Pursuing higher education abroad is a dream for many Indian students. However, the cost of studying overseas, including tuition fees, living expenses, travel, and other costs, can be overwhelming. For most students, taking an education loan is an essential step in making their dream of studying abroad a reality. This article provides a detailed guide on how to get a loan for studying abroad in India, the types of loans available, and the application process.
1. Why You Need a Loan for Studying Abroad
Studying abroad can be a life-changing experience, offering exposure to world-class education, diverse cultures, and greater career opportunities. However, the cost of education abroad can be significant.
Some of the key expenses include:
- Tuition Fees: The cost of tuition depends on the country, institution, and program. For example, top universities in the US, UK, or Australia can charge upwards of ₹20-30 lakhs annually.
- Living Expenses: Rent, food, utilities, transportation, and personal expenses can add a substantial amount to your total expenditure.
- Travel Costs: Airfare to and from your study destination can cost around ₹50,000 to ₹1,50,000 per year, depending on the distance.
- Insurance and Other Fees: Some countries require students to have health insurance, and there may be visa application and other administrative costs.
Given the substantial expenses involved, an education loan for studying abroad can help students finance their dreams without burdening their families with high upfront costs.
2. Types of Loans for Study Abroad
In India, various banks and financial institutions offer education loans specifically for students who want to pursue higher education abroad. These loans come with different terms, interest rates, and features.
A. Bank Education Loans for Studying Abroad
Most major banks in India offer education loans for studying abroad. These loans are generally categorized into secured loans and unsecured loans.
- Secured Loans (With Collateral):
- In secured loans, the student or their family needs to pledge an asset like a house, fixed deposit, or property as collateral.
- The loan amount can range from ₹10 lakhs to ₹1.5 crore depending on the bank and the value of the collateral.
- Interest Rates: Secured loans typically have lower interest rates compared to unsecured loans, ranging between 8.5% to 12%.
- Unsecured Loans (Without Collateral):
- These loans do not require collateral but are generally available for lower loan amounts, usually ₹7.5 lakhs to ₹20 lakhs.
- Interest Rates: Unsecured loans generally have higher interest rates, ranging from 10% to 14%.
- They are more suitable for students without assets to pledge as collateral but still need to meet the eligibility criteria for these loans.
B. Government Schemes and Subsidized Loans
The Indian government has introduced schemes to make studying abroad more accessible for students from economically weaker sections of society. These include subsidized education loans with lower interest rates.
- Interest Subsidy for Education Loans:
- The Government of India offers interest subsidy for education loans under the “Interest Subsidy Scheme” for students from SC/ST communities.
- This scheme provides interest relief during the course period and the one year after completion of the course.
- Pradhan Mantri Vidya Lakshmi Yojana:
- This is a centralized platform for students to apply for education loans, especially for studies abroad. It connects students with multiple banks, making the application process easier and more streamlined.
- The scheme ensures subsidized interest rates for students from weaker financial backgrounds.
3. Key Features of Education Loans for Studying Abroad
When applying for an education loan to study abroad, it’s important to understand the key features and terms involved:
A. Loan Amount
- For studies abroad, banks generally offer loans ranging from ₹10 lakhs to ₹1.5 crore, depending on the institution and course of study.
- Higher loan amounts are typically available for prestigious institutions or courses like MBAs, Masters in Engineering, or Medical Studies.
B. Interest Rates
- Interest rates for education loans are typically 8% to 14%.
- Interest rate depends on various factors such as whether the loan is secured or unsecured, the bank, and the student’s academic profile.
C. Repayment Period
- The loan repayment period can range from 5 to 15 years, with a moratorium period (which is the time before you start repaying the loan) provided during the course of study and typically 6 months to 1 year after the course completion.
D. Moratorium Period
- A moratorium of up to 1 year after completing your studies or until you secure a job, whichever is earlier, is usually allowed.
E. Collateral Requirements
- Collateral is generally required for loans above ₹7.5 lakhs, especially for secured loans.
- Collateral can be in the form of property, fixed deposits, or other assets.
F. Loan Disbursement
- The loan amount is typically disbursed in instalments based on the academic requirements (tuition fees, living expenses, etc.).
- Disbursements are usually made directly to the educational institution or the student’s account based on the purpose (tuition, living expenses).
4. Eligibility Criteria for Education Loans for Studying Abroad
Eligibility criteria for loans to study abroad can vary from bank to bank, but generally, the following conditions apply:
- Indian Citizenship: The applicant must be an Indian citizen.
- Age: The applicant should typically be between 18 and 35 years of age at the time of application.
- Academic Qualifications: The student must have secured admission to a recognized educational institution abroad. Some banks may also require proof of academic excellence.
- Course Requirements: The course should be full-time and from a recognized institution (university, college, or school).
- Family Income: Many banks require proof of family income to assess repayment ability. The family income requirement generally varies from ₹3 lakh to ₹10 lakh annually, depending on the loan amount.
5. Documents Required for Study Abroad Loans
When applying for an education loan for studying abroad, students will need to provide the following documents:
- Proof of Admission: Letter of admission or offer letter from the foreign university.
- Academic Records: Transcripts, certificates, and marksheets (from school and college).
- Proof of Identity: Aadhar card, passport, or voter ID.
- Income Proof: Income certificate, salary slips, or income tax returns of the parent/guardian.
- Collateral Documents (if applicable): Property documents, fixed deposit receipts, etc.
- Statement of Purpose: Some banks require a brief statement explaining your motivation for studying abroad.
- Bank Statements: Usually for the last 6 months to assess financial status.
6. How to Apply for an Education Loan for Studying Abroad
Here’s the general process for applying for an education loan to study abroad:
- Research & Choose a Bank/Loan Provider: Compare the loan amounts, interest rates, repayment terms, and eligibility criteria of various banks and financial institutions.
- Prepare Documents: Gather all the required documents, such as the admission letter, academic transcripts, identity proofs, and income certificates.
- Submit the Loan Application: You can apply online or visit the bank branch to submit your loan application.
- Loan Processing & Approval: The bank will process your loan application, verify documents, and assess your eligibility. They may conduct an interview or provide additional queries.
- Disbursement: Once approved, the loan amount is disbursed in instalments directly to the institution or your account.
7. Repayment of the Loan
Once you complete your studies, the loan repayment begins. Typically, there is a moratorium period during which you do not have to repay the loan. The repayment process includes:
- EMI (Equated Monthly Installments): Fixed monthly payments towards principal and interest after the moratorium period.
- Postponing Repayment: If you face difficulty in finding a job, most banks allow you to delay repayment for a period.
- Prepayment: Some banks allow prepayment of the loan without penalties, which can reduce the interest burden.
8. Tax Benefits on Education Loan
Under Section 80E of the Income Tax Act, the interest paid on education loans is eligible for tax deduction. This benefit is available for loans taken for self, spouse, or children for pursuing higher education in India or abroad. The deduction is available for up to 8 years or until the interest is fully repaid, whichever is earlier.
Conclusion
An education loan for studying abroad can be a powerful tool to help you achieve your academic and professional goals. By understanding the loan types, eligibility criteria, and application process, you can select the best option that aligns with your financial and educational needs. It’s essential to carefully research the various banks and loan schemes available to make an informed decision.