Things To Keep In Mind While Applying For An Overseas Education Loan

Aparna Sinha, 45, a working mother based out of New Delhi, seemed worried when she was trying to discuss with her husband the funds required for their son’s undergraduate study overseas.

“We are middle-class people. My son studies in a very good school here, and now he is appearing for his 12th board exam. He wants to pursue his undergraduate studies at a foreign university. And we can’t convince him to go overseas for post-graduation, rather than going now, which is far more expensive. This is all due to peer pressure, as all his friends are doing the same,” she says.

Studying overseas has caught the fancy of not only the students in the metro cities, but also other tier-I, tier-II, and even tier-III cities, thanks to a burgeoning number of students opting for the same, the fear of missing out (FOMO), globalisation, and peer pressure.

As more and more students want to go overseas, they are pressing their parents for the money needed to fund the same. Acknowledging this need, banks and non-banking financial companies (NBFCs) are also coming forward to cater to this demand for overseas education loans.

According to a recent study by Anand Rathi, ARAL Global Study Abroad Report, India and China are the top two sources of students going abroad for education, accounting for close to 40 per cent of the total international higher education expenditure. These countries together have the maximum number of students going abroad for studies every year (more than a million) for various undergraduate and postgraduate courses. In 2023, India topped the overseas higher education expenditure at $60 billion, followed by China at $40 million.

The cost of studying abroad has been rising steadily over the years, driven by factors, such as, inflation, currency fluctuations, rising tuition fees at foreign institutions, and increasing living expenses in popular study destinations, according to a report by Anand Rathi.

According to InCred Finance, which specialises in personal, micro, small and medium enterprise (MSME) and overseas education loans – which includes postgraduate (PG) as well as doctoral (PHDs) courses – about 60 per cent of the education loan applications are coming from students based in Hyderabad.

For most students, the first preference for higher studies abroad is the US. Data shows that the busiest embassies for student visas are Shanghai and Seoul, followed by Hyderabad.

“Income brackets interested in education loans span across the entire socio-economic spectrum and can vary from a ‘low income’ to an ‘upper middle income’ group segment, ‘self-employed non-professionals’, as well as ‘self-employed’ professionals. The need and demand are higher among the low-to-middle-income groups. Hyderabad is predominantly a US market. Other geographies from where we get education loan applications are Delhi national capital region (NCR), Maharashtra, Gujarat, Tamil Nadu, Kerala, Karnataka, and West Bengal,” says Nilanjan Chattoraj, head – credit and product, education loans, InCred Finance.

The subjects that are in top demand for overseas education are computer and information science, data science, analytics, and IT. Next comes engineering courses, followed by management courses, according to InCred Finance.

In a situation like this, it would be important to know about the basic queries that students and co-applicants usually come up with while applying for an education loan abroad.

Some of the typical queries are:

• Types of expenses covered under education loans.

• Tuition expenses: How much tuition fee is covered?

• Living expenses: How will the student take care of his/her living expenses during the period of study abroad, and how is the funding made for this?

• Miscellaneous expenses: What other expenses are covered apart from tuition and living

  Also read: Education Loan Pitfalls: Key Mistakes Students Make And How To Avoid Them

Interest Rates And Types Of Repayment

Moratorium: This is a period of study of the applicant, which is typically the course period and another 12 months of additional repayment holiday during which the applicant will only service interest which may be of the below types.

Simple Interest: The applicant pays the full interest amount as per the contract, and the principal remains constant throughout the entirety of the moratorium period.

Partial Interest: Partial interest occurs when the applicant decides to pay a portion of the simple interest component, with the remaining interest being capitalised for the remainder of the moratorium period of the loan.

Full Equated Monthly Instalments (EMIs): Under this option, the applicant chooses to pay the complete EMI, which includes both the principal and interest. This is the last stage when the course is completed and the 12 months of moratorium is also over, and the student obtains a job and starts paying his/her EMI. This is optional during the period of study.

Other General Queries

These include the following.

• Timely loan approval: Processing time of these loans.

• Favourable loan terms: Evaluating loan terms, such as rate of interest, associated charges, and repayment models that come with the sanction conditions.

• Appropriate loan amount: How much of tuition and living expenses will be funded by a financial institution?

• Lender reputation: Considering the market reputation and brand identity of the lending institution.

• Process efficiency: Assessing the efficiency and effectiveness of the application-to-disbursement journey and after-disbursement servicing standards until the final repayment stage.

• Coverage of countries and courses: Whether the lending institution provides funding for the countries and courses relevant to one’s educational pursuits.

• Collaterals, if applicable.

• Number of co-applicants required for the loan and the document checklist.

• Forex and remittance processes.

• Other penal charges and fees.

What All Are Covered Or Excluded In Education Loans

The important expenses in overseas education loans are tuition fees, living expenses, and miscellaneous expenses, which are as follows:

Covered Expenses

These include the following.

Tuition Expenses: This is the main part of the loan where the amount is calculated based on the student’s course fees of that university or college, including any overseas insurance. The tuition fees are directly disbursed to the applicant’s university or college.

Living Expenses: This is another large aspect of an education loan, which is expended by a lender for covering the student’s boarding and lodging expenses in the host country of study. This is also remitted by the lender to the overseas country.

Miscellaneous Expenses: This is an India-based expense that is extended by the lender for students’ pre-departure expenses, such as buying a laptop, clothing, flight tickets, etc.

Exclusions

Any other expenses that do not fall under the above category may not be funded by the education loan provider.

Collaterals/Security Required: Typically, loans are assessed based on several factors, such as the student’s capabilities, the chosen course of study, their academic history, the host country’s global standing, post-graduation job prospects, and the strength of the co-applicants on the loan application.

“If these are in order, then we generally waive the requirement of collateral,” says Chattoraj.

However, there could be some exceptional cases where collaterals might be needed. These would include the following.

Property Collaterals: This comprises residential or commercial property in the name of the applicant or the co-applicant, which may be equal to or slightly lower than the loan value and may be considered based on the risk profile of the borrower. This is given as a mortgage security for the loan.

Cash Collaterals: This may be in the form of bank fixed deposits (FDs) which are lien marked in favour of the lender, mutual funds assigned in favour of the lender, or other savings certificates, such as shares, bonds, and so on. These are assigned or given in lien in favour of the lender, and a loan is obtained in a ratio equal to or lower than the market value of the security.

Why Loan Gets Rejected?

Loans could get rejected for a variety of reasons. Here are some of the common reasons why a loan could get rejected.

• The proposed course of studies by the applicant may not be of relevance to their past academic records or work experience, including poor academic background or test scores.

• Less than favourable credit bureau histories.

• Forged transcripts or know your customer (KYC) documents with wilful intentions.

• Negative countries as per internal policies of a financial institution, or red flag countries as per the Reserve Bank of India (RBI) or Indian Banks’ Association (IBA).

• Negative references during checks by financial institutions or risk containment units.

• Any other issues related to the loan application and outside of board approved policy of a bank or an NBFC.