Study Abroad education loans, types, repayments by Rajesh Kachave

Latest trends indicate that more Indian students are willing to go abroad for higher education. In a written reply to a query in parliament early this year, Subhas Sarkar, Minister of State in the Ministry of Education, Government of India said that 7.5 lakh Indian students enrolled for courses in foreign universities in 2022 while it was 4.4 lakh in 2021. This indicates that the cost of studying abroad is no longer a deterrent thanks to the student education loan providers who are ready to help students with loans based on their requirements. In this article, Rajesh Kachave, Chief Business Officer- Student Lending & Insurance Business. gives his insights on education loans for Indian students aspiring to study abroad.

Q. What are the types of education loans available for students who wish to study abroad? Please give details.

A. Education is a non-discretionary expense in India. Parents always aim to provide the best education to their children to build successful careers. However, skyrocketing education inflation prevents parents from financially supporting their children’s academic aspirations. Nowadays, students prefer financing their education independently by opting for a student loan. Therefore, new-age education-focused financing partners offer hyper-personalised education loans designed to cater to the financial requirements of the student fraternity.

We at Avanse Financial Services provide two kinds of student loans:

• Secured Loans: Secured loans are education loans that require collateral to be pledged against the loan amount. Collateral is any asset that is offered as a security to the lender. Fixed deposits by any registered deposit-taking organisation assigned in favour of the firm, non-agricultural land and residential property are accepted as security.

• Unsecured Loans: Unsecured loans are education loans that do not require any collateral to be pledged. Students can avail of an unsecured loan of up to 75 lakhs.

Financial requirements differ from student to student. Therefore, the applicant must choose between secured and unsecured loans based on their personal preference and financial needs.

1. What are the repayment terms for these?

Students opting for an education loan should be mindful of the repayment factor. Keeping finances in order is essential to clear the student loan seamlessly and simultaneously build a good credit score right from the start. Although the moratorium period buys some time to start paying the instalments, planning is important as it ensures timely repayments without any delays and penalties. Therefore, as a student-centric organisation, we encourage our students to pay a small portion of the interest component in the form of simple interest (SI) or partial interest (PI).

The student community must remember that the moratorium period is not an interest-free period, as interest begins to accrue from day one. Additionally, paying off SI/PI during the course instils financially prudent habits early on. A thought-through approach should be implemented to plan a robust education loan repayment strategy to pay off the borrowed amount.

Students can choose from the below-mentioned repayment options:

• Interest servicing during the course: Pay simple interest during the study program.

• Partial interest servicing during the course: Students can pay partial interest while pursuing their education.

• EMI repayment during the course: The EMIs, including the interest, will start post-completion of higher education.

2. What is the maximum loan limit available to students who want to study abroad?

Financial services firms in India are intent on democratising education in India by providing education financing which will empower deserving students to access quality education. Avanse Financial Services is one of them. These firms try to provide tailor-made solutions that best suit the financial requirements of the students. Therefore, the amount will depend on various factors such as the cost of education, student's employability potential, their parents/guardians’ financial background, and more.

3. What are the factors to consider when choosing an education loan?

It is imperative to choose the right type of loan and lender. So, diving headfirst into the first offer can lead to bad financing decisions. Here are some essential things to consider while choosing a student loan.

• Research is crucial for choosing the right lender: Conducting extensive research is important when opting for a student loan. Students should utilise online resources and seek advice from acquaintances who have already opted for similar financing solutions, as this will enable them to identify the most suitable education loan. Focusing solely on the interest rate is a common mistake most students commit. Hence, applicants must consider various factors when shortlisting the financial institution.

• Identify the right amount to borrow: To determine the appropriate loan amount, it is essential for a student to carefully examine the potential expenses involved when taking an education loan. Conducting thorough research can provide students with a better understanding of these costs. So, factor in all expenses beyond the tuition fees that will be incurred while studying abroad. Borrowing a large sum will unnecessarily increase the EMIs, whereas a lower amount will prove to be inadequate in meeting the expenses.

• Loans should cover the holistic cost of education: While considering a loan, students should ensure that it covers all costs associated with their education, not just tuition fees. The student loan should include travel expenses, accommodation costs, living expenses, the cost of learning devices and other education-related expenses.

• Planning a repayment strategy from day zero: While a student plans to apply for an education loan, they must also start planning an effective repayment strategy simultaneously. They should discuss all the components of a loan, such as loan amount, tenure, repayment options, and EMIs, with the lender to design the best repayment strategy that suits their education loan journey ahead. When opting for a student loan, building an emergency corpus will be helpful to continue with EMIs despite emergencies such as the pandemic.

4. Which is a better option- an education loan with collateral or an education loan without collateral?

The decision between taking an education loan with collateral or without collateral depends on the applicant’s financial circumstances and preferences. Therefore, students must analyse their financial requirements before selecting between the two. Ultimately, the best option depends on personal choices and priorities.

5. What are the advantages and disadvantages of taking an education loan?

Education forms a bedrock in students’ life to shape their careers. Thus, students prefer quality education and do not settle for lesser-known courses or lesser-popular universities, leading to competition. Hence, to give deserving students a chance, institutes are reinforcing strict measures to select candidates, and high demand contributes to increased costs. However, this has failed to discourage the student community from pursuing their academic aspirations, so they choose student loans.

• It covers the holistic cost of education: Education loans are designed to cover the holistic cost of education, including tuition fees, airfare, accommodation, living expenses, etc., which allows students to focus on their studies.

• Preserves family savings: Family savings are set aside for emergencies. If higher studies are funded using these savings, families will have tough times during contingencies. Education loan helps keep the rainy-day fund untouched, which can be utilised during challenging times.

• Pay post-course completion: One of the unique propositions of student loans is that financiers understand students may need some time to start repaying their EMIs, and therefore, education loans come with a moratorium period. This period varies depending on the financier. However, we believe that making small contributions during this holiday period is always beneficial.

• Be Atma Nirbhar: Education loan is one of the best ways to fund education independently. It helps students earn the self-made batch. Besides, when students repay a loan, they also start building their credit history. Students are at a crucial juncture where they will eventually need other financial products such as car loans, home loans and credit cards. A healthy credit score will unlock multiple benefits when opting for these financial solutions.

6. How does one decide the loan amount one needs to study abroad?

It is imperative to bear in mind the various expenses required for overseas education. So, for instance, if a student wants to complete their master’s degree in Canada, they must consider the overall costs such as tuition fees, travelling expenses, accommodation fees, cost of living in Canada, learning devices expenses, and more. It is advised to utilise College Course Expense Calculator to find the appropriate loan amount. Aspirants must also consult the lender, who will provide the necessary guidance.

7. What is the process for getting an education loan to study abroad? How smooth or tough is the loan application process for students?

New-age financial institutions have embraced digital tools, which have fastened the credit-decision process. This has enabled lenders to offer education loans at lightning speed. As a student-friendly organisation, customers can apply online or opt for the physical application process.

8. What is the average processing time for education loans?

Technology integration has fastened the overall loan sanction and disbursement process. Our technology-driven approach has enabled us to build scalability to offer lightning-fast, hyper-personalised financial solutions. This reflects in our quick application and sanction process. If all the necessary documents are in place and the loan applicant checks the criteria boxes, the loan can be sanctioned within 72 hours.

9. What are the current trends in education loans for studying abroad?

India has the largest student population in the world, aided by rising urbanisation, awareness, higher student enrolments, and increasing disposable income, all these factors are leading to a huge annual education-related spending of ~9-10 lakh crore across the entire student lifecycle. Education financing has been catering to this massive spending and, thus, is a multi-decade secular growth story in India, lenders play an indispensable role in this value chain.

The high outflows for international education are driven by the ambition among the student community to secure seats at legendary universities outside their home country. Educational institutions, on the other hand, offer a plethora of choices in terms of subjects, courses and degrees.

Apart from the regular conventional courses such as STEM and MBA, institutions also provide a wide range of non-conventional courses such as aviation, music, animation, etc. The awareness of educational degrees has significantly increased, amplifying its demand and students’ aspiration to achieve them. Thus, the rising cost of education, pent-up demand among students in the post-pandemic world and their desire to achieve their academic dreams independently have fuelled the growth of the education financing segment.

10. What are the demographic details when it comes to education loans to study abroad?

We have observed an increasing demand for education loans among students from Mumbai, Delhi, Hyderabad, Bengaluru, Chennai, Pune, Kolkata, Ahmedabad and more. There’s also a rising demand for education loans from tier II and tier III cities such as Vijayawada, Visakhapatnam, Guntur, Warangal, and Tirupati, to name a few. Moreover, since countries like the US, the UK, Canada, Ireland, Germany, and Australia offer impeccable education, a plethora of courses, state-of-the-art infrastructure, and an incredible learning experience, they remain some of the top choices among study-abroad aspirants. In terms of study programs in these countries, STEM and MBA continue to rule over the hearts of the student fraternity. During the past 2 years, we have witnessed female aspirants opting for student loans to fund their higher education independently. Over 35% of women students have opted for education financing from Avanse Financial Services.