Types of education loan

An unrivalled advantage in career advancement is provided by a degree from a foreign university. It gives you a jump start that very few Indian colleges can, much like a trampoline. The fact that a great deal of students want to pursue higher education overseas is not surprising. However, studying abroad has a high price tag that not everyone can afford. In cases like these, loans for overseas education come to the rescue and assist students in covering the cost of their studies. Nonetheless, it can be extremely difficult to comprehend the various options for education loans and make the best decision. 

To gain a better understanding of the education loan products, parents and students should contact an abroad education counsellor or complete their homework. Understanding the various kinds of student loans for international study is the first step towards comprehending it.  

Different education loan types based on collateral

1. Secured education loans – 

A secured loan for education, also known as a loan with collateral, requires the borrower to provide either real or virtual security. Pledged security to the lender may take the form of real estate, fixed deposits, LIC insurance, and so on. Approval times for this type of loan are longer because the bank needs to check all the documentation pertaining to the pledged collateral. However, it has longer repayment terms, no repayment during the study period, and lower interest rates than other student loans. Additionally, there is a greater likelihood that this education loan will be approved, and loan approval is not influenced by parental income. Check this for different types of collateral accepted by banks.

2. Unsecured education loans – 

No collateral is required to be pledged by the applicant for an unsecured education loan. The best candidates for this kind of student loan are those without any collateral. But it’s important to remember that unsecured student loans are more difficult to get approved for and have a higher interest rate than secured student loans. Additionally, the repayment period for unsecured education loans is shorter, and certain repayments must be completed during the study period. Additionally, for education loans without collateral, a minimum co-applicant income is required.

Types of lenders for education loans

Various types of education loans are available based on the lenders providing financial assistance to students pursuing higher education abroad. Here is a breakdown of these loan categories:

1. Public-Sector Banks

Public-sector banks, also known as government banks in India, extend education loans for studying abroad primarily with collateral as security. Unsecured loans up to INR 7.5 Lakhs are available, and for higher amounts, applicants must provide collateral. Government banks typically offer lower interest rates compared to private lenders. Notably, education loans from these banks qualify for tax benefits under Section 80E. Major public-sector banks offering such loans include:

• State Bank of India
• Bank of Baroda
• Punjab National Bank
• Union Bank of India

2. Private Banks

Private banks in India offer both secured and unsecured education loans for overseas studies. The sanctioned amount depends on factors such as the chosen country, course, applicant’s profile, and co-applicant’s financial standing. While private banks may have higher interest rates than government banks, they generally offer better rates than Non-Banking Financial Companies (NBFCs) and international lenders. Education loans from private banks also qualify for tax benefits under Section 80E. Major private-sector banks providing these loans include:

• ICICI Bank
• Axis Bank

3. Non-Banking Financial Companies (NBFCs)

NBFCs provide secured and unsecured education loans for studying abroad. Loan amounts depend on factors such as the country, course, applicant’s profile, and co-applicant’s financial standing. Interest rates from NBFCs are higher compared to private and government banks, typically ranging from 11.5% to 16% p.a. NBFC education loans do not offer tax benefits under Section 80E. Processing times for NBFC loans are generally quicker than those for government banks and private banks. Major NBFCs offering such loans include:

• HDFC Credila
• Avanse
• InCred
• Auxilo

4. International Lenders

International lenders provide education loans to Indian students without requiring collateral or a co-applicant. However, the list of eligible colleges and countries is limited. These lenders disburse funds in foreign currencies based on the applicant’s study destination. Key international lenders offering loans for foreign studies include:

• Prodigy Finance
• MPOWER Financing

Based on the educational path

The financial institutions also offer loans based on the borrower’s chosen course of study. The types of course-based education loans are as follows:

• Graduate student loans: Students who wish to continue their education in Indian institutions will be eligible for these educational loans. Particularly for students who intend to pursue postgraduate degrees, these loans are available. The students must have finished their undergraduate degree in order to be eligible for this loan.

• Loans for undergraduate education: With the help of these loans, students can pursue their undergraduate degrees. An undergraduate programme can last anywhere from three to five years, after which time graduates have plenty of employment options.

• Professional education loans: Many banking institutions and NBFCs provided loans to the students who are willing to opt for career education.

Based on collateral security and/or guarantee

The following are student loans that are given out in exchange for guarantees or collateral:

• Loan against deposits: Loans for education may be obtained in exchange for gold, fixed, or recurring deposits.
• Loan against property: Banks and NBFCs also offer student loans secured by real estate, including homes, apartments, farms, and other movable assets.
• Loan against securities: The borrower may be eligible for an education loan secured by stocks, bonds, or debentures.
• Education loans are essentially a type of financial aid that students take out to cover the costs of their studies. Funding, scholarships, rewards, and other sources can all be used to obtain education loans. These loans are made available in cash and come with an interest rate that must be paid back to the lender. If students would like to take out education loans, they should borrow according to their needs because the length of time they have to repay the loans will vary greatly depending on the lender and the student’s loan amount.

Individuals in India have access to a majority of student loans that are granted at comparatively low interest rates, with interest payments not being required immediately.