Education Loan Vs. Self Funding - Which is Better to Study Abroad?

The quality of education plays a vital role in determining the financial and psychological benefits one draws from their professional life. Job-oriented degree programs at prestigious universities are specifically designed to equip students with the tools needed to build a stronger tomorrow.

However, this quality education comes at a steep cost and often, meritorious students facing financial constraints are deprived of the shot at a better future merely due to lack of finances. Education loans are a viable way to fill the gaps that scholarships, grants and family resources leave behind. Most people prefer education loans over self-finance since the assurance of timely fee payment and inclusion of the complete cost of education associated with education loans can seldom be derived from self-finance.

With the cost of education on an exponential rise and the importance of quality education widely recognised, many have come to see education loan as an investment since it comes packed with assured returns and excellent benefits, some of which are:

Income Tax Benefits

Tax Benefit is one of the most important advantages of an Education Loan that are taken for courses in India and abroad. It is a great way to save money while securing a better future for your children. This is one aspect that makes education loans a preferred choice over self-financing.

Education loan applicants are eligible for deductions on interest paid on the loan under Section 80E of the Income Tax Act of India, thereby lowering the rate of interest. The deductions under this section can be claimed for a total of 8 consecutive years including the year in which the loan is taken in or till the interest on the loan is fully repaid, whichever occurs earlier. It must be noted that only loans taken from gazetted financial institutions are eligible for these deductions.

Any Indian individual can claim deductions on the interesting part of the education loan availed for self, spouse, children or any other child of whom the individual is a legal guardian. It must be noted that education loans taken from friends and relatives are not eligible for tax deductions under Section 80E.

Read: Studying Abroad attracts tax collected at source (TCS) of 0.5 and 5%

Improves Credit Score

Applying for an education loan and complying with the repayment terms can significantly improve your credit score, a parameter that plays a vital role in addressing financial needs arising in future. Approval of loans and credit cards are subject to a decent credit score, or CIBIL score. Low credit scores are associated with economic instability and can mar an individual’s credit reputation.

In addition to loan lenders, employers too associate high credit scores with trustworthiness. Repaying your loans on time improves your credit-worthiness, a deciding factor for approval of any home, car, personal or another loan that you may avail in future. When you apply for a loan, the bank officials examine your credit history to determine your credit-worthiness, based on which your loan can be approved or denied.

100% Cover

During the course of higher education, students incur various additional costs besides the tuition fee. These costs include, but are not limited to, one-time registration fee, library fee, lab and equipment charges, living and personal expenses etc.

Education loans are largely comprehensive and extend funds that students may need to support a healthy lifestyle in a foreign country. This lifts the financial burden off parents’ and students’ shoulders and timely fee payment to the university/college ensures that a student’s study period advances without any bumps.

 Various other benefits of Education Loan are:-

• Moratorium Period – The repayment of an education loan usually begins after a moratorium period. This period may range from six months to one year after completion of the course.
• Margin Money – Margin money is the percentage of the loan amount paid by the borrower. Most banks do not ask for margin money for loans up to 4 lakh rupees. For loans exceeding Rs. 4 lakh, margin money is 5% for studies in India and 15% for studies abroad.
• Collateral – For loans exceeding Rs. 7.5 lakh, collateral is required. Collateral is an asset pledged against the education loan and can be a Fixed Deposit, Life Insurance, Non-agricultural land, flat/bungalow etc.
• Online Application – Most banks and financial institutions have an easy online application form that can be filled out and submitted online.
• Easy Repayment – Education loans can be repaid in Equated Monthly Instalments (EMI) that are distributed through the loan tenure.
• Eligible Courses – A large number of courses leading to a graduate degree, postgraduate degree and PG diploma are eligible for education loans.
• Approval before Admission Confirmation – While most banks and financial institutions require an admission confirmation letter from the concerned college/university as a mandatory document for loan approval, some provide loan approval even before confirmed admission.
• Quick Processing Time – Online applications, home visits, guidance from dedicated loan specialists have reduced the loan approval and processing time.
• Visa Approval – For students travelling overseas for higher education, a loan sanction letter can be used as evidence of funds while securing a student visa.

The ever-growing competition in the education loan sector has worked in favour of the aspirants. The process has become increasingly transparent and hassle-free. Many banks even offer doorstep service and flexible repayment terms to beat the rising competition. It is, however, advised to explore various options and examine the product benefits of every bank before zeroing in on one. Contact India’s leading education loan providers through Shiksha Study Abroad.

Related Articles:

• The A to Z of Study Abroad Loans: All Terms and Their Definitions
• How to choose your bank for Education Loan to Study Abroad
• Step by Step Guide to Education Loans
• Collateral for Education Loan: Everything You Need to Know
• Everything You Need to Know About Education Loan

About the Author

HDFC Credila, an HDFC Ltd. Company, is India's First Dedicated Education Loan Company. With a specialized focus, in-depth understanding of the requirements of students who wish to pursue higher education, HDFC Credila offers Customized Education Loans Home Delivered! HDFC Credila has funded tens of thousands of students from India to over 2100+ unique educational institutes across 35+ countries!