This is a discussion we had with Jainesh Sinha, founder of Gyandhan on everything you want to know about how to get an educational loan to study abroad, what are indicative rates, what to watch out for, documentation, processes etc.
Why should we care about which choice of education loan we make?
Largely because of how much money an education loan is. From the minute the interest kicks in, to the various other factors and fees, choosing the right education loan can save lakhs of rupees on the same loan amount. For a rough calculation: a Rs. 30 lakh loan at 10%, repaid in 5 years after your graduate course, will cost approximately 10 lakh in interest! Usually this is repaid over 5 to 7 years.
There are two types of loans
- With collateral – here you can get a larger loan amount at lower interest rates
- Without collateral – these are harder to get, and more often you get them to study a Masters in Engineering (STEM) fields and a top MBA course. You may not get this very easily for liberal arts fields like Law etc. Even in countries like Europe, Australia etc. the skill gap is in the field of science and that’s where loans will be easier to get. About the top 70-80 B – Schools would be eligible
There are three parties to documentation –
- The Student
- A co-applicant is required which is most often a parent.
- Anyone can provide the collateral, and become a guarantor.
So for all three you would require –
- ID documents – like Aadhar card
- Financial documents – like salary slips
- Property documents
- Approved map, blueprint etc. – which varies per city
- Academic documents
How to go about selecting the right education loan (and what factors to keep in mind):
- The rate of interest will affect the total amount you repay to the bank significantly. The lower the ROI the better it is for you as a borrower.
- Look at the processing fees charged by the lender. These can range from a predetermined amount of money to a portion of the loan amount.
- The currency in which the interest rate is quoted in matters a ton. For example: A 9% loan in US dollars is most likely to be more expensive that a 11% loan in INR, simply because the USD is expected to gain more than 5% per year over INR in a long-term scenario. Ref: https://medium.com/@williamair1/not-all-interest-rates-are-created-equal-7550d70e6e89 and https://en.wikipedia.org/wiki/International_Fisher_effect
- Looking at the forex transfer cost is also important. These can either add to your financial burden or save you money depending on the margin charged by the lender.
- Is the interest simple or compound?
- Do check if there are any hidden fees or pre-payment penalties associated with the loan.
- Does the lender mandatorily cross-sell other products such as life insurance, etc?
- How is the usage of funds allotted by the lender (are living expenses included; are health insurance payments included, etc). For the same, looking at the margin money (i.e. proportion of the total cost to be borne by the student) is also very important.
- Is pre-visa disbursal possible with the loan? Is this something you need
- How do you pay for living expenses? Making such disbursements can be difficult, although some lender like SBI and Axis Bank offer convenience cards for easy payment.
- What is the amount of disbursal expected for you to make? Some lender push borrowers to make a full disbursal in the first withdrawal, which can become a huge financial burden for a student as the ROI is charged on the whole amount from the get go.
- Does the borrower have to make any payment during the moratorium period?
- Does the lender provide credit life insurance as well? Credit life insurance prevents your debt from being passed onto your co-applicant in the event of your passing away.
- Does the loan provide any tax benefits?
Also see our blog posts on ‘Costs of Studying Abroad’
How to Get Education Loan to Study Abroad and Apply for Education Loan, Eligibility & common Mistakes. Also how to get the cheapest education loan with Jainesh Sinha, founder of Gyandhan who talks about a loan, educational loan, how to get an educational loan to study abroad and details of how to get education loan along with suggestions on how to apply education loan