When you are planning to study abroad, arranging funds and how to finance your education acts as a deciding factor. In a few cases, students do not even dream of flying abroad due to financial constraints. Most parents even contemplate self-funding as a viable option to fund their child’s education by liquidating valuable assets or by arranging funds through their family friends and relatives, but all families cannot seek such financial assistance. This is where student loan comes into play. This article will give you a brief insight into the benefits of student loans and how student loans are better than self-funding your education abroad. You can also compare student loans vs self-funding to find out which one would be the best option to fund your abroad education.

Self Funding your study abroad

Taking an education loan for your studies abroad turns out to be a financial liability on most of the students due to which they prefer self-funding as an ideal alternative to avoid future debt. In one way or another, students do not desire to be weighed down by EMIs when they can pay for everything in one go.  

  • What can be considered as self-funding?

You may be considered self-funding under the following situations:

    1. when you are financing your studies
    2. seeking financial assistance from your family, friends or relatives
    3. arranging funds from an external funder (excluding Government banks or any other education loan lenders)
  • How to plan your way through college by self-funding your education?
    1. Plan your finances abroad
      For students who are planning to study abroad, it’s very necessary to arrange their finances accordingly as it will help them save a lot of time and distress in the future. A student should also plan their financial emergencies that may occur during the duration of their course. 
    2. Hunt for scholarships and grants
      Hunt for various scholarships or grants as it acts as a helping hand when you are self-funding your education. This will overall assist you to fund your overseas education and also benefit your higher education course abroad. 
    3. Search for a part-time job
      Opting for a part-time job while studying will help you progress professionally as well as financially. You may avail of an opportunity where you can work on your skillset as well as manage your living expenses abroad. This way, you would not have any financial baggage on your head while studying abroad. 

Student Loans for study abroad

Students nowadays have become more career-oriented than ever for which they seek quality education. To fund your child’s entire quality studies with your years of savings would be near to impossible as traditional finances i.e. borrowing money from your relatives, and friends have become costly. 

Students opt for an education loan when they lack the finances to pay the hefty living expenses and tuition fees for a course overseas. This is one of the major benefits of student loans. 

Types of education loans
There are two types of loans:

  1. Collateral loan or secured loan
    Loans that are provided based on collateral security, are known as secured or collateral loans. When a borrower pledges collateral to obtain a loan, this ensures that the lender would receive some partial compensation for any remaining balance on a loan. They can seize the collateral and can sell the property if the payments are not made on time. Government banks and private banks are the best collateral loan providers in India. 
  2. Non-collateral loan or unsecured loan
    Loans that do not require pledging of any collateral are known as non-collateral or unsecured loans. In this, the borrower does not have to pledge any security to obtain a loan. Students who have inadequate assets to pledge security can go for an unsecured loan, However, while opting for unsecured loans, factors like parent's income, university ranking and fees etc are considered. 

Self Funding Vs Student loans: Which one is better?

  1. Extricate your family by saving your funds
    Self-funding generally involves dissolving all your savings and liquidating valuable assets like gold, FDs, insurance, flat, land etc to fund your study abroad whereas when you obtain an education loan you can retain all your savings and can rescue your collateral with timely repayment of the loan. It would also extricate your family as they could utilize the funds saved during family contingencies. 
  2. Financial benefits
    When you are self-funding your education overseas, you cannot avail any financial benefits that you get on an education loan like lower interest rates, satisfactory repayment policies, repayment holidays for students, Government subsidies etc. But when you avail of an education loan, this is one of the biggest benefits of an education loan. 
  3. Proof of funds to secure admission

    When you self-fund your education, the university seeks a solvency letter to attain admission confirmation. Students have to exhibit their payment capacity to the university by displaying approximately 1 year plus 50% extra funds in their account whereas when you avail of an education loan, your bank who sanctioned your loan will proffer a solvency letter to display proof of funds. 

    If you apply via WeMakeScholars for an education loan, our financial officers will assist you to get the sanction before admission confirmation and this will give you time to display funds in your bank account. 

  4. Moratorium period
    When you are borrowing an education loan from Government banks, the biggest advantage you get is a moratorium period. The moratorium period is a loan repayment holiday where you are not obliged to pay money to the bank for a certain period i.e. course duration plus 6 months/1 year. Students also get the opportunity to extend their repayment tenure up to 15 years when they borrow an education loan from Government Banks whereas when you self-fund your education you cannot avail this advantage. 
  5. Arrangement of large funds in a short period
    You have to plan for years and save money for your education when you self-fund your higher education. This is the main con of self-funding education as you might be required to arrange large funds in a short period which is near to impossible in most cases whereas, when you avail of an education loan, the bank disburses the required amount intermittently. So in case the student has to arrange large funds in a short period, the student can arrange the money by demanding more loans for their education against their collateral value. 
  6. Multiple expenses are covered
    When studying abroad, managing expenses like house rent, fees, food etc is difficult when you self-fund your education whereas when you take an education loan all your essential expenses like rent, food, laptop, etc are all covered in the loan amount.
  7. Fluctuation in currency rates
    With the rising inflation, whenever there's a change in the currency rates, the cost of education also fluctuates due to which students who are self-funding their education may feel strenuous whereas your sanctioned education can be quite beneficial at this moment. 
  8. Tax benefits- Section 80 E
    Under Section 80E of the Income Tax of 1961, the students pursuing higher studies in India or abroad can claim a deduction i.e. they can contend to taper down a certain percentage of interest paid towards your education as deductible whereas you cannot avail this while you self-fund your education. 
  9. Build your CIBIL score
    CIBIL is the precis of your credit history to date. When you self-fund your education you cannot construct your CIBIL score as it requires timely repayment of EMIs whereas when you avail of an education loan you can build your CIBIL score by making sure of the timely repayment of the loan through EMI's.
  10. Opportunity for students to take responsibility
    Self-funding involves the help of parents, relatives and friends whereas when you take an education loan the student will be responsible for paying his/her loan amount after the completion of their course. This will unshackle the responsibility of parents as the student would be responsible for repaying the debt. This will encourage them to build their career also.
  11. Benefit of Tax on Foreign Remittance
    The Union Budget of 2020-2021  intends to levy 5% TCS on overseas remittances according to Section 206C for the people who are flying overseas. So, students who are self-funding their education have to bear 5% TCS on overseas remittances whereas if you take the support of an education loan, TCS on remittances supported by financial institutions for study abroad is kept at 0.5% on the payment above Rs 7Lakhs. 

Conclusion

In conclusion, student loans outweigh self-funding for studying abroad due to key advantages. They provide financial flexibility by spreading costs over time, unlike self-funding's immediate and limiting nature. Student loans also offer investment opportunities, aid in building credit, and feature lower interest rates, preserving personal savings and offering manageable repayment structures. With Tax benefits and structured repayment plans, student loans provide ease in managing student finances, making them a more beneficial choice for funding education abroad.

If you are facing any issue related to education loans you can request a callback on our website and our financial officers will assist you to solve all your queries related to education loans. 

Note: WeMakeScholars is an organization funded and supported by the Government of India and is associated with 10+ public/private banks/ NBFCs in India. We have helped millions of students by connecting them with the best education loan lenders across India. We have a dedicated financial team to assist you with any education loan-related query. As we are Government funded, there is NO FEE charged for the services offered.