Public vs Private Loans to Study Abroad

Public vs Private Loans to Study Abroad - Education loans to study abroad are provided both by public and private institutions. Public loan providers include banks such as SBI, Canara Bank, Bank of Baroda, etc. These institutions usually give a loan up to 1.5 crores with collateral. Private loan providers have private banks, non-banking finance companies (NBFCs) and international lenders under the ambit. Private banks include banks such as ICICI, HDFC, Axis Bank etc. are private banks that give a loan up to INR 40 lakhs without a collateral or with collateral. For Public vs Private Loans to Study Abroad, NBFCs offer loans up to INR 40 lakhs with or without collateral while international lenders offer loans to Indian students without collateral or co-applicant.

Data from 2012 to 2022 showed a 215% increase in the number of students taking out student loans to study abroad in the past decade, according to Bhagwat Kharad, minister of state for finance, who said this while sharing this information in the Lok Sabha earlier this year. He also said that from 2012 to 2022, about 4.61 million students have taken education loans to study abroad. One of the FAQs in taking an education loan is which is better, public vs private Loans to Study Abroad. The fact is there is a difference in these two categories of education loan providers in terms of quantum of loan, interest rate, processing time, moratorium period, processing cost and payout period.

Students who wish to take an education loan to study abroad must weigh their options before they decide to take the loan from a public or private institution. This article will give students an analysis of public vs private loans to help them.

Public vs Private Loans to Study Abroad - Key differences

Quantum of loan amount: There is a difference in the quantum of loan amount provided by public and private lenders. The amount also depends on whether it is a secured or unsecured loan. In the case of secured loans or loans with collateral, public lenders which mostly comprise of public banks such as SBI, Bank of Baroda, Bank of India etc provide a maximum loan amount of INR 1.5 crores whereas private lenders which are mostly private banks or NBFCs such as Axis Bank, ICICI Bank, HDFC or Kotak Mahindra, the disbursed loan amount can be between INR 75 lakhs to 1 crore. As for unsecured loans or non-collateral loans, the loan amount given by public lenders is 7.5 lakhs while it can be a maximum of INR 40 lakhs from private institutions.

Rate of interest: A key factor in public vs private loans is the interest rates. The rate of interest or ROI charged by private banks is usually higher when compared to public banks. Public banks charge an interest rate between 8.5% to 10.5% based on the loan amount. Private banks on the other hand have an ROI between 9 to 16% depending on the amount and the type of loan applied for.

Rate of Interest for Public vs Private Loans to study abroad

Processing time: The processing time also differs between public and private loans. While public institutions can take up to three weeks to process an education loan, private institutions usually complete the loan processing within ten days. Knowing the processing time is important because students have to plan their application to universities based on this.

Processing fees: Another area of comparison between private and public education loan providers is the processing fees. Private loan providers tend to charge higher processing fees which are about 2% of the total loan amount when compared to public institutions. Public loan providers usually charge 0.5% to 1% of the loan amount as processing fees.

Loan disbursement: Both the public vs private loans providers disburse the loan amount to the university where the student has got admission. The living expenses for the student are credited it the Forex card issued by the bank which has given the education loan.

Repayment tenure: When it comes to repayment tenure which indicates the time within which the repayment of the loan has to be made, both public and private lenders offer a time period of 15 years. The repayment has to be made in Equal monthly instalments (EMIs) once the moratorium period is over.

Moratorium period: The moratorium period is the time during the loan tenure in which the student is not required to make any payment towards the loan to the loan provider. For public vs private loans to Study Abroad Lending institutions usually provide a waiting period of 6 to 12 months for students to repay the loan. While private banks offer a moratorium period of 6 months, government banks provide up to 12 months.

Paying simple interest: It is optional to pay simple interest if students have taken a loan from a public institution. However, if the loan is from a private institution, students will have to pay interest once the loan is disbursed.

Age limit: Both public and private loan providers provide loans to students in the age bracket of 18 to 35 years. Students above 35 years of age must have a good academic and financial background to be eligible for a loan.

Public vs private loan: How to decide which is better?

To determine which loan provider is best for student loan financing, which is one of the important steps to taking an education loan, the student should make a comparison on the following parameters.

Loan limit: The loan amount should cover most, if not all of the student’s expenses.

Interest rate: It's always a good idea to take out a loan with a low-interest rate, as it affects the total amount invested in one’s studies.

Loan term: The longer the term, the lower the monthly payments, but the higher the interest rate. Students should choose the loan tenure based on their future income potential and financial goals.

Moratorium period: If the moratorium period is long, students can study or look for a job without worrying about repayment. This will give them time to focus on their studies and later on their job search.

Loan disbursement period: Students should consider how long it will take to repay the loan. This should match the application deadline, visa requirements, etc.

These factors should be considered when comparing public vs private loans for studying abroad.