Education Loan Vs. Self Funding – Which One is Good For Study Abroad?

It is generally assumed that an “education loan for studying abroad is sought by only those who lack finances to pay the hefty tuition fees for a course in foreign soil”. This assumption holds merit because who would want to be burdened by EMIs when one could pay for everything in one go? Additionally, there is a cost of capital in the form of Rate of Interest (ROI) charged by lending institutions.

In reality, however, things are not that simple. In this blog, we try to explain why it is prudent for one to opt for an education loan to study abroad instead of self-funding to study abroad.

• The question of liquidity– Unless one has capital in the form of assets that are liquid (like cash) or can be easily turned liquid (such as stocks, bonds, etc.), the decision to go for self-funding is not advisable. This is because turning assets like land or other forms of immovable property into cash takes a lot of time. Moreover, when done in a hurry, one might not get the buyer or appropriate value for that property. On the other hand, Education loans can be taken on the basis of non-liquid assets that are easily disbursed by the banks and can be used to pay the tuition fee.
• Proof of availability of funds – In countries like the US, colleges and universities as well as immigration authorities have to be convinced by the student regarding the availability of funds to finance their education and stay before his or her application is accepted for admission to the respective course or F1 visa. If one decides to sell the assets (land, stocks, or bonds) to show the availability of funds but does not get admission, everything will go to waste. Banks and NBFCs (Non-Banking Financial Companies) on the other hand provide certificates of availability of funds to students which helps them get admission as well as visas to travel to that country.
• Cost of living – While planning to finance the cost of education in foreign countries, people often tend to pay little heed to the cost of living in those countries. There is also a misconception among people that one can manage a significant part of living costs by working part-time. This could spell trouble in the future as, in countries like the US; employment of foreign nationals is severely restricted. Eventually, a student could face a situation where he or she is unable to meet the living expenses. Education loans, on the other hand, cover both tuition fees and living expenses of the student.
• Loss of future benefits – The value of assets like stocks, bonds, or property tends to appreciate over time i.e. their value increases over time. If they are sold to arrange money for education abroad, one may not be able to reap the benefits of the increase in the price of those assets in the future. In the case of an education loan, those assets, even if kept as a mortgage against a secured loan, remain with the borrower. One can retake the possession of those assets after repaying the loan.
• Emergency expenditure during crisis – Self-funding severely limits one’s ability to maneuver in crisis situations. While no unwarranted crisis should befall the student when he or she is studying abroad, one should always be prepared for any eventuality, irrespective of anyone’s making. If a student is studying abroad on an education loan, one can always seek additional funds from the lender bank or NBFC to sail through the storm. This option is not available to those students who opt for self-funding to study abroad.
• No secured loan in the future – The advantage of having a financial asset is that it can be used as collateral to borrow money during a time of need. If assets like land, property, stocks, bonds, etc. are sold to arrange money to finance education abroad, they are gone forever. Therefore, if one requires loans in the future to build a house or to start a business, one will not have any financial assets to keep as collateral against those loans. However, if the student has taken an education loan, the asset can be used in the future to take loans to build a house, start a business, etc.

We hope that the students will find the above blog helpful in deciding between education loans and self-funding to study abroad.

Student Cover provides education loans to students going abroad to countries like the US, UK, Canada, and Ireland for higher education. To know more about various unsecured education loan services of Student Cover, readers can visit our education loan page.