In 2013, Vivek Panchpande, who is visually challenged, felt elated when he got accepted for higher studies at four different universities in Canada, New Zealand, the UK and the US. He had always wanted to study abroad but his dream remained unfulfilled. “With no collateral like a house to mortgage or no family member with a strong financial background to become a co-applicant, every bank I approached refused to give me a loan. I couldn’t go,” said Panchpande, 32, who now teaches part-time at a college in Mumbai.
Panchpande is not the only one to have faced such an ordeal. Several people are unable to get loans for foreign education from traditional lenders because they do not meet the stringent eligibility criteria. In 2013, there were not too many alternatives, but things are different now. A number of non-banking finance companies (NBFCs) are far more flexible as far as the eligibility criteria goes.
However, typically charge a higher interest rate on education loans than banks. M. Barve, a Mumbai-based independent financial adviser, said, “For most banks, the educational loan interest rate is available at 10.25-11%. As far as NBFCs are concerned, the interest rate range is 11-13% depending upon the candidate’s profile, eligibility and other criteria which may vary from case to case. Rates can even go up to 15% for some candidates.”
If you are okay with the higher costs, NBFCs can definitely make it easier for you to study abroad. We tell you the criteria NFBCs go easy on.
Most banks are more than happy lending money for foreign studies when you want to study medicine, engineering or management. After all, your career prospects and chance of getting a high paying job is higher with these degrees as compared to a degree in, say, liberal arts. When it comes to non-conventional courses, such as music, dance, arts, beauty or part-time, correspondence or online programs, it’s easier to get loans from NBFCs.
Prashant B., head-student loan, Incred Finance, a new-age technology and data science-based financial services platform, said, “Entities like us provide education loans for all kinds of programs—undergraduate, graduate, doctoral levels, and even certifications and diplomas are eligible. As long as those courses or institutes have required approvals, authorizations or accreditation from relevant bodies, getting a loan from NBFCs is easier for non-traditional courses.”
Institution you choose
If you have managed to get an admission in a top-notch college or university abroad, banks will most likely give you an education loan. In fact, many lenders maintain a pre-approved list of educational institutions.
However, getting into the top universities is not always possible. Moreover, some niche courses may be available only in unconventional universities or colleges that are not that popular. Thankfully, NBFCs are open to offering loans to students who are going for a course in lesser-known or unconventional colleges or universities too.
It’s possible that the bank does not have a problem with either the course or the institute you have chosen, but it usually has a cap on the amount it can lend.
When it comes to studying overseas, a few lakhs is not always enough. But in many cases, banks are not willing to give a huge amount as loan. For instance, Kotak Mahindra Bank Ltd gives a conditional loan of up to ₹20 lakh for overseas education. But lenders such as the State Bank of India offer a minimum of ₹20 lakh up to as much as ₹1.50 crore. NBFCs usually offer more than banks. While Avanse Financial Services does not have a set upper limit, Incred Finance gives loan up to ₹1.5 crore.
Amit Gainda, chief executive officer, Avanse Financial Services Ltd, a new-age, education-focused NBFC, said “Each application is looked into on a case-to-case basis. While we go by policies, we have more in-built flexibility in the offerings, as we give customised loans. We look at structuring the study abroad loan to meet the necessary needs and the cost of education. Hence, there is no upper limit to the amount.”
Most banks and NBFCs cover most of the common expenses, but margin money or the down payment you need to make upfront, can be a problem when it comes to banks. Some banks ask for margin money of up to 15% of the loan amount. Arranging this amount can become difficult, especially if the loan amount is large. NBFCs are at an advantage on this count too. Most of them do not ask for any margin money and cover the total cost of education.
The most important eligibility criteria is providing a collateral and having a co-applicant. While a collateral is the guarantee against which the loan is given, having a co-applicant is like having a guarantor who can settle the dues in case you default the payments. Panchpande fell short on both these criteria. The guarantee requirements may differ slightly between banks.
For an overseas study loan of ₹7.5 lakh and above, most banks would, typically, ask for a collateral. Jorty Chacko, executive director, IDBI Bank Ltd, said, “The parent has to be a joint borrower in the loan account. It is not possible to get a loan without a co-applicant. As far as the collateral goes, for loans above ₹7.5 lakh, the parent has to be a joint borrower. We need a tangible collateral security, along with assignment of future income of the student for payment of instalments.”
NBFCs too ask for collaterals, but they consider waiving the requirement entirely, if a few other criteria like course, college, job prospects and the co-borrower’s creditworthiness are strong.
Most experts we spoke to said that students often change cities after finishing their education for jobs, and having a co-applicant in India makes it easier for the lenders to trace the applicant abroad. “It’s a business after all and we need someone local to be a co-applicant, to mitigate our risk,” said Incred’s Prashant.
Things to remember
Banks as well as NBFCs are becoming increasingly cautious about sanctioning huge amounts of loans. Remember that all applications for education loans are now routed to banks through the Vidya Lakshmi portal, a government initiative to provide students a single-window electronic platform for scholarships and educational loans for studies in India and abroad.
If you are someone who doesn’t have a collateral or co-borrower, make sure you get into a reputable school, and a course which come with good job prospects. Some banks let you take a maximum loan of ₹7.5 lakh, as per their policy, without any collateral security or third-party guarantee.
As far as Panchpande is concerned, he is presently working on his PhD thesis and is expecting to get his doctorate degree from the University of Edinburgh, thanks to the Common Wealth Fellowship he got in 2015.