Everything you should know about an education loan to study abroad

 
According to CNBC , the number of Indian students taking an education loan to study abroad has skyrocketed over the past 10 years. In 2022, 1,200 students took an education loan to study abroad, with an average loan size of nearly Rs 25 lakhs. This is a sizeable number considering the different formalities and documentation that follow.

If you plan to take an education loan to study abroad, here's everything that you should know. 

Eligibility criteria for taking an education loan to study abroad
 

As a student, you have two options to arrange funds to study abroad - 

• Taking a secure loan from banks or NBFCs 
• Taking an unsecured education loan from banks or NBFCs 

You must understand the education loan eligibility guidelines before applying to a bank or other money-lending institution for a loan. The general education loan eligibility criteria for all banks or money-lending institutions include the following -

• The applicant must be an Indian national.
• The applicant should be 18 years or older at the time of loan commencement.
• The applicant must be admitted to the specified college, university, or institution. 
• Even if an applicant doesn’t get a secure admission, a pre-admission loan sanction is subject to the type of course, country, or university the student has applied for 

Also read - Education Loan eligibility for students: Challenges and solutions ​​

Interest rates
 

Education loan interest rates are usually lower than other types of loans. 

• The interest rates for an education loan to study abroad start from nearly 9% p.a. and go up to 16% p.a. depending on the bank, the loan amount, and the moratorium period.
• Education loan interest rates depend on the repo rate, which the Reserve Bank of India (RBI) has set at 6.25% p.a., currently.
• At present the effective ROI for education loans ranges between 9% and 15%

The loan amount and the repayment period
 

Applicants must know the following details about the loan amount and the repayment period -

• To help students get an education loan to study abroad, banks in India may sanction funds up to Rs 1 crore to cover different academic and miscellaneous expenses. For example, aspiring students can get a collateral-free education loan to study abroad from IDFC FIRST Bank up to Rs. 50 lakh*  
• The education loan repayment will start as soon as you complete your course or get a job, according to the repayment schedule outlined by your bank. 
• When repaying the education loan, you must know the moratorium period your bank allows. A moratorium period is a gap that comprises your course duration plus 6 to 12 months. During this period, you are not obligated to pay the loan EMIs 
• Most banks in India sanction an education loan repayment period between 12 to 15 years, including the moratorium period. Students can initiate education loan prepayment sooner if they can afford to.

The calculation of your education loan EMI amount is -
 

EMI = [P x R x (1+R)^N] / [(1+R)^N-1]

Where:
P = Principal amount of the loan
R = Monthly interest rate
N = Number of monthly instalments (tenure)

For example, if the parameters are -

Principal (P) = Rs 25,00,000 (25 lakhs)
Rate of Interest (R) = 8% per annum
Tenure (N) = 10 years

Then,
Monthly Interest Rate = (8/12) / 100 = 0.0067
EMI = [25,00,000 x 0.0067 x (1+0.0067)^120] / [(1+0.0067)^120-1] = Rs 30,332 per month

Education loan Processing time
 

The time required to process an education loan in India is explained here:

• On average, banks in India take up to two weeks to process the education loan application. The processing time varies drastically from one bank to another. For example, IDFC FIRST Bank usually takes only 2 to 7 working days* to process the loan.
• As soon as it is approved, the bank disburses the education loan. The loan amount may be divided into multiple disbursements and have a specific allocation per semester.
• While seeking admission to a college or university abroad, make sure you go through the schedule for the tuition fee for that country because some countries may ask for loan disbursal before the visa checks.​​​

Loan security and collateral
 

Banks can offer up to 1 CR* or more as an education loan to study abroad without security and collateral . If you need a higher amount, you can get an education loan of up to Rs 1 crore with collateral from IDFC FIRST Bank.

Usually, banks have a list of several top overseas universities, and they approve an unsecured loan for studying at those specific universities. 

Co-borrower and guarantor requirements
 

A co-borrower is necessary to apply for student loans. Parents, parents-in-law, spouses, legal guardians, grandparents, maternal/paternal uncles and aunts and siblings can be co-borrowers. According to the IDFC FIRST Bank policy, the co-borrower must have a steady source of income and must submit the following documents -

• IDFC FIRST Bank application form
• KYC documents
• Income documents (if needed)​​​​
• Collateral documents (if needed)

Also read - How to quickly pay off eductaion loans ​​

Conclusion

With the help of an education loan to study abroad, students can pay their tuition fees and afford several other expenses that the loan covers, including travel expenses, equipment purchases, and hostel charges. 

IDFC FIRST Bank helps students and parents by providing the required funds. When applying for a loan, you will receive step-by-step guidance, from the loan application to the disbursement, making the entire process seamless.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.