants with monthly family income as low as ₹15,000 have been offered education loans to the tune of almost ₹50 lakh. The assessment is based on the following factors:
- Destination Country
- Chosen Subject
- Preferred Career
- Job Yield Factor
- Visa Norms of Destination Country
For example in the US, STEM courses are a no-brainer. New Zealand offers great prospects for vocational courses. Then we gauge if a work opportunity is supported by the country’s visa norms. The average sanctioned loan amount for pursuing a Master’s in the U.S., for instance, rose from ₹35 lakh in 2018 to ₹50 lakh in 2023.
It is against this backdrop, study abroad education loan procedure attains an added importance. Education loans are your trusty companions on this international adventure. Unlike foreign restrictions that might limit student visas, loans empower you to break down financial barriers and conquer the academic world. This guide, crafted with the utmost care, will demystify the loan application process, transforming your study abroad dreams into a tangible reality.
Despite the availability of study abroad loan providers, many students struggle with the specifics of the application process. Uncertainties with regard to required documents, the general loan procedure, disbursement timelines, and optimal loan sources often remain unanswered. This guide aims to address these concerns by providing a clear outline of the study abroad education loan application process.
Study Abroad Education Loan Procedure – Key Steps
The process of financing international education begins with planning for student loans and concludes with full repayment. To effectively plan, students should meticulously calculate all expenses they’ll incur throughout their studies abroad. Many countries offer financial aid programs specifically meant for their domestic audience, for example:
- Federal student loans for study abroad in the USA
- HECS-HELP Loans in Australia
- BAföG in Germany
- Pradhan Mantri Vidya Lakshmi Karyakram in India.
Indian students specifically have access to both secured education loans (offered by government, public sector, and private banks) and unsecured loans (available through non-banking financial corporations).
Study Abroad Education Loan – Eligibility Confirmation
Students may not be aware that international student loans are also offered by foreign banks to non-citizens pursuing global education. However, discovering these options can be challenging. This article will explore this financing source in detail later. It’s important to note that every loan provider (secured, unsecured, private international) has their own eligibility criteria and application process for offering study abroad loans. Let us consider a breakdown of the typical eligibility requirements for securing an education loan for pursuing studies abroad.
- Institution of Foreign Education: The eligibility for a study abroad education loan amount and interest rates are directly tied to the ranking of the applicant’s chosen institution. Top-ranked universities (AAAA+) like the University of Oxford, the University of Berkeley, Harvard University, and Nanyang Technological University (NTU) may qualify for higher loan amounts (up to ₹1.5 Crores and USD $300,000 from international institutions). Conversely, institutions with a slightly lower ranking (A+) like the College of Law and Business, Israel and Utah State University might have a lower loan ceiling (up to ₹35 Lakh and USD $20,000 from international banks). Additionally, the required documentation for the loan application process may also vary depending on the institutional rank.
- Study Abroad Course Eligibility for Education Loan: In addition to ranking of the institution, the type of program you’re pursuing also impacts your eligibility for a study abroad education loan. While some specialised training courses may hold significant professional and academic value, many banks don’t consider them as part of the standard list of approved programs for student loans. Verifying the course eligibility beforehand can ensure your qualification for a higher loan amount.
- Financial Eligibility for Student Loans: Students applying for study abroad education loans will also undergo a financial eligibility check. This assessment looks at several factors, including income tax returns (ITR), bank balance, a demonstration of capability for incurring living expenditures, and a clear plan for loan repayment. The financial credibility of any cosigner, guarantor, or co-applicant will also be considered. It’s important to note that international education loans without the requirement of a cosigner are a recent development and should be seen as a last resort when applying for study abroad programs.
Study Abroad Education Loan Procedure – Application Process
Securing a study abroad education loan requires smooth collaboration between several parties. This includes the following:
- Academic Authorities: They provide official documents like transcripts and acceptance letters needed for the loan application.
- Student Loan Lenders: Banks or financial institutions assess eligibility and approve the loan amount.
- International Scholarship Providers: If a student receives a scholarship, these organisations verify the award and adjust the loan amount accordingly.
- Immigration Offices: Loan approval acts as proof of financial support, crucial for obtaining a student visa.
The application unfolds in three important key stages:
- Pre-Application Approvals: This initial stage involves gathering documents and submitting them to lenders for a conditional loan offer.
- Post-Application Approvals: Once you have a conditional offer, secure admission confirmation and complete your visa application.
- Student Loan Agreement Confirmation: This final stage involves finalising the loan agreement, coordinating scholarship funds, and requesting loan disbursement.
Study Abroad Education Loan Procedure – Pre-application Stage
In the pre-application stage, students begin by researching and selecting a suitable education loan provider. They then submit basic documents for loan consideration, including Know Your Customer (KYC) documents and financial proofs.
Here’s a breakdown of the key pre-application steps:
- Loan Request and Documentation: Students submit a loan request form along with KYC documents (proof of identity and address) and financial statements. Banks may also require academic documents like exam scores, admission applications, and visa applications.
- Early Application: Ideally, students should initiate the pre-application process upon receiving their admission letter or conditional acceptance letter for studying abroad.
- Scholarship Documentation: Students receiving scholarships for foreign studies should submit relevant documents to support their funding requirements.
- Loan Security: For secured education loans, students need to submit immovable property documents or proof of liquid assets, depending on the lender’s requirements.
- Verification Process: After submitting documents, banks conduct legal and official verifications to confirm the accuracy of asset and personal records, academic credentials, professional background (if applicable), and immigration status. This verification process helps ensure the timely delivery of the student loan amount.
The pre-approval stage of the application process results in a conditional loan offer from the bank. This document serves the dual purpose. Firstly, it acts as ‘Proof of Funds’ for international immigration offices while applying for a student visa. Secondly, some international scholarships, particularly research fellowships and project-based fellowships, require this pre-approval as evidence to continue providing partial tuition fee assistance to the applicant.
Study Abroad Education Loan – Post-Application Approvals
A conditional loan offer strengthens a student’s application for both admission confirmation and visa approval. What follows next is as under.
- University Confirmation: Students must obtain a formal acceptance letter from their chosen foreign institution.
- Scholarship/Financial Aid Verification: Students receiving financial aid, scholarships, or fellowships need to provide award documentation to the lender for loan approval.
- Visa Application: Students complete their visa application process and submit the approval forms to the bank.
- Verification Procedures: Depending on the visa type (F-1, H1B, J-1), property inspections, asset validations, and employer verifications might be required.
- Cosigner/Co-applicant Approval: Cosigners or co-applicants (if applicable) need to sign a formal agreement guaranteeing loan repayment.
- Unsecured Loans: For unsecured loans, mandatory (or optional in some cases) loan insurance replaces the cosigner requirement.
Once these steps are completed, students receive final loan approval and can request disbursement of funds. The university will then receive the funds and finalise the payment cycles.
Study Abroad Education Loan – Loan Agreement Stage
The final stage of the study abroad education loan application, though seemingly quick, holds immense importance. This crucial step involves the following actions:
- Loan Agreement and Insurance: Signing the education loan agreement, along with loan insurance if applicable is important. The bank will also issue the official loan sanction letter.
- Repayment and Disbursement: Finalising the loan repayment plan, including the EMI amount and schedule come next. You’ll need to submit a loan disbursement calendar and coordinate with your institution to manage the distribution of scholarship funds alongside the loan amount.
- Payment Authorisation and Liability: Electronic Clearing Service (ECS) mandates automated EMI deductions. Additionally, both the applicant and co-applicant (if applicable) will sign a lien declaration acknowledging their financial responsibility for the loan.
- Verification and Documentation: This includes submitting demand letters from your university requesting tuition payment and receipts confirming your academic fee payments.
Study Abroad Education Loan – After Application Process
Having secured an education loan for studying abroad, borrowers should be aware that the process doesn’t end there. Applications for study abroad education loan subsidies and loan maintenance come after these standard steps.
Education Loan Maintenance Management
Managing an education loan for studying abroad involves consistent EMI payments and maintaining good academic standing to ensure continued funding from your bank. This process requires some proactive involvement from the borrower. Some of the key aspects of education loan maintenance are as follows:
- Pre-payment/Part-payment of Education Loan: While EMIs are typically fixed, you can pre-pay a portion or all of your loan if you have the funds. Be aware that some banks and lenders may charge a fee for this.
- Academic Performance: Banks have specific academic performance requirements for students receiving loans for foreign education. You’ll need to submit your grades regularly to maintain eligibility for continued financial aid.
- Education Loan Cosigner Management/Refinancing/Consolidation: If you wish to change or remove your cosigner (depending on the bank’s policy), there will be a specific process to follow. Students struggling to repay their loans on time may explore refinancing with the current lender or consolidating it with other education loans for studying abroad.
In conclusion, it would be appropriate to say that the advantages of pursuing your studies abroad are numerous. They help access higher-quality education and better research to specialise in a specific field generally unavailable in the home country. Various misconceptions about studying abroad may create false perceptions among students. It does not cost a fortune. There are a variety of scholarships and education loan programmes that students may be unaware of. Actual costs may vary and are dependent on many factors including the university, location, and programme duration. With proper guidance and management, one can plan and select a university that aligns with his/her financial capabilities. It is no open secret that pursuing higher education in countries like Germany or many other European countries may be even cheaper than pursuing studies in a private Indian university. While some of the colleges offer free education, others offer highly affordable tuition fees at around ₹1 lakh per annum. Some of the colleges in Canada have tuition fees as low as ₹5 lakhs per annum. Last but not the least, an important factor to consider is work on campus as a teacher or research assistant and doing a payable internship or a part-time job. A job in hand allows students to pay off their loans in a few years and also acquire professional job skills. And therefore, if you sincerely plan to pursue your academic dreams abroad, prepare, do some diligent research and don’t let the doubts cloud your judgment.
FAQs on Study Abroad Education Loan
Who can apply for a study abroad education loan?
Most banks and NBFCs offer education loans to students with confirmed admission to a recognised foreign university and good academic standing. Eligibility criteria may also include your co-signer's credit history and course reputation.
What are the types of study abroad education loans available?
There are generally two types: secured loans requiring collateral and unsecured loans offered without the requirement of a collateral. Secured loans offer lower interest rates but require an asset as a collateral security.
Which of the documents are required in the process of applying for a study abroad education loan?
Application forms, university acceptance letter, mark sheets, fee structure documents, passport copy, co-signer documents (income proof, ID), and bank statements are some common requirements.
What is the interest rate generally offered on education loans for studying abroad?
Interest rates vary depending on the lender, loan amount, course, and your co-signer's credit score. Interest rates typically range over 8% to 12% and beyond.
Can I prepay part or all of my education loan?
Yes, most lenders allow prepayment. Some of the lenders may charge a prepayment penalty for foreclosure. Prepayment may lead to reduction in your overall interest cost.
What is the process for loan disbursement?
Funds are usually transferred directly to the university upon successful sanction following after the verification of documents and meeting loan approval or the eligibility criteria.
What happens if my application is rejected?
Reasons for rejection can include incomplete documents, insufficient co-signer credit score, or course validity including others. conduct a thorough analysis of the reasons responsible and reapply after having addressed the issue.
Are there any government scholarships or subsidies available?
Yes, the Indian government offers various schemes for students from specific communities or economic backgrounds. Explore options through MHRD, MoSJ&E, and MoMA websites. Subsidies on education loan can also be availed through the Central Sector Interest Subsidy Scheme (CSIS). Credit Guarantee Fund Scheme for Education Loan (CGFSEL) is another important avenue to explore.
What is the loan repayment process?
The repayment period typically starts after a grace period post-graduation. You'll make fixed monthly EMIs (Equated Monthly Installments) to the lender.
How can I choose the best education loan option?
Compare interest rates, processing fees, repayment terms, and any special features offered by different lenders. Consider factors like your financial situation and course duration.
How early should I apply for a study abroad education loan?
It is wiser to apply 2 to 3 months before the beginning of the academic session or the actual start date of the course for that matter. Education loan processing can take time, and securing the confirmation of your admission will strengthen your case in the process of application for an education loan.
Can I apply for multiple education loans?
Yes, you can consider applying to several lenders simultaneously, however it is always advisable to compare offers available on interest rates, moratorium period and the repayment duration and select one that caters best to your requirements. It is very important to ensure that your credit rating remains intact incase you have to repay multiple lenders simultaneously.
Who is a co-signer and why is he required for a study abroad education loan?
A co-signer is nothing but an individual or organisation whose personal and income-related information, applicants include in their loan application. In the case of default on the loan, the co-signer usually steps in to clear the dues. Loan applicants generally, with a poor credit history or insufficient credit score, or low income for that matter include a co-signer, who could be their parent(s) or guardian etc. with a good credit history and are capable of repayment if required.
What are the additional costs associated with a study abroad education loan?
Besides interest, there might be processing fees, application fees, and prepayment penalties (if applicable).
How can I improve my chances of getting a study abroad education loan approved?
Maintaining a strong academic record, securing admission to a reputable university, and having a creditworthy co-signer create a win-win situation. Presenting a well organised application with complete documents adds to the case for application for education loan.
What is the key difference between a co-signers and a co-applicant?
A co-signer acts as the guarantor for an education loan or otherwise who can extend support to the primary borrower during a financial crunch. A co-applicant on the other hand shares equal responsibility of repaying the loan in the case of default on repayment by the primary borrower. It may be pointed out that scrutiny is more lenient for a co-signer whereas the profile scrutiny is stricter for a co-applicant.
Can I use education loan funds for living expenses abroad?
Some lenders may offer a portion of the loan for living expenses. However, the primary purpose is usually meant for paying the tuition fee. It is therefore advisable to do a thorough research of your options and budgeted expenditure carefully.
What if I need to change my course or university after applying for a loan?
Inform the lender immediately about the change of course/university. Depending on the program's validity and changes, they might require updated documents or re-evaluate your eligibility.
Are there any tax benefits associated with education loans for studying abroad?
The Indian government allows tax deductions on the interest paid on education loans under Section 80E of the Income Tax Act.
What happens if I struggle to repay my education loan after graduation?
It is important to connect with your lender immediately to discuss options like loan deferment or restructuring. Ignoring repayments can damage your credit score and lead to further complications. Applicants can also think about government subsidy programmes on education loans that can be availed through the Central Sector Interest Subsidy Scheme (CSIS). Credit Guarantee Fund Scheme for Education Loan (CGFSEL) is another important avenue to explore. It significantly reduces the repayment burden.
Do lenders specially offer education loans for studying abroad?
Yes, there are several public and private banks and NBFCs offer education loans specifically meant for overseas education. Research and compare options based on your need and eligibility requirements.
What is a lien?
A lien is nothing but a form of security interest. It serves to guarantee an underlying obligation, such as the repayment of a loan. It is granted over an item of property to secure the payment of a debt or performance of some other obligation. Applicants can get rid of a lien on their property, car, or other asset by repaying their loan.