Student Loan For Abroad Studies, Important Points to Remember Before You Apply

A lot of students who plan on pursuing their higher education often tend to opt for an education loan for funding due to the rising costs. A student loan for abroad studies is the ultimate solution to your funding woes if you are looking for one. However, going through the entire process of getting a student loan for abroad studies without complete information can prove to be a real headache. This article aims to give you a complete lowdown of the essential points you need to keep in mind about the different phases of an abroad education loan process.

The process of obtaining a student loan for abroad studies is conducted in three major phases. These phases are:

1. Application processing phase
2. Disbursement
3. Repayment

Each of these phases takes place over a period of time ranging from two weeks to a month, depending on the type of overseas education loan you wish to fund your higher studies with. Before we give you an explanation of the various phases of a student loan for abroad studies, it is crucial to understand the two different types of abroad education loans available in India.

Read about Education loans for abroad: Public banks vs. Private banks/NBFCs

Collateral security is basically some sort of asset that is pledged to the lender by a borrower in order to obtain some kind of loan. Abroad education loans in India are divided into secured loans and unsecured loans, based on the need for this collateral security. In order to obtain a secured education loan to study abroad, applicants are required to pledge collateral security. On the other hand, an unsecured education loan to study abroad does not require applicants to pledge anything. In fact, students have a tougher time trying to secure unsecured education loans, as these loans are granted on the basis of a student’s academic profile and their co-applicant’s financial profile. In India, such unsecured education loans for abroad studies are provided by Non-Banking Finance Companies (NBFCs) and private banks such as the Axis Bank, ICICI Bank, etc.

As the name suggests, unsecured education loans are granted without the involvement of any kind of collateral security. Lenders of unsecured education loans always take a good look at the loan applicant’s profile before making a concrete decision to grant the education loan. 

NBFCs and private banks are some of the major providers of unsecured education loans in India. Since these loans do not involve collateral security of any kind, the interest rate of education loans without collateral is higher as compared to those of government bank education loan interest rates. The education loan interest rate charged by private banks and NBFCs varies depending on numerous factors. One of them is the country of study chosen by loan applicants. Here is an overview of the estimated education loan interest rate levied by NBFCs and private banks for the following countries:

1. USA: 11.5% to 12.75%
2. Canada: 12% to 13%
3. Germany, UK, France, Ireland, etc: 13% to 14.5%

Overall, the interest rate of education loans without collateral from NBFCs and private banks may roughly vary between 11.5% to 14.9%. 

As there is no collateral security involved in the non-collateral education loan process, lenders, especially the NBFCs, pay close attention to the universities into which the students have been accepted for an MBBS course. This is why NBFCs and private banks maintain a list of universities and countries that are approved for an education loan by them. To know about the complete list, get in touch with the WeMakeScholars financial team at the earliest possible instance. Let us move on to understanding the various points to remember while going through the important phases of an abroad education loan process.

Education loan repayment is the last phase of the process of getting a student loan for abroad studies. When you have an idea about the education loan repayment policies of both government banks, as well as private lenders, you can plan the entire process systematically and with a clear understanding. 

• The Concept of a Moratorium Period: A moratorium refers to a gap in tenure. In the education loan process, a moratorium period on loan repayment refers to a loan holiday granted to the applicants before their repayment process begins. Now, the major reason why this can be seen as a benefit is that the moratorium period is applicable only in the case of education loans. This provision is not granted for loans of any other nature. This moratorium period generally refers to a certain period in your loan tenure during which you will not be expected to commence your loan repayment. Students can commence their interest payment during this period (this depends on their lender’s policies), however, the EMI payment strictly begins after the moratorium period.

• Education Loan Repayment Policies of Government Banks for Secured Education Loans: Most government banks grant a payment-free moratorium period. That is, candidates who have borrowed their education loans from government banks, need not begin contributing towards their loan repayment till the end of the moratorium period. The moratorium period generally consists of the course duration, plus six to twelve months after the course (this clause is dependent on your lending bank’s policies). The interest for this period is calculated on a simple interest basis, by government banks. The EMI payment is expected to begin at the end of this time in the loan tenure. Almost all government banks grant an education loan repayment period of 12 years to 15 years from the end of your moratorium period. This tenure starts once your loan repayment holiday gets over. 

• Education Repayment Policies of NBFCs: NBFCs offer a moratorium period on education loan repayment as government banks do. However, unlike government banks, this period is not payment-free for those who have borrowed unsecured education loans to study abroad. So, ideally, the education loan repayment of unsecured education loans borrowed from prominent NBFCs begins once candidates receive the first disbursement of their education loan. NBFCs require students to make their interest payments during the moratorium period. The good news is that NBFCs accept partial payments of interest during the moratorium period. Partial payment is when candidates are allowed to partially pay the interest charged during the moratorium period. This means that if you are being charged a monthly interest of Rs.10,000 per month during your moratorium period and you are unable to do so, NBFCs allow you to pay only Rs.4000 to Rs.5000, depending on their policies.

All of the points mentioned above can help you prepare for some of the most crucial points in the abroad education loan process. We hope that the information provided here will help you plan your actions better, hence facilitating an easy process. If you have any doubts regarding the points mentioned above or are stuck at any point in the phases mentioned above, do not hesitate to contact our team.