Many Indian students apply for admissions abroad at undergraduate and postgraduate levels every year. And this is in spite of hefty tuition fee and living expenses. There are many ways of funding your education abroad – some include receiving funding for your overseas education by having your family members sponsor it or by applying for a partial/full scholarship. However, those who need to apply for an education loan are the ones who struggle tremendously as they will need to pay it back themselves, with interest.
Education loans have become difficult to get approval over the past few years and are offered at higher interest rates:
In the recent past, defaults on education loans have seen an increase, on account of which, banks have made it more difficult to get approval on them. Furthermore, the interest rates on education loans have increased from a rate of 9% and 11% p.a. to between 12% and 14% p.a. If you take this point into consideration, then the earlier EMI you would have paid for a loan of Rs.50 lakh was Rs.1.24 lakh at an interest rate of 9% p.a. to the current EMI which starts at Rs.1.41 lakh at 12% interest p.a.
Tip: To maximize your chances of approval on education loan apply for it with a co-applicant who has a good credit history and score. If you are currently working, then you can find out if there are any company-sponsored courses for your further education.
High salary placements are not guaranteed after you finish your education:
Most universities project a high placement percentage after graduation to lure potential candidates, however, these numbers are not representative of the average but only indicate the best placements achieved year-after-year. Also, if you are looking to apply for a humanities degree or one in liberal arts, you may not get a high salary package after you graduate. Not getting a high paying job opportunity after graduation will make it difficult for you to keep up with your loan repayments and you may not get your money’s worth in monetary terms at least.
Tip: Do thorough research on your employment opportunities after graduation so you know what to expect before you apply. You can speak with the professors and the alumni of the university you wish to apply to, for more guidance in this area.
A single education loan may not suffice to pay for your full overseas education:
Banks in India generally have a cap of approximately Rs.20 lakh for their education loan even after taking into account collateral and co-applicants. Additionally, depending on where you wish to study, you may have to bear other costs such as buying a mandatory insurance cover among other costs. Therefore, a single education loan may not be enough to pay for your complete education abroad if you have not obtained a scholarship and you do not have family members pitching in for your loan.
Tip: Most foreign universities will have a webpage on costs that will be incurred by foreign students for the course of their education including living expenses, food expenses, clothing and miscellaneous costs, etc. After getting a better picture, look for an education loan that comes the closest to offering you the package you need to complete your education abroad. Also, do your research on what kind of part-time jobs you will be eligible for on your student visa and how much you will earn from it so you can use it to cover some of your costs overseas.
Your education loan will affect your future credit
If a student loan is your first major line of credit, then it will become the crux of your credit history. Missing payments on your loan, making late payments, defaulting on the loan, etc. will adversely impact your credit score and history, jeopardizing your future chances at applying for new credit lines.
Tip: Before you apply for an education loan, you can establish a good credit score by applying for a credit card and making timely payments on it. It will help you strengthen your credit score and history and help get a better rate package on your education loan.