Loan vs. Scholarship: Which is the Best Option for Studying Abroad?

Studying abroad is a life-changing opportunity and it gives you access to the best universities and courses. But for most Indian students this opportunity comes with a huge question mark. 

How to finance studying abroad? 

When it comes to study abroad financing, two options stand out – international student loans loans and scholarships. 

Should you apply for a student loan abroad and repay it over time? 

Or would it be better to chase competitive scholarships and minimize your financial burden?

Both of these options work well, but they are very different. 

In this article, we will break down both funding routes. We will look at the pros and cons of a loan vs a scholarship and help you decide which makes the most sense in your situation. 

All about international student loans 

International education loans help Indian students fund the cost of studying abroad. These loans range anywhere between INR 10 lakhs and 3 crores and can be repaid for up to 15 years. Most banks and well-known NBFCs in India lend to students at very reasonable rates. These loans help cover the significant costs associated with studying overseas, including tuition, living expenses, and travel.

Types of Education Loans

Student loans for abroad studies generally fall into two main categories:

Secured Loans

A secured loan is a type of loan that requires the borrower to provide collateral of equal value. For an education loan of INR 50 lakhs, it might be a house, property or fixed deposit. In case the borrower is unable to repay the loan, the bank can liquidate the asset and recover its dues. For the lender, secured loans are less risky and therefore carry less interest. 

Unsecured Loans 

These loans need no security or collateral. Usually, they have higher interest rates and shorter repayment periods. The approval for such loans is on the basis of the student’s profile, academic background, and possible earning capacity. 

Key Features of Study Abroad Loans 

Here are some of the common features and terminology associated with international student loans:

Interest Rates

Interest rate is the charge or cost of a loan. At present (April, 20250, public sector banks such as SBI and Punjab National Bank offer interest rates starting around 9–10%. Private sector banks such as ICICI and Axis Bank offer loans from about 11% onwards. For unsecured loans, the banks generally charge more interest. 

Note that the interest rate can be either fixed or floating. A fixed interest rate remains constant throughout the loan’s entire term. If you start with 13%, it remains the same. 

A floating interest rate, on the other hand, fluctuates based on market conditions. As the base rate changes, the interest is revised upwards or downwards. 

Loan Tenure

Student loans for abroad have a tenure between 8 and 20 years. If you want, you can repay the loan earlier. Most banks have stopped charging an early repayment penalty. 

Loan Coverage

Banks may or may not cover all the expenses apart from tuition fees. Usually, the following are covered by overseas education financing:

• Tuition fees
• Accommodation fees
• Travel expenses
• Exam fees
• Study materials 
• Health insurance premium 
• Other miscellaneous expenses 

Processing Time

Public sector banks take 2-3 weeks to process a loan. They need to verify the collateral value, and that takes the bulk of the time. NBFCs such as Prodigy Finance are faster with minimum hassle. GradRight can help you secure an affordable education loan for study abroad within 2-4 days. 

Co-Applicant Requirement

Banks would require a co-applicant for the loan. If the primary applicant cannot return the loan, the co-applicant becomes liable for the repayment. 

Margin Amount 

Margin amount refers to the portion of the cost of studying abroad that the borrower (student or parent) must contribute from their funds. Assume the entire cost of an MA in Policy Making from Oxford University is INR 28 lakhs. The lender might ask the student or his parents to put up a 10% margin worth INR 2.8 lakhs. The bank would finance the rest of the overseas education. 

Scholarship funding for study abroad

Scholarships are financial aid given to students to help them pursue education. Unlike loans, scholarships do not need to be repaid. It is an award. 

Depending on the scholarship, it can cover tuition fees, living expenses, travel, books, and more. Scholarships are given based on various criteria such as academic performance and financial need. 

Scholarship versus Grant

The two terms are used interchangeably, but there is a small difference between them. Scholarship rewards academic performance. In the USA, there are sports scholarships that do the same for athletic and sports performances. 

To renew such financial aid, your performance might be reviewed periodically. 

Grants are need-based and awarded to those who have financial requirements. While financial need is a key factor, grants may also consider other factors like research proposals and the field of study.

Here is a list of reputed scholarships and grants for Indian students in the US, UK, EU, and elsewhere. 

Scholarships for Indian Students to Study Abroad

Besides these prestigious scholarships, every college and university abroad offers financial aid to students. For example, both MIT and Harvard stated in 2024 that no student would be turned away for lack of financing. At the time of admission, you have to indicate that you need financial aid, and the admissions office will inform you if aid is available and the amount available.

Loan vs scholarship: Comparing the pros & cons

Both loans and scholarships are ways to finance education. But which is the best option for studying abroad?

Here’s a breakdown to help you understand which one might be the right fit for you.

Education Loan

Pros:

• Does not depend on academic performance 
• Covers full course fees, living expenses, and travel
• Helps to build a credit history for a student 

Cons: 

• Has to be repaid with interest
• Long-term debt is stressful for many 
• Might lead to default if the job market worsens 

Scholarship

Pros:

• It is an award and needs no repayment 
• Recognition for your hard work and talent
• Motivates academic and personal growth

Cons: 

• Highly competitive with few slots 
• Requires consistently good academics
• Has a lengthy application process 

Loan vs Scholarship: Side-by-Side Comparison

Loan vs scholarship: Key factors to consider

While both education loans and scholarships help students pay for study abroad financing, they are vastly different. Here are the key factors to consider when you opt for either: 

Repayment Responsibility

This is by far the most significant. An education loan has to be repaid with considerable interest. You have to budget for EMIs, and they may continue for many years. 

Scholarships and financial aid do not have to be repaid.

Eligibility Criteria

Well-known scholarships and financial aid packages from universities have stringent eligibility norms. They are not available to everyone since most are a reward for hard work in earlier years. They are meant to inspire students from less fortunate backgrounds to take up study abroad. 

Education loans are available to anyone who meets a few basic criteria. 

Subject Criteria

There are very few scholarships for subjects such as management and accounting. Most scholarships are for pure science and engineering. There are a few scholarships for the humanities. There are almost none for subjects such as business analytics, data science, cybersecurity, finance, and so on. 

Education loans are widely available for any subject that has high employment potential. 

Application Process

Even the slowest education loan is processed within a month. Scholarships have their timetable, which might not coincide with the admission season. You have to start researching about 18 months before to stand a good chance at finding one. 

The best approach is to combine both. Try for a scholarship or financial aid, and use a loan to fill any gap in the cost of studying abroad. 

Tips for maximizing financial aid

Your goal is simple—to receive maximum financial aid for study abroad with minimum repayment. Here are smart tips to help you maximize financial aid (including scholarships, grants, and other support).

Start Early

Scholarships can have very early deadlines. Start your search 12 months before your intended date of joining a university. 

Research Scholarships

Compile a list of available scholarships for your destination country. Your school and college alumni can be of invaluable help in this regard by uncovering financial programs you are unaware of. 

Tailor Applications

Take your time to apply for scholarships. They require a Statement of Purpose, and you have to be convincing. GradSOP is an AI-powered platform that can help you immensely in creating an excellent personal essay. 

Highlight Achievements

As part of the application, showcase your academic awards and honors. Scholarship committees look for outstanding individuals, and any relevant extracurricular activities or leadership experience play a large role in selection. 

Start the process early and maintain strong academic records. You are sure to find at least partial financing through financial aid. The rest can be financed through a loan on easy terms from the 15+ lenders on the GradRight platform. 

Frequently Asked Questions 

1. What are the key differences between student loans and scholarships?

The primary difference between student loans and scholarships lies in repayment. Loans must be repaid with interest, while scholarships don’t require repayment. On the other hand, loans are widely accessible, but scholarships are limited and competitive.

2. How do interest rates and repayment terms impact student loans?

Interest rates and repayment terms significantly impact the total cost of student loans. Higher interest rates mean more interest accrues over time. This drives up the cost of borrowing. 

Better repayment terms, such as a long moratorium period and zero prepayment charges, ensure that you can repay EMIs with minimum financial stress and worry.

3. Can both options be combined to fund studies abroad?

It is ideal to combine both loans and scholarships for study abroad financing. Most universities would offer you at least 20% financial aid. This can often stretch to 50% of the tuition fee. You can easily finance the rest through an international student loan. 

4. What should I consider when assessing my financial situation?

Before you take an education loan, you should assess the following:

• Whether the subject and program you are pursuing offer a remunerative job. 
• If you have sufficient confidence in your ability to go abroad, find employment, and repay the loan. 
• The financial stature of your family and whether they can repay your debt in an emergency. 

5. Are there hidden risks or benefits associated with each option?

Loans and scholarships are both viable options. Thousands of students use both every year for study abroad financing. There is no hidden risk or benefit associated with either. Both loans and scholarships have pros and cons. Loans are easily available but have an interest component, while scholarships are a gift or award but need hard work.