Realize the dream of an education abroad

You can fund your or your child’s education abroad with investments or student loans. If you are a parent or student looking to take out an education loan, here are some things to consider:

Amount of the loan: Education loans generally cover course fees and other expenses associated with an education abroad, such as living expenses, examination fees, study materials, travel expenses and insurance.

You can get loans ranging from 20 lakh and up to a maximum of 1.5 crore Most lenders list the expenses included in the loan amount and students should ensure that most of these expenses are also included in an insurance policy. This greatly reduces the financial burden of an overseas education.

margin money: A student must finance a fixed part of the financial needs, or margin money, for education abroad and benefit from an education loan for the rest. Some lenders don’t even require the student to contribute such a margin. Others require margin to be contributed on an annual basis as disbursements are made on a pro rata basis.

Mandate: Most lenders provide student loans with terms ranging from 1 to 15 years.

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Interest rate: Interest rates on study abroad loans depend on the duration and amount of the loans. Lenders also consider students’ ability to repay, merit, and job prospects after graduation to determine the rate. Interest is calculated using simple interest and most lenders offer a variable interest rate which is their own base lending rate plus a spread. The interest rate varies from 6.6% to 24%.

Collateral: A study abroad loan can be secured or unsecured. If a student takes out a secured loan, tangible collateral must be provided as collateral in case the person fails to repay. Some lenders offer an option between a third-party guarantee and a collateral. However, many lenders insist on collateral if the loan is greater than 7.5 million. Although secured loans help in negotiating better terms with the lender or even obtaining a higher loan amount, it is important to note that lenders can take possession of the collateral – which can be an asset such as a house or a property – if repayment is not made diligently.

Refund: A study abroad loan must be repaid by the student. However, the good part is that the repayment should only start after the course ends. Additionally, lenders usually allow a standstill period or a repayment holiday.

This moratorium period, which gives students time to start repaying, can be a few months after finishing their courses or a few months after getting a job. This moratorium period differs from one lender to another.

Lenders: Mainly, students in India can get loans from banks and non-bank financial companies (NBFC). Banks and finance companies/institutions are options for obtaining a loan abroad. Although a pre-admission loan sanction may be used for university application purposes, confirmed admission is required for final loan disbursement.

Tax benefit: Under Section 80E, you can claim a tax deduction on interest paid for up to eight years, beginning in the year the repayment begins or until the interest is fully repaid, whichever the first possibility. It is important to ensure that the loan is taken from a bank or a notified financial institution or an approved charitable institution. The tax deduction cannot be claimed for an education loan taken out from informal sources, be it friends or family. However, the legal guardians of any student can claim deductions if they have received such a loan. There is no maximum limit for claiming a deduction. Yet, only the interest payment is eligible for the deduction, not the principal amount.

Investment corpus: An alternative route to building your education corpus is to set aside some money each year and start a Systematic Investment Plan (SIP).

“We advise families to start a SIP in a SICAV in shares as soon as the child is born, keeping in mind a provisional corpus. Regular SIPs from birth until the child reaches college age will ensure that a sufficient corpus is built up. Once the child is 12-14 years old and there is more clarity on the child’s aspirations to study abroad, parents should review their corpus and increase investment. Once it is clear that the child wants to study abroad, investments can also be made in international index funds to counter the exchange rate difference,” explained Nishith Baldevdas, Registered Investment Advisor at Sebi. and founder of Shree Financial.

If the required educational corpus is not in place by the time the child is ready to apply to college, the family can carefully assess the amount of loan to take out to bridge the financing gap.

“Emotional decisions like tapping into the retirement corpus or the health corpus should be avoided. You can take out a loan for your studies, but no one will lend you money for your retirement,” Baldevdas said.

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