If you are planning to go abroad for higher education and come from a modest financial background, then the meager repayment capacity of your parent will no longer be a hurdle. As the number of students going for higher education overseas has been rising steadily so has the number of funding options. However, these loans are conditional and not all students will get the loan. Here’s how it works.
Grants and scholarships are too little and difficult to get
The cost of studying abroad at an Ivy League college comes with a big cost that can go into the crores. Despite grants, scholarships, and other financial assistance the net cost remains out of reach for many deserving Indian students. The only option left with them is to go for an education loan.
“Grants and scholarships from universities overseas are restricted to a relatively small student base. With the aspirational student population steadily increasing, this number may spread thin, thus possibly making higher education a difficult proposition for a significant segment of this population. Availing an education loan considerably increases a student’s chances of getting the sought-after admit to their preferred university,” says Arijit Sanyal, MD&CEO, Credila.
Loan is often conditional, and amount is limited
Education loan comes in two forms secured and unsecured. Few students easily get an unsecured education loan based on good parental income and sound repayment capacity. Students whose parents have sufficient assets, also get a higher loan amount after offering their assets as collateral. However, for other students without such sound financial background of parents, it has not been easy to get the desired loan amount.
“In the secured one, the parents’ assets play a significant role as they are offered as security (collateral) if the child or the parent cannot repay the loan. The student’s academic records weigh little as the financial institution has assurance,” says Eela Dubey, CEO and Co-Founder of EduFund.
Many of the students who did not have such strong financial background often had to give up on their dreams. Though some of these students used to get a small unsecured loan, however, the loan amount offered by lenders has typically been much lower compared to a secured education loan. However, things have changed now.
New options offer bigger unsecured loan to cover greater part of cost
Education finance has seen emergence of many new funding options especially for students who do not have any assets to offer as collateral. “New-age FinTechs are emerging that provide education loans without collateral. These lenders check the student’s past academic performance and future earning potential as the main criteria for loan eligibility,” says Ankit Mehra, CEO & Co founder, GyanDhan.
If you have the merit and secured admission in some of the most prestigious institutions, then funding may not be a big hurdle. “A popular alternative or complement to grants and scholarships today are merit-based collateral and co-signer free loans, such as those offered by Prodigy Finance, where students need not rely on traditional alternatives that can create burden on them and their families, ensuring the only thing student needs to be concerned about is their studies,” says Mayank Sharma, Country Head, Prodigy Finance.
Many of these new lenders are ready to take higher risk and offer higher amount of collateral free loan to deserving students. “In the unsecured loan, there is no collateral offered. The bank or the financial institution takes a calculated risk based on the child’s prospects and ability to pay back the proposed loan. Here, the bank assesses a plethora of documents, including the candidate’s previous academic records and the calibre of the student. In the case of an unsecured loan, candidates can receive up to Rs. 40 Lakhs depending on the course and chosen college,” says Eela.
Some lenders offer even bigger amount as collateral-free loan but again these are offered only to select few students who are going to study in the most reputed institutions. “Depending on the merits of an application, we extend unsecured loans even up to Rs 75 lakh,” says Sanyal.
How lenders decide who gets a higher unsecured loan
By offering higher amount of education loan these lenders are taking a big risk, but it is done after careful evaluation of lot of factors. “As a part of this approach, we assess the student’s profile in detail. There are around 50-60 criteria that are evaluated to derive the Employability Potential Score of a student. Some of these parameters are past academic performance, continuity in education, entrance test scores, pedigree of university/institute, course selection in line with existing skills and more,” says Rajesh Kachave, Chief Business Officer – Education Loans, Avanse Financial Services.
Track record placement and renumeration offered to previous students, who did the same course in the same institution, plays a significant role in deciding if you will get the desired unsecured loan or not. “The student is not required to provide any collateral or a co-signer to apply. The collateral/ and co-signer free loans are offered basis the student profile and their background. We look at the course and school the student wishes to attend, as the credit risk is assessed on the basis of students’ future earnings and potential,” says Sharma. “Parents’ occupation or their repaying capacity is not factored in determining the same. Thus, the student can fund their studies without putting any financial burden on parents,” adds Sharma.
Bridging the last mile gap
Despite all efforts if you are still falling short of funding, then you may address it after you start your studies abroad. “There are other avenues like financial institutions that offer loans in foreign currency without the need of a cosigner or any collateral. The repayment can be made in any currency without any prepayment penalties. These loans require only interest payments during the course duration. The principal amount and accumulated interest can be paid after completing the course,” says Eela.