For many Indian students, studying abroad is a dream. However, education abroad can cost several lakhs of rupees which is difficult to afford for many students.
However, education loans are the most practical solution to this problem and offer financial support for tuition and other expenses. Almost all public and private sector banks and several NBFCs offer education loans on attractive terms.
This article helps Indian students understand their options, eligibility, and application process, making informed decisions easier.
What does an education loan cover?
Education loans help cover much more than just tuition. They assist with all types of expenses and reduce financial pressure. Here are the key expenses of studying abroad, that an education loan typically covers:
Tuition Fees
Tuition fees are the primary cost of studying abroad. They include expenses for class attendance at a college, university, or vocational school. For top-rated universities in the USA, tuition fees can reach INR 40 lakhs per year.
Room and Board
Every student needs a residence and food. Education loans cover dormitory living and meal plans for on-campus students. If they live off-campus, the loans provide rent and groceries.
Books and Supplies
Students require textbooks and they can cost between $500 and $1,000 every year depending on the course of study. Besides, a student has to purchase lab materials and other supplies. These are covered by an education loan.
Personal Expenses
There is the cost of transportation and personal expenses. Financial support for these is available through education loans.
Laptops and Software
Essential learning tools like laptops, software, and internet access are funded through education loans.
Additional Academic Costs
Mandatory school fees or costs related to study abroad programs such as library fees, laboratory fees, caution deposits, building fund contributions, and refundable deposits are funded through educational loans.
Medical Insurance
If the student needs to buy a healthcare insurance plan, the expense is covered by the education loan.
Airfare
Most but not all education loans also cover the expense of airfare from home country to destination.
In general, all expenses of a student while living abroad are easily financed through educational loans.
Also Read: How to Get an Education Loan without Parental Support?
Benefits of education loan
Education loans offer numerous benefits that increase a student’s ability to pursue higher education abroad. Here are some key advantages:
Financial Flexibility
Education loans cover a wide range of expenses. These include tuition fees, accommodation, travel, and living costs.
Lower Interest Rates
Compared to personal loans, education loans have lower interest rates. This makes them an ideal option for financing education. Lower monthly payments make them easy to repay.
Moratorium Period
Education loans offer a moratorium period during which students are not required to make repayments. This period usually lasts until a few months after graduation. The gap allows them to complete their studies without worrying about loan repayments.
Tax Benefits
Under Section 80E of the Income Tax Act in India, students and co-applicants can claim tax deductions. The interest paid on education loans is fully deductible from gross income. This reduces taxable income and offers financial relief.
Credit Building
Timely repayment of education loans helps students build a solid credit history. This is of great use later when they seek a home or car loan.
Also Read: Avanse Education Loan for Studying Abroad: Interest Rates, Documents, and More
Understanding the education loan application process
Applying for an education loan is a crucial step for many students. For those seeking to go abroad, it is even more challenging.
The student loan process might appear difficult at first glance. However, if you understand the steps involved it becomes more manageable.
Here’s a complete guide to the education loan application process in India:
Research and Choose a Lender
The first step is to research lenders. You can secure loans from many lenders, such as:
Public Banks
- State Bank of India
- Bank of Baroda
Private Banks
- IDFC First Bank
- ICICI Bank
- Union Bank of India
- HDFC Credila
- Axis Bank
Private Providers
- Tata Capital
- Auxilo
- Avanse Financial Services
- Mpower Finance
You have to determine the amount of funding you need and compare the interest rates offered by different lenders.
Also, look into the repayment period and any grace periods offered after course completion. After all, you cannot start repaying from the day after you graduate.
Fill Out the Loan Application Form
After selecting a lender, the next step is to fill out the loan application form. This can often be done online through the lender’s website. Most banks insist you perform this step after receiving an admission offer from your chosen educational institution.
Remember you can also apply for an education loan physically at a branch.
At this time you have to submit the following information:
- Personal details (name, address, etc.)
- Academic details (courses completed and grades)
- Course details (name of the institution and course, course duration)
- Financial details (estimated expenses, co-applicant information
Prepare Required Documents
The documentation required for an education loan can vary by lender. Typically it includes:
- KYC documents of the primary applicant and co-applicant
- Academic transcripts and certificates
- Confirmation of admission letter
- Entrance examination scores (if relevant)
- Breakdown of study expenses
- Estimated cost of study schedule
- Income verification for salaried co-applicants or guarantors (if applicable)
- Recent bank statements (6 months)
- Collateral documents including property papers and ownership documents
Interview Process
After you have submitted all documents the bank will want to interview you. It is natural since they are lending you a substantial sum of money.
Usually, they want to know about your academic history, why you have chosen the course, what type of employment you wish to pursue, and similar topics. This interview helps lenders assess your commitment to loan repayment.
Loan Approval Process
After the interview, the bank will review your application and documents. They will scrutinize your application.
The bank also needs to verify the status and valuation of the collateral. If all is in order they will approve the loan.
Once they approve, you and the co-applicant will have to sign the loan papers. The loan is then a binding contract between you and the bank.
Before you understand, make sure you review all terms and conditions including the fine print. If you are unable to make sense of it, take advice from an expert. In particular pay attention to late fee penalties, prepayment fees, and moratorium periods.
Loan Disbursal
Once the loan is approved the bank will directly remit the tuition fees to the institution. You will also be given a savings account with the bank for payment of expenses apart from tuition. Most banks include a credit card to make life easier abroad.
You must start the student loan process as soon as you receive your admission offer and the rest will fall into place. A good credit score helps you secure a loan faster and at cheaper rates. If during the process you have difficulty understanding any clause do not hesitate to ask a financial advisor.
Note: If you go through the traditional route, searching for and applying to each bank separately, the process requires several steps and can consume a significant amount of time. While it’s not impossible, it can be very challenging to navigate. A more streamlined solution that over 70,000 students have successfully used is FundRight (by GradRight).
With FundRight, all you need to do is create an account and complete your profile. Within two days, you’ll receive loan offers from 15 of the top Indian and international lenders, including many popular public sector banks. This saves you the effort of applying to multiple banks individually, where students are often limited to applying to just two or three banks because of the time and energy required.
When to apply for an education loan?
Obtaining an education loan for study abroad requires sufficient planning. To secure the best options, you have to research schools and their costs about 3-5 months before the session begins.
For example, the Spring intake begins in early February. The application deadline is around September the year before. The application process is over by October.
Begin researching lenders as soon as you submit applications. At this stage, you are seeking information related to the quantum of loan offered, interest rate, and moratorium period. Submit the applications as soon as you receive the letter of admission.
This time frame allows you to explore lending options, and prepare necessary documents, with sufficient time in hand. You’ll be able to plan ahead and ensure funds are available when needed.
Education loan application timeline
If you wish to study abroad, it is crucial to understand the education loan application timeline. Education loan processing time can be lengthy and applying earlier ensures you have sufficient time in your hand should anything go wrong.
Here’s a detailed look at the ideal timeline for applying for an education loan.
8 Months Before Departure – Prepare Financial Plan
If you are aiming for the Spring intake which mostly begins in early February, start your preparation the previous June.
Things to do:
- Identify potential courses and institutions
- Estimate cost of study
- Prepare a cost breakup for each university
- Analyze your financial resources e.g. family savings, your own savings
- Ensure your passport is valid for the next 2-3 years
6 Months Before Departure – Start Admission Process
The university websites will ask for applications from international students. Begin the process of admission.
Things to do:
- Apply to various universities and courses
- Research lenders and find out the terms and conditions related to the loan amount, interest, collateral, and co-applicant
4 Months Before Departure – Apply for the Loan
By this time you will know if you have been admitted to the course. It usually takes 2-3 months for the admission decision to come through.
Things to do:
- Proceed with the student loan process.
- Submit all required documents.
- Appear in the bank interview for an education loan.
3 Months Before Departure – Loan Approval and Sanction
After the bank approves your loan they will issue a loan sanction letter.
Things to do:
- If you have applied to multiple banks and several have agreed to offer a loan, choose the best one. Since you have paid processing fees, there is no penalty for backing out.
- Sign the loan agreement and forward appropriate documents to the institution.
This is an ideal timeline but may vary by a few weeks if the university takes more time than usual to grant admission. You have to multitask and handle several responsibilities at the same time. Remain calm and all will happen as it should.
Also Read: Compare Education Loan Interest Rates of Top Banks in India
Eligibility and documentation for education loan
Before applying for an education loan in India, you must ensure you meet the essential eligibility criteria. Specifics may vary between lenders, but here are the essential requirements.
- Be an Indian citizen and resident
- Be between 18 and 35 years old
- Attend or have admission to a recognized institution abroad
- Have a solid academic background
In addition, there are loan conditions such as collateral and credit score, etc.
When taking out an education loan, it’s important to understand that this is a legal agreement. The bank will carefully review all the paperwork you provide. The table below outlines the documents required for loan processing:
| Category | Documents |
| ID Proof | PassportAadhar CardVoter ID card |
| Age Proof | PAN cardAadhar CardPassport |
| Address Proof | Aadhar CardVoter ID cardRent receipts |
| Co-signer Documents | Form 16 (salaried co-signers)Salary slips for the past yearProfit and Loss account and Balance Sheet (in case co-signer owns a business)Bank statements for the past 3 yearsIncome tax returns for the past 3 years |
| Collateral Documents | Title Deed of house or property |
FAQs
The timeline can vary considerably between banks. At most, it takes about a month. The reason for the delay is the appraisal and scrutiny of the collateral. It requires someone to visit the property in question and submit a report.
After the loan is approved it takes another 1-2 weeks for the signing of the documents and the funds to be ready for disbursal.
No benchmark measures education loan processing time for different banks. A bank will take its due time to process each application. But do not expect instant approval of a loan worth many lakhs of rupees. It will take between 4-6 weeks.
Yes, you can prepay your education loan in most cases. However, you should check with your bank to confirm the terms and conditions.
State Bank of India charges zero prepayment penalty. ICICI Bank also has no charges for prepayment. HDFC on the other hand charges 2% of the prepayment amount as a penalty.
