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

It is generally assumed that “education loan to study 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 everything in one go? Additionally, there is 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 education loan instead of self-funding to study abroad.

1. The question of liquidity – Unless one has capital in the form of assets which 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 and are easily disbursed by the banks and can be used to pay the tuition fee.

2. 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 waste. Banks and NBFCs (Non-Banking Financial Companies) on the other hand provide certificate of availability of funds to students which helps them get admission as well as visa to travel to that country.
3. 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 cost by working part-time. This could spell trouble in 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 loan, on the other hand, cover both tuition fee and living expenses of the student.
4. Loss of future benefits – The value of assets like stocks, bonds or property tend 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 increase in price of those assets in future. In case of education loan, those assets, even if kept as mortgage against a secured loan, remain with the borrower. One can retake the possession of those assets after repaying the loan.
5. 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 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.
6. No secured loan in future – The advantage of having a financial asset is that it can be used as collateral to borrow money during the 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 future to build a house or to start a business, one will not have any financial asset to keep as collateral against those loans. However, the student has taken education loan, the asset can be used in future to take loans to build a house, start a business etc.

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

Student Cover provides education loan 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 https://studentcover.in/loan-product/