Education Loan FAQ for Study Abroad

One of the major problems faced by students while going abroad is to manage finances. Since studying abroad is very costly and the competition for scholarships very high, many students rely on education loan to fund their studies. Here are the major frequently asked questions about student loan.

Q: Who can avail an education loan?
A: Educational loan is available to students who pursue higher studies (full-time graduate or postgraduate courses). Each bank has a different policy for providing loans to students who pursue various courses. Banks provide education loans for management, engineering, law, architecture, medicine, applied and pure sciences and nursing. The candidates going abroad for higher studies mostly get education loan irrespective of their subject of study. The loans are provided only if the student has secured a place in a recognized university/institute for higher studies. Some of the other criteria include the academic record of the student and the income stability of the parents.

Q: Whom can I approach for education loan?
A: Most of the banks and financial institutions provide student loans. Banks such as HDFC, Bank of India, SBI, Syndicate Bank etc are in the forefront in providing education loans for study abroad.

Q: What costs are covered under an education loan?
A: The educational loan covers the tuition fee, examination fee and hostel/accommodation fee. Some banks also provide one-way air fare for the students. However, it varies from bank to bank. The disbursement of the education loan is directly to the educational institution.

Q: What are the documents required to apply for education loan?
A: The major documents needed to apply for educational loan are:

a) Mark sheet of all qualifying exams
b) Proof of admission
c) Two passport size photographs
d) Estimated expense including fee and lodging
e) Bank statement for six months of the borrower
f) Income tax assessment order not more than two years old

Q: Do I need a guarantor to get an education loan?
A: Yes, you must have a guarantor to apply for education loan. In case the applicant fails to repay the loan amount, the guarantor is responsible for paying it back. The guarantor is selected on the basis of the net income of a person.

Q: How much loan can I get?
A: If the candidate is studying in India, the maximum education loan amount he/she can get with moratorium is Rs. 10 lakh and without moratorium is Rs. 7.5 lakh. If the candidate is going abroad for higher studies, the maximum amount he/she can get with moratorium is Rs. 20 lakh and without moratorium is Rs. 10 lakh.

Q: What is the interest rate of education loan?
A: The interest rate of educational loan depends on two factors: the amount taken by the student and the bank that has issued the loan. Usually, the interest rate of student loans varies from 11.25% to 13.5%.

Q: What is the duration for education loan for repayment?
A: The average tenure for education loan can range between 5 to 7 years. However, most of the lenders also offer loan tenure of upto 10 to 15 years also for higher loan value.

Q: When should I start repaying the loan?
A: The student has to repay the loan in EMIs (Equated Monthly Installment) once the course is over. Usually, banks ask the student for the repayment of the loan within six months to one year after completing the course. The student will get 10 to 15 years to repay the education loan, again depending on the bank from which he/she took the loan. If the candidate fails to complete his/her studies, the loan repayment must start immediately. But, some banks give grace period up to six months to the candidates to start the repayment.

Q: What is the holiday period in the education loan?
A: The duration of days after completion of the course and before the start of the repayment tenure is referred to as the holiday period.

Also know about:

Top education loan providers in India to study abroad
Education loan to study abroad: Whom to approach?

Q: What is the time required for education loan disbursement?
A: Depending on the bank or lender, the time frame can vary from days to months.

Q: How is the loan disbursed?
A: The university fee and hostel fee is directly disbursed to the institutes as per the fee schedule and structure. Other expenses which are related to laptop, books, travel are provide to the loan applicant.

Q: What is the required minimum marks to get a study abroad education loan?
A: Few banks mention minimum marks while few do not, but getting a score equivalent or more than 60% will be suitable for obtaining the education loans.

Q: What is meant by own contribution or Magin money
A: In a loan, the money contributed by the debtor instead of the lender is referred to as its own contribution or margin money.

Q: What is meant by EBLR?
A: EBLR stands for External Benchmark based lending rate. It is a new structure in loan scheme. Through this EBLR, the loan schemes which follow EBLR, the floating interest rate can be increased or decreased depending on the RBI's lending rate. the EBLR can be reset for at least once in 3 months as prescribed by RBI.

Q: Is it possible to get 100% loan for study abroad?
A: Yes, almost every private bank and NFBC (Non-banking Finance Corporation) covers the entire study cost. However, public banks may ask for borrowers to cover at least 10 to 15% of the loan amount.

Q: Can I get an education loan of 20 lakhs without any collateral or security?
A: Most of the private banks and NFBCs can provide an education loan of 20 lakhs without collateral.

Q: Can I get an education loan without parents?
A: Yes, If the candidate has more than 3 years of experience with more than 35K (in INR) of salary, they are eligible to get an education loan. In this loan, the candidate can act as an applicant for the loan. Another co-applicant detail must also be provided, just in case to contact if the self-applicant is not available.

Q: Is there any education loan without interest?
A: No, there is no education loan in India which is free from interest. The only alternate possible things are scholarships and subsidies. Through subsidies the candidate can get a concession on the interest rate of the education loan.

Q: Why education loans get rejected?
A: There are many reasons why banks reject education loans. Some of the reasons are given below.

• Incomplete documnetation
• Low credit score or CIBIL score of the borrower.
• Unrecognized institute or university.
• Low academic score of the candidate.
• Low repaying capacity.
• Insufficient Collateral or security

Q: How to get education loan for study abroad?
A: Visit the branch of the bank which is nearer. Know the necessary details and collect the necessary documentation. The candidate can fill out the application form offline or online and upload the necessary documentation. Once confirmed, the candidate gets a call from the bank regarding loan approval.

Q: Is it necessary to buy insurance policy with the education loan?
A: Yes, depending on the loan type like collateral or non collateral the candidate has to buy either property insurance or life insurance or else both for the education loan.

Q: What is the maximum loan amount possible for overseas education?
A: The private banks lend up to a maximum amount of 75 lakhs for education loans. However, depending on the banks, university reputation, candidate's academic performance, loans above 75 lakhs are also given.

Q: Does the education loans have tax benefit?
A: Yes, the loan borrowers can avail of the tax benefit while paying the education loan. According to section 80E of Income Tax Act, the interest paid on the education loan can be allowed for deduction in the income tax amount. However, the tax benefit is applicable only on the interest part of the loan but not on the principal amount.

Q: What are the disadvantages of an education loan?
A: Although an education loan helps in funding the studies of the candidate, it is not limited to the problems that arise from it.

• The candidate has to look for jobs, that pay well and meet all the expenses.
• Credit score can be affected if the candidate fails to pay the monthly payments.
• The floating interest rates which can be increased may impact the ability to repay the debt of the candidate.

Q: Is there any prepayment penalty on education loan?
A: Most of the banks do not charge any penalty on prepaying the loan amount. However, it would be beneficial to check with bank loan conditions before signing.

Q: Is it necessary to have the account with the bank account for education loan?
A: Previously it would be necessary for the candidate to have an account in the bank to avail the education loan. Now, it is no longer mandatory.

Q: Do banks offer education loan in foreign exchange?
A: For an abroad education loan, all of the fees and expenses are in dollars, euros, ponds, etc. For this purpose, the banks charge additional currency conversion fees as per the RBI regulation.