Abroad Education Loan – A Burden or Investment?

Education has always been the guiding light for human civilization, and its roots stem from the thousand-year-old Indian civilization. In the information age of the 21st century, one can’t take the risk of leaving education aside for anything.

For people from the lower strata of society, education is the best and most convenient path to reach the zenith of success. For instance, take the world’s top corporate leaders of Indian origin, and there is one common factor among all of them: their humble family origins.

Abroad education at leading universities of the world completely changes a student’s outlook and opens the doorway to the top position of the world’s best institutions.

All of us tend to choose an investment that gives high returns, and perhaps getting a degree from a world-class university certainly pays compound returns for a lifetime. A decade back, study loan for abroad came with a lot of caveats, from pledging collateral to overly high rates of interest.

Abroad Education Loan - A Burden or Investment?
Abroad Education Loan

But the tables have turned now, and it’s the commoner who is at the core of India’s leading lenders. Middle-class Indians constitute a considerably large chunk of the Indian population, and lenders are structuring their education loan schemes to make them compatible with the aspirational middle class. 

How Can Abroad Education Loans Help Students?

Unlike India, countries abroad have a very high fee structure, cost of living, and other incidental expenses that come in handy with an overseas stay. So, banks give a comprehensive and customizable loan package that can be adjusted to the borrower’s needs. Abroad education expenses shouldn’t be seen only as the tuition fee as other expenses are also pretty high.

For instance, a student usually spends £1400 a month during their stay in London, i.e. INR 1,43,644. With such a high cost of living, it becomes crucial to have the financial ability to pay for the expenses. Banks help students in covering all the major expenses.

Earlier, the abroad education loans had limited expense coverage, and that left the loan applicants with a lot of costs to be managed on their own. With a slew of new entrants in the financial sector, there is no shortage of lenders offering 100% coverage of all the possible expenses.

Now, most public sector banks give expense coverage of around 70%-100%, while private banks offer approximately 90%, and the NBFCs offer 100%. So, an abroad education loan ensures that once a student enters a foreign country, they have to focus on their intended purpose of going there and not the financial burden of the high cost of education. 

Banks also provide reasonable terms of repayment. Public Sector Banks and Private Banks usually offer a one year moratorium period, i.e. the time after the completion of the course after which the repayment starts. NBFCs and International lenders have a relatively lesser moratorium period of around six months.

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Why should a student take an abroad education loan?

One of the best things about an abroad education loan is that it doesn’t come with a negative connotation, and borrowers increasingly see it as an investment rather than a burden. Abroad education from a world-class educational institution helps students get an opportunity to learn and work with the best minds of the world. It completely changes the outlook of a student. Taking an abroad education loan helps not only finance the expenses and the cost of education but also has many other benefits.

The Loan Amount

Since the loan amount for education abroad is pretty high, it can reach crores. So, for a commoner, such a considerable sum of money becomes untenable to be paid at once. The cost of education also includes the cost of living, which is also very high, and thus students should prefer education loans. Those who can afford it can even take the loan as they will be more confident after paying for their studies. The public sector, Private Banks, NBFCs and International lenders sanction high-value loan amounts. 

Tax Benefits 

The loan amount not only covers the expense of education but also helps in saving taxes. Section 80E of the Income Tax Act states that the interest paid on an education loan can be claimed as a deduction. This helps borrowers save a lot and can be claimed on all courses for which an abroad education loan is available. The duration and type, of course, has no bearing on claiming the tax benefits under section 80E. Students who took loans for a short-term course or a vocational course can also claim a tax deduction. 

The Coverage of Expenses

Students have to pay hefty amounts for accommodation, travel, computers, and a ton of other expenses. These expenses can be high in a foreign country and must be taken care of for the course duration. However, many students take up part-time jobs to take care of the expenses, but in most countries abroad, they will allow only a limited working hour for a part-time job. So, thinking that part-time work will cover the entire expenses isn’t right. Thus loans with comprehensive coverage help a lot with living expenses. 

Loan Before Admission 

In many countries like Australia, Canada, Germany, etc., one has to get a certain amount to be paid to the university before the admission is finalised and a visa is issued. Banks transfer the tuition fee to the educational institution’s account to complete the admission and visa process. So, a loan has a lot of benefits in these cases since arranging money at a short interval could be a cumbersome task amid the admission process. And any delay in the admission process might have a bearing on the studies. 

Loan Repayment 

When it comes to loan repayment, most students choose a tenable repayment time not to overburden themselves. However, those who end up with high salaries may choose to have a short repayment time as the interest on abroad education loans can be pretty high. Also, lenders provide a moratorium period that gives students breathing space before the repayment starts.

Which lender to choose for an abroad education loan?

As far as choosing a lender is concerned, there is no one size fit all approach. An applicant can choose a lender depending on the financial capabilities, repayment terms, interest rate, etc. Public Sector Banks (PSBs) are the best choice if an applicant can pledge collateral as the interest rates are reasonable and government subsidies are applicable on these loans. Private Sector banks are the next best choice as they give loans without collateral, which helps students who can’t pledge a high value and liquid asset.

NBFCs are also a good choice if one fails to get a loan from PSBs and Private banks, as they provide loans without collateral, but their interest rates are high. However, the loan processing of NBFCs is pretty fast. International lenders are also a decent choice, and they should be the last resort since the interest rate is pretty high and repayment time is also less than other lenders. However, international lenders are very flexible in terms of repayment for deserving students and those who secure admissions into prestigious universities of the world. 

Students can choose from any lender they want, and there is no good or bad scheme. All are equally good, and it’s the need of the borrower that should call the shots. A scheme might be the best choice for one while it might not be ideal for another. So, one can conclusively say that an abroad education loan is indeed the best investment an individual can make. 

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