Want to study music abroad? Take edu loan

A few years back a student going overseas for higher studies usually pursued science, technology or management. But today it is not surprising to see them opt for unconventional or new courses such as sports management, commercial music, artificial intelligence, data analytics and robotics to name a few.

And with specialised lenders in education, it is also easier to get loans for such specialisations today. Besides, students can get loans to cover all their expenses, including living and travelling, subject to approval by lenders.

Need for education loan:

According to Amit Gainda, CEO, Avanse Financial Services, nowadays students and parents want to take a loan even if they can afford to pay for the course. "Even though the family may not need a loan, students are willing to service the debt with parents as a co-applicant. Similarly, parents also want their children to become responsible, and hence, want them to take the loan and service it. Financial penetration in education loans is moving up.''

With the cost of higher education rising over the years in India and abroad, funding higher education has been going beyond the means of most families, said Ajay Bohora, co-founder and managing director of HDFC Credila. “Also, a lot of funds get used up to finance the education of children from kindergarten to standard twelfth, putting a lot of stress on the family savings,’’ he said.

Popular courses:

Students have been increasingly exploring career options that are more in line with the emerging growth areas for new opportunities. For instance, sports management is one area that is seeing a lot of interest given the large number of sports events. Similarly, courses and institutes that offer exposure in areas such as data sciences and data analytics, big data, cybersecurity, food processing and food technologies, nano-technologies, courses in design and design thinking-driven innovation-focused courses are also becoming popular.

“One of the trends we have noticed in the recent past is the increasing inclination of parents and students towards pursuing non-traditional and new-age courses. We are now witnessing a surge in unconventional and unique courses like Bachelor of Arts - Sports Management, Bachelor of Media Arts - Commercial Music, Bachelor and Masters of Physiotherapy, Bachelor of Science - Music, Sports Events Management across varied countries like the US, the UK, Canada, Australia and many small Asian and European countries too,’’ said Bohora.

According to Prashant Bhonsle, CEO - education loans, InCred, “Some offbeat courses that are gaining traction now are data science, artificial intelligence, robotics, genetic engineering, etc. USA continues to be the first choice for most Indian students for all kinds of courses, while European universities are preferred for design courses. The costs range from Rs 35-40 lakh to upwards of Rs 2 crore.”

Conditions for loan approval:

Lenders look at a combination of academic records, the college one is going to and the employability of the course one is going to study. While private lenders may not always insist on a collateral security, they do insist on a co-borrower, usually the parent and check the financial background and credit parameters of the co-borrower.

While sanctioning loans, Avanse offers a combination of secured and unsecured loans. But the ticket size is not restricted to the amount of the loan. It is restricted by the programme the student gets admission for, said Gainda.

"We look at academics, we look at consistency, we look at stability. For instance, if the student started with sciences, shifted to humanities and then wants to pursue something is unrelated to this, then that is a red signal; or if between studying engineering and MBA there is a three-year break and he/she was not even working. On the other hand, if someone did engineering/MBA, worked for three years and then wants to go for a university overseas to upskill, that makes perfect sense,'' he explained.

Avanse looks at the student's level of higher secondary, tenth, twelfth, PG diploma, preparatory courses and then also at which university the student has got admission into, the fees, living expense, the travelling expense and so on, before deciding the amount. The employability once the student passes out and the background of parents are some factors that are considered.

"We insist on a co-borrower because most of the students who go abroad don't have any intention of coming back. But we don't ask for a mandatory financial guarantor. We do a combination of secured and unsecured loans. Our emphasis is not on collateral,'' Gainda added.

Similarly, HDFC Credila, too, has education loan solutions wherein parents don’t have to put in margin money. If the loan is approved, the lender provides the option to avail up to 100% of the total cost of education as education loan.

“Loan amount starts from Rs 1 lakh to the total cost of education. There is no upper limit on the loan. This empowers students and parents to fully fund the higher education and complete the entire course without taking any breaks to earn money or without creating a situation for the family where they are forced to liquidate their assets to pay for the higher education,’’ Bohora said.

According to Bhonsale, loans for overseas education have relatively increased because of rupee depreciation recently. “Usually, the sanction amounts are Rs 30 lakh-plus and the disbursements happen as per the fees payment schedule of the course. We offer loans from Rs 2 lakh with no upper limit for deserving students,’’ he said.

INTEREST RATES

10.5 - 13.75% Depending on the course, college and amount

LOAN AMOUNT

Rs 2 lakh to Rs 30-40 lakh without security

Higher amounts may be given with collateral security on a case-to-case basis

MONEY MANAGEMENT LESSONS

• Never take more debt than you can service. Do a thorough and detailed financial planning about how the education loan will be repaid, considering all possible scenarios including a situation where the job might not as high paying as initially thought about
   
• During the time of global uncertainties, over-leveraging can put huge additional burden on students and parents
   
• Use your own funds and take the loan only to the extent of the deficit between the total cost of education and the scholarships or family savings
   
• Avoid drawing the entire sanctioned amount
   
• You can supplement by either working part-time or by reducing your course time through extra credits to save on course fees
   
• Plan for pre-paying the loan faster as there will be lifestyle upgradation expenses in future
   
• Pay at least the interest on the loan while pursuing the course. This helps reduce the burdenIn most cases, an education loan is the first loan that the student takes on his/her name. Hence, ensure a steady repayment and maintain a good track record and credit score
   
• Remember to take the tax benefit on the interest paid Section 80E of the Income Tax Act