Education Loan

Since globalisation has taken over the world and our lives, we have become a part of a multifaceted society connected through economies, cultures, technologies, politics, trade, etc. As a result, a plethora of possibilities have opened up to explore and unfold the hidden opportunities beyond territories and boundaries. One such factor that has significantly impacted the global economy is the prospect of overseas education, which has only become possible due to the interconnectedness and interdependence of various societies on each other.

In fact, overseas education was previously restricted to only a certain privileged section of society. However, with the advent of globalisation, people have started to reconsider their choices and are more than ever aware of the power of education. Although the prospect of overseas education holds the strength to transform the world through innovation, it often makes people conscious about their financial upholding. To no surprise, many students who envision studying abroad deliberately renounce their dreams due to their unwillingness to ask for financial assistance. 

Surprisingly, this perception regarding education loans has significantly evolved with time. Earlier it was seen as a financial burden with high interest rates and a looming sense of debt, it is now considered a smart and strategic choice, which prevents you from depleting your liquidated funds and assets for financial security. Therefore, if you plan to study abroad in the UK, Ireland, or any other country, this article will guide you through everything you need to know about securing an education loan.

GET IN TOUCH WITH US

Why Consider an Education Loan?

Notably, there has been a sudden spike in the number of education loan borrowers in the last few years, which indicates a growing awareness among people about strategic financial planning and management. As a result, people have started to consider education loans as a safe, secure and smart option for maintaining their financial stability without hampering their current economic scenarios. Let us now discuss the advantages of an education loan and how it can help you maintain your finances wisely.

Overcoming Financial Barriers

It is unquestionably true that overseas education can lead to a promising career and can exponentially spearhead one’s personal and professional growth. However, this decision can take a toll on your finances, pushing you into an overwhelming situation where you contemplate between self-funding extraneous expenses or sanctioning an education loan. While both self-funding and education loans are highly challenging situations, their repercussions are drastically opposite.

Self-funding your education abroad can drain you of your life’s savings including important assets like gold, properties, insurance, etc., leaving you with little or no financial security during unforeseen circumstances. On the other hand, an education loan can pull you out of such critical junctures by helping you overcome your financial barriers. Additionally, it will not only cover the tuition fees, living costs and other expenses but will also provide you with monetary advantages in terms of low interest rates, tax relaxation, flexible repayment terms, and even government subsidy and education loan insurance in some cases.

Key Advantages of Education Loans

Here are some key benefits of education loans you can get hands-on:

  • Flexibility in Repayment: Instead of arranging a large sum of money in a short period as in self-funding, an education loan allows you to borrow and repay as per your capacity. It also offers you a moratorium or a grace period where you have the flexibility to arrange your finances while also focusing on your career.
  • Low-interest Rates for Students: Usually, the interest rates are comparatively low for educational purposes and even the government provides subsidies to public banks for low-interest education loans.
  • Tax Benefits on Education Loans: A borrower can also benefit from the tax deduction policies of the Indian government, wherein, you can claim a tax deduction on the interest rate under section 80E of the Income Tax Act, 1961.
  • Building a Credit History: Interestingly, opting for an education loan over self-funding helps you build a strong CIBIL score as timely EMI repayment results in a positive credit history.

Types of Education Loans Available

Secured Vs Unsecured Loans

Secured loans are usually offered based on collateral security, where a borrower pledges collateral to secure a loan so as to provide compensation to the lender for an outstanding loan debt. This kind of arrangement is done to ensure timely payments and if in case the borrower fails to do so, the lender is liable to seize the collateral and make ends meet. Whereas unsecured loans do not require any collateral, but the borrower has to have a co-signer with a good credit history, excellent academic scores and admission to a recognised university to avail of this loan.

Both secured and unsecured loans have their pros and cons but consider the below-mentioned factors while choosing between them, refer below: 

  • As already stated, secured loans involve collateral which generally includes valuable assets such as property, gold, insurance, etc., whereas unsecured loans do not include any collateral requirement. Therefore, it is an individual choice and is highly dependent on the financial well-being of the borrower to consider between the two.
  • Secondly, secured loans are provided by government banks, which implies that these banks offer low-interest education loans as compared to unsecured loans, which are usually higher than that.
  • Thirdly, as there is no collateral involved in unsecured loans, the amount of loan offered in unsecured loans is lower than in secured loans.
  • Lastly, there is a risk of financial strain in secured loans due to unexpected failure in loan repayment, which can result in loss of collateral.

All these factors play a huge role in determining the type of education loan you want to opt for. Therefore, compare your options before moving through the application process.

Government-Supported Loans

Since students are increasingly opting for overseas education, it has proportionally increased the number of education loan borrowers in the country. Resultantly, the government has invested in special schemes at subsidized interest rates for students from special backgrounds.

As per Dr Ambedkar’s Central Sector Scheme on Interest Subsidy on Educational Loan for Overseas Studies for OBCs and EBCs, the annual parental income should not exceed more than 2.5 Lakh. This scheme is applicable for admissions to approved courses at Masters, M. Phil or Ph. D levels, intending to increase employability among economically weaker sections.

Moreover, the “National Scheduled Castes Finance and Development Corporation (NSFDC)” applies to full-time technical and professional courses with up to Rs 40 Lakh or 90% of the fee (whichever is less) and the Vidhya Laxmi Scheme offers a loan of Rs 15 Lakh with 5 to 7 years of grace period and tax benefit.

For more information, dig deep into these schemes to reap the amazing advantages.

Eligibility Criteria for Education Loans

It is important to know that education loan applications involve a complex process in terms of documentation and eligibility criteria. Therefore, to simplify the application procedure, we have jotted down the basic requirements which you need you fulfil beforehand.

Basic Eligibility Requirements

  • Age limits and Academic Performance: To apply for an education loan, there is no stipulated age limit. Although different banks and NBFCs often look for good academic performance as it enhances eligibility.
  • Admission into Recognised Institutions: Also you must secure admission into a recognised institution to spearhead your education loan application.
  • Specific Eligibility for the UK Institutions Along with all the above-mentioned criteria, you will need your CAS letter and admission confirmation letter for UK universities.

Documents Required

  • Identification and Admission Letters: Most importantly, you need to submit either your Aadhar card, PAN card, Voter card, or Passport for the identification proof and your admission letter from the university.
  • Income Proof and Academic Records: You will also need your income proof such as income slip or Income Tax Returns (ITRs) and your academic documents including marksheets and certifications.
  • Co-applicant’s Information for Secured Loans In the case of secured loans, the co-borrower’s information and collateral documents are equally important to strengthen the loan application.

How to Apply for an Education Loan

Now, look at the step-by-step guidance on how to apply for an education loan. 

Step-by-Step Application Process

  • Researching and Comparing Loan Options: First of all, you need to delve into research and decide if you want to go for a secured or unsecured loan. Afterwards, dig deep into each option and compare important parameters including interest rate, loan repayment time, moratorium period, insurance policy, etc. before you make up your mind.
  • Preparing Necessary Documents: Afterwards, start collecting all the necessary documents beforehand to avoid last-minute hassles.
  • Approaching Banks or Loan Providers: Then, visit your lender for detailed conservation regarding the whole process and understand every concept or terms and conditions.
  • Understanding the Loan Approval Process: Lastly, understand the complex loan approval process and ask as many doubts as possible for your clarification.

Tips to Enhance Your Loan Approval Chances

You must know that you can enhance your loan approval chances through certain tips mentioned below:

  • Importance of a Good Credit Score A good credit score reflects your ability to repay the loan by checking your overall creditworthiness. Make sure either you or your co-applicant has a good CIBIL score.
  • Role of a Co-Applicant: In case of an applicant’s weak credit history and unstable income, a co-applicant with a strong CIBIL score can save your game.
  • Strengthening your Loan Application: You can strengthen your loan application by submitting various documents such as admission proof, identity proof, residence proof, academic records, financial documents and co-applicant documents (if needed).

Make sure all the above-mentioned documents are complete and accurate to streamline the loan approval process.

Education Loan Repayment Options

Generally, education loan repayment is considered a critical step as it involves strategic financial planning to manage timely payments. Let us look into some repayment plans that will help you simplify this process. 

Repayment Plans

  • Firstly, you must look into different repayment schemes available for students, which may offer large repayment tenure, longer moratorium periods and lower interest rates.
  • Secondly, there are flexible EMI options available where you can select EMIs as per your paying capability.
  • Thirdly, education loans also come with the benefit of early repayment, allowing you to get rid of unnecessary financial burdens before the stipulated time.

Interest Rates and Loan Tenure

Education loan repayment involves critical thinking and strategic financial management to calculate the loan tenure and interest rate. Below mentioned are some important factors that you can consider while choosing these two.

  • Most importantly, a borrower should decide between fixed or floating interest rates for the education loan as EMIs are dependent on this factor. In fixed interest rates, the rate of interest will remain immutable throughout the entire loan repayment period. Whereas in the case of a floating interest rate, the rate of interest keeps fluctuating as per the market forces and it can increase or decrease multiple times during the repayment period.
  • Also, floating interest rates are complex to predict and involve non-linear EMIs, therefore, manage your monthly finances accordingly.
  • Additionally, as RBI determines the base rate as per the market dynamics, the rates do not drastically vary sporadically as the whole economy depends on that.

After you decide on the interest rate, choose the right loan tenure for manageable EMIs so it does not severely affect your finances.

Key Factors to Consider When Choosing an Education Loan

Interest Rates and Additional Charges:

While choosing an education loan, one should consider and compare interest rates across public banks, private banks and non-banking financial corporations. Also, pay special attention to hidden charges like processing fees and prepayment penalties before the final application.

Loan Amount and Repayment Flexibility

Consider the availability of the maximum amount while choosing an education loan and also understand the moratorium and grace periods as these give you the leverage to start the loan repayment process after a certain period of course completion.

Student Loan Insurance and Its Importance

What is Student Loan Insurance?

A student loan insurance is a safety measure specifically designed to provide financial security in case the borrower fails to repay the loan due to any unforeseen circumstances. It also acts as a safety blanket as it protects the borrower’s family from the financial obligation of paying the loan amount. Also, note that there are various government-based schemes which can significantly help you in such cases. For instance, the SBI Rinn Raksha can help you avail a concession of 0.50% on the interest rate, eventually translating into a substantial relief on the overall loan amount.

Benefits of Loan Insurance

Due to the unpredictability of life, we should be prepared for certain uninvited situations. Having student education loan insurance is a wise step as it can provide valuable financial support without hindering your life’s savings while offering peace of mind to the borrower’s family.

Tips to Manage Your Education Loan Efficiently

Budgeting for Living Expenses

To manage your education loan efficiently and without any financial strain, one must create a budget plan to calculate the living costs in the UK and Ireland and start allocating your funds for emergencies to avoid eleventh-hour complications.

Effective Loan Repayment Strategies

Note that, a student can work 20 hours per week during term-time and 40 hours per week during vacations. Therefore, utilise this time to your maximum potential to effectively repay the loan EMIs.

Furthermore, in some cases, a borrower is given loan repayment holidays, so it is highly suggested to make the best use of that.

FAQ

Although banks and non-banking financial corporations have different sets of criteria, you can follow generic eligibility criteria which include excellent academic records and admission to a recognized university.
It is completely an individual choice. However, do note that secured loans are based on collateral while unsecured are not. Hence, choose accordingly between the two by comparing other factors as well.
People have become aware of considering education loans over self-funding as it not only prevents you from draining finances but will additionally help you with tax relaxation, flexible loan repayment, good credit history and low interest rates.

Conclusion

To sum up everything, it can be said that choosing the right education loan can make a big difference in your study abroad journey. In today’s world, when it becomes too hard to manage finances, availing of an education loan will not only help you strategically manage your finances without draining life’s savings, but it will also shower you with endless benefits that will improve your future financial health. However, it is wise to explore multiple options before finalising your lender as small differences can create huge differences in the overall loan amount.

Fateh has helped over 35,000 students conquer their dreams with our 120+ top UK university partnerships. Are you planning to study an MBA in the UK? Contact us today.