Aspirations for overseas education often die prematurely due to the perception that it is an expensive affair. Adding to the common myth is that studying abroad is only for the rich. While studying abroad has its share of expenses to bear, it is not out of reach with the right planning, as reaffirmed by the data on foreign education.
As per a recently published Redseer report, more than 7,50,000 Indians were studying in foreign universities before the pandemic, spending $24 billion in economies outside India. This student number is expected to rise to around 1.8 million by 2024, leading to spending of nearly $80 billion.
The ROI on education abroad, globally-recognized degrees, and quality of education makes it an alluring choice. As the demand for foreign education grows, it has become more affordable with loans and expanding choices. While earlier Australia, US, UK, and Canada attracted most students, now Germany, Spain, France, Netherland, Italy, Dubai and Malaysia, among other destinations, have become a mainstream choice.
Planning Higher-Education Financially
Cost of attendance in institutions abroad includes tuition fees, clubs and activity fees, health insurance, housing, meals, transportation, books and supplies, and personal and miscellaneous expenses, to name a few. The other heads usually amount to an additional expense that is almost equal to the tuition fee charged by the university annually. Student loans cover the tuition fee as prescribed by the university. It also includes the entire cost of attendance and the economic class travel fare to the destination country.
Higher education abroad is usually financed with savings, scholarships, and loans. While scholarships are an indeterminable aspect, savings and loans are elements that people plan for and need to self-assess. Higher savings reduce the aspirant’s loan burden, decreasing the EMI and the repayment tenure.
Financing higher education abroad
Education loans take off the immediate burden of financing higher education. In India, various banks and Non-Banking Financial Companies (NBFC) offer student loans for higher education purposes. These organizations provide both secured and unsecured loans to students. While public sector banks offer unsecured (non-collateral loans) of up to Rs 7.5 Lakh, with a co-applicant, NBFCs like Avanse and Credila allow larger unsecured loans for the course duration of less than2 years. There are some other NBFCs that offer students a higher unsecured loan without collateral. These organizations, however, fund students who have received admission offers from the tier 1 institutions of the USA, Canada, UK and a very few institutions out of North America.
Indian banks or India-based banks offer a higher secured loan amount (Rs 15-20 Lakh) to aspirants who have a co-applicant with a minimum monthly salary of Rs 50,000. Online financers like Prodigy Finance and MPower Financing are few amongst financiers who evaluate student profiles for collateral-free loans without co-signers.
Co-applicants and Collaterals for Education Loans
Co-applicants and collateral help mitigate the risk for the lending banks. Secured or unsecured higher education loans usually require an aspirant to have a co-applicant who co-signs the education loan agreement. Though banking institutions prefer parents, siblings, grandparents and first-blood relatives as primary co-applicant for education loans, they also have provisions for secondary applicants (financial co-applicant) for exceptions in certain cases. Multiple co-applicants are allowed in cases where the primary co-applicant either does not have a stable income or permanent income.
While co-applicants need to have good creditworthiness, collaterals should have a tangible value. The acceptable collateral instruments are built property with clear ownership. For secured education loans, two types of collaterals are accepted —immovable property and liquid securities. The collateral assets are assessed by bank-approved evaluators who evaluate the property on three parameters: fair market value, realizable value, and deferred value.
While house, flat, or non-agricultural land with a boundary wall is the only accepted immovable property, fixed deposits, LIC policies, and government bonds are the liquid securities that the banks accept. The liquid securities are considered on different parameters such as face value for government bonds, surrender value for insurance policies, and principal value for fixed deposits. Official documents and deeds are handed over to the lending bank after assessment for loan application.
Feasibility of Education Loan
The education loans have longer tenures, and lending banks also offer a moratorium period of six months to one year for the aspirant to start earning before they begin with their EMI. On the other hand, unsecured loans do not have a moratorium period; thus, the repayment begins right after the first disbursement. Additionally, the interest rates are floating which depends a lot on a number of factors such as destination country, academic institution, program, co-borrowers repayment capacity, credit history, and collateral.
Self-assessing loan requirements thus become an important aspect for all aspirants who aspire to realise their academic dreams. With the right planning, studying abroad is not a far-fetched dream for anyone! Education loan helps aspirants in fulfilling their dreams of studying abroad and earning a 150 – 200% return on their educational investment.
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