Financing Your Study Abroad Education: Loan, Sanctions, Disbursements
Are you looking to enhance your career prospects? Well then, the simplest and the most effective solution is to pursue higher education in a foreign country and subsequently, secure a job in that country. Whether it is the US, Canada, Australia or Germany, all these countries provide a facility to secure a work visa upon graduation as long as you get a job, which is not a very difficult proposition provided you network and identify the right school to pursue your higher education at.
The prospect of studying abroad is expensive, costing anywhere between 20-25 lakhs per year, on an average, and also depends on the chosen destination, program and University. Therefore, it is important for students and the families concerned to explore funding opportunities like loans and scholarships, well in advance.Fortunately, the market for study loans has expanded considerably over the years with quite a few players entering the fray. There are two types of loans, namely secured and unsecured loans. As secured loans require collateral in the form of real property or other assets, many students prefer unsecured loans. Though the rates vary by as much as 1.5 – 2% between the two loans, the process is virtually the same namely,in-principle sanction, sanction, and disbursement.
- In-Principle Sanction: A few banks, especially public sector banks, are reluctant on confirming loan grants until one receives the I-20 from the USA University. While you need to show your financial competence to the University to get the I-20, the Bank requires you to show the university I-20 to confirm the loan offer. In case you wish to avail of loan from such banks, you can be in a bit of catch-22 situation.
At times, the bank offers you what is called an ‘In-Principle Loan Sanction Letter’ wherein the bank states that a particular amount of loan shall be sanctioned to the student in case his admission to a particular University is confirmed. However, one must remember that such an ‘In-Principle Loan Sanction Letter’ is not accepted by majority of the Universities, and therefore, if you plan to show loan as proof of financial capability to the University, you need to necessarily obtain the loan from a provider who is willing to sanction the loan without the i-20.
Sanctioned Loan : If you choose to avail of education loans from dedicated education loan providers, most of which fall in the non-banking financial corporation (NBFC) category, such as HDFC Credila or Auxilo Finserve, you will be able to obtain a ‘Loan Sanction Letter’ even before the confirmation of admission. Even banks for that matter, upon confirming your loan after you provide a proof of admission, readily offer you the Loan Sanction Letter. By sanctioning the loan, the bank confirms that the loan of specified amount has been granted to the student. The Loan Sanction Letter also specifies the terms and conditions of the loan, such as the repayment period, rate of interest, moratorium period if any, any loan pre-payment clauses, etc. For getting the loan sanctioned, students are typically required to pay a processing fee of as a percentage of the sanctioned loan amount, along with cooperating with the bank for the KYC process involving offering information such as their residential address, employment place, employer credentials, telephone numbers, family income details, past credit history, etc. to the bank officials. The process is subject to scrutiny in case the paperwork does not conform to the requirement. In case of any discrepancy, the loan can be rejected by the bank. Hence applying for CIBIL ratings to assess one’s creditworthiness becomes very important.
The sanctioned amount is sufficient proof for the student to show to the universities and get their I-20. Over 98% of the U.S. universities accept this sanctioned amount.
Disbursement: Once a loan is sanctioned, depending on your requirement, you are offered the flexibility of utilizing a part of the sanctioned amount or the entire sanctioned amount. You cannot avail of loan beyond the sanctioned amount. Loan disbursement is a process where you ask the bank to transfer the requested amount into your account or make a payment to the University directly. A student can choose to get the loan disbursed in parts at different points of time during his education tenure, or in full at once. The interest component and the repayment of loan (EMI/ partial EMI/etc) only begins after the disbursement of the specified amount. If the student decides not to avail of any disbursement, all he would end up paying is the initial processing fees.