Are Education Loans a Good Bet for Studying Abroad?
Last Updated : June 1, 2020, 1:15 p.m.
Yes, using an education loan for overseas studies is the best choice for you. It not only helps you achieve your dreams but also saves you money. As per the Section 80E of the Income Tax Act, students can claim a tax deduction for up to 8 years on their education loan interest payments. This automatically saves the interest amount of your borrowed amount. And the loan carries all the expenses of students during the course period, from their course fee payment to the amount incurred on living during the study period. Read this post to know more about the utility of education loans for overseas studies.
Maximum Loan Amount for studies
As overseas studies can be costly, you should look for lenders that can provide you a greater loan amount. What should also interest you is the rate of interest. Because, after completing your studies, the repayment of the loan will begin. And, if the loan is borrowed at a lower rate of interest, you will find it easy to repay the loan.
Margin on Education Loans for Overseas Studies
As per the RBI guidelines, banks won’t finance a 100% amount for your foreign studies. 15% of the loan amount is deducted as margin money which the student has to manage by himself. And the rest of the loan amount would be disbursed to your account. You don’t need to pay this margin money to the bank, but it needs to be paid to the university. However, you can use the scholarship or assistantship for margin money.
Do I Need Collateral for an Education Loan?
Yes, there is a requirement of collateral to get a loan above INR 7.5 lakh. And for overseas studies, expenses could well be more than INR 7.5 lakh. In that case, the lender won’t risk the loan amount. What type of collateral could be needed? You can provide tangible collateral such as land, house, commercial property, insurance policy, Fixed Deposits, etc. In the case of non-payment, what role does the collateral play? At that time, the lender uses the collateral to recover the outstanding amount.
Which Bank Offers the Best Education Loan for Studying Abroad?
Look at the table below to know the education loan offers of different lenders in terms of the loan amount, interest rate and other factors.
| Bank | Loan Amount (In INR) | Interest Rate (In Per Annum) | Processing Charges | Prepayment Charges |
|---|---|---|---|---|
| State Bank of India (SBI) | 20,00,000 to 1.5 Crore | 6.90% - 9.30% | 1% of the loan amount + GST | NIL |
| Axis Bank | Up to INR 75,00,000 | 13.70% - 15.20% | Up to 0.75% of the borrowed amount + GST | NIL |
| Bank of Baroda | Up to INR 80,00,000 for specified institutions | 6.85% - 9.95% | 1% of the loan amount + GST | NIL |
| HDFC Bank | Above INR 35,00,000 | 9.25% - 13.68% | 1.50% of the loan amount + GST | NIL |
| Union Bank of India | INR 1 Crore | 7.20% - 10.45% | 0.50% of the loan amount + GST | NIL |
| Canara Bank | Need-Based | 7.40% - 9.40% | NIL | NIL |
| Punjab National Bank (PNB) | Need-Based | 6.90% - 9.55% | 1% of the loan amount + GST | NIL |
Moratorium Period for your Education Loan
The bank offers a repayment holiday for students, ranging from 6 to 12 months, after the course completion. It is the time in which students have to find a job to pay the loan amount in equated monthly installments. However, during this period, you can service the interest on your loan amount.
In the case of overseas studies, there’s always a possibility of job placements abroad. In that type of situation, you can still pay the loan amount. It is up to the borrowers where they want to establish their career.