Choosing an education loan to finance foreign studies is as challenging as selecting a college and a course abroad. Often, parents, instead of doing due diligence on their own, over-rely on education counsellors and end up with a poor college or a course that doesn’t ensure a good job prospect.
Similarly, over-dependence on loan consultants may land parents in a disadvantageous situation. Education loan for abroad studies should always suit the need of a candidate and experts say that besides your pocket several other factors such as country, college, course and its duration, rate of interest among others should be kept in mind while before accepting an offer. So, here're five things that experts advise them to keep in mind while going for an education loan.
Avoid collateralised loan if possible: Keeping immovable property such as house, land etc as collateral against a loan amount is quite risky for any parent even if the candidate has got admission in a much-sought-after course in a top college. Experts say that sometimes some middle-class parents become overenthusiastic when their ward get admission in Ivy League institutions. They take loans keeping their houses as collateral which is not advisable at all.
“A collateralized loan puts pressure on the collateral holder, and in the case of a co-signer loan, there is a social obligation attached to the loan. In both cases, your parents’ house and credit could be on the line if things don’t work out,” Sasha Ramani, Associate Director of corporate strategy at MPOWER Financing, a US-based fintech firm that provides education loans to high-promise international students.
Fixed rate of interest is preferable over floating one: Parents often find floating or variable rate of interest attractive as it looks cheaper with low interest rates. However, experts suggest otherwise.
They say that since in a current prevailing rising rate environment, variable rates may appear lower at first, but may rise over time based on economic factors. In addition, some lenders offer discounts that help reduce the net interest rate over the life of the loan.
“Along with this, currency fluctuation is another factor which most applicants forget to account for currency fluctuations. So, take it into account when marking your budget and loan amount,” Ankit Mehra, an alumnus of IIT Kanpur and founder of an education financing marketplace GyanDhan.
Loan from foreign country is better: Financial consultants say that availing loan from the country in which a candidate has got admission makes more sense than the home country.
“Take for instance, students who hope to study in the U.S. may prefer a loan with an American lender: a U.S. dollar loan issued by an American lender may help students establish a U.S. credit history, which can be extremely helpful after graduation,” Ramani said.
He added, “Ask your school about potential lending options. Your university might very well know of lenders that are dependable and flexible to student needs.”
Enquire, avail the post-loan services of lenders: Many lenders, especially those in the country of the origin offer several post loan benefits such as free career support upon graduation immigration and visa support, and access to housing, and other products.
“These benefits can add up and help make your international education experience much more seamless and help provide a strong return on your educational investment,” a senior professor from a US-based firm said.
Make sure lender covers expenses in addition to tuition fees: Apply for a long needs a lot planning and preparation. Besides taking care of basic things such as eligibility criteria, understanding the loan terms, documents required for submission and loan processing time, a parent must prepare, before applying for the loan, an annual budget.
“The annual budget should include expenditures like tuition fees, accommodation, meal plans and food, health insurance, internet and phone bills, and personal care expenses. Next, prepare a separate list for their budget, including family contributions, external scholarships, financial aid from the university, and the income you may generate through part-time jobs,” Mehra said.
He added, “Finally, decide the loan amount required after calculating the expenses you can manage through the pocket. Make sure the lender you are targeting covers expenses in addition to the tuition fees.”
