You must be aware of all the loan terms and benefits offered by the US and the Indian banks before making your decision on the basis of all the factors like interest rate, collateral security, co-signer requirement etc, while applying for an education loan in the USA.
Education Loans for studying in the US are offered by various public ( SBI, Bank of Baroda etc.) and private banks ( axis banks ) and NBFCs ( Incred, Avanse etc.) in India.
The US offers two types of loans for studying in the home country – Federal student loans are available for the US citizens only offering flexible repayment plans (income-based repayment plan) and fixed interest rate.
A private student loan is a loan that is offered by a bank or private institution and can be availed by international students. They come with a variable interest rate.
Prodigy Finance and Mpower Financing are some of the international education loan lenders.
To apply for an education loan in the US you need to have co-signer who is permanent US resident with good credit who has lived in the US for the past two years which may be very difficult to find. But the Indian banks and NBFCs are more preferable in this context as they may not necessarily require US co-signer. Avanse and Credila provide the education loans even with an Indian co-signer.
For education loans offered by the US banks, the variable interest rates range from 3.75% APR to 8.75% APR in the case of private student loans. Federal loans have Fixed interest rates ranging from 7.24% APR to 12.29% APR which is really high. In case you avail the loan from the US bank there is always an issue of INR to US dollar conversion rate and vice versa.
It is always better to take an education loan from Indian lenders as then there is no hassle of the exchange rate, conversion rate etc. public banks like PNB, SBI etc. Provide comparatively lower interest rates than private ones. The SBI education loan interest rate varies from 11.75% to 13.50% per annum. Although, NBFCs tend to have higher interest rates they cover the whole tuition fees and also provide unsecured loans (collateral-free). There is an interest rate parity between US and Indian lender. 10% Rate of interest from a US lender is equivalent to 15% ROI from an Indian lender. If by any chance you come back to India while you are still repaying your USD loan, you will be earning in a depreciating currency and hence, you will end up repaying double of the amount you borrowed.
The Indian banks also provide flexible schemes with longer repayment periods, and extended moratorium periods as compared to the US banks. Most Indian banks have a repayment tenure of around 7-10 years. Whether in India or the US, Generally, the repayment starts when the course is completed. Some banks even provide a relaxation period of 6 months after securing a job or a year after the completion of studies for repayment ( moratorium period).
Immediate or Deferred Repayment: Here you have the choice to either start repaying the loan immediately after taking it or wait until after the completion of your degree. The interest rate on your education loan varies accordingly.
During the course period, the bank charges a simple interest rate on the loan. The payment of simple interest during the course period lessens the EMI burden. The student may also choose to pay a portion of the simple interest during the course period known as the partial simple interest. The borrower may also choose to make the repayments in EMIs after the end of the moratorium period.
The Indian public banks also ask for collateral for loans above Rs 7.5 lakhs. For loans above Rs 4 lakh up to Rs 7.5 lakhs, a third-party guarantee is required. Whereas, the NBFCs ask for a collateral for education loan above 45 lakhs. Although no collateral is required by a US lender you will end up paying some amount extra considering processing fee, losing the income tax exemption and interest rate parity.
NBFCs in India can finance up to 100% of the loan depending on the amount. Currently, for loan up to Rs 4 lakhs, there is no margin money required in case of public banks. On the other hand, for studies overseas, the required margin money increases to 15%.
There are many benefits you get as Indian nationals when you take a loan from an Indian bank. Under section 80E you can claim an exemption on the interest component of your loan. In addition, for minority communities, under “Padho Pardes scheme”, Govt of India pays your interest of moratorium period if you take the loan from a nationalized bank in India. The US lenders cannot give you these benefits and hence an interest rate of 10% will be effectively 10% only not lesser than that.
The processing fee of in Prodigy Finance loan the processing fee gets added to your loan and eventually, you end up paying interest on your processing fee as well.
The processing fee of some banks like Prodigy Finance is 2.5% of the loan amount i.e for an average loan for US of INR 40 lakhs, your processing fee will be INR 1 lakhs. Whereas Indian banks charge a processing fee between zero (nil) to INR 10K maximum.
If you take a loan from a US lender, the loan margin i.e the remaining 35% has to be self-financed. This can be a burden for students/parents to arrange the entire remaining amount. Contrarily, Indian NBFCs fund you 100% of the tuition, living, travel and misc expenses without the loan margin concept.
On the other hand, Indian public banks can also fund you up to 100% of the total cost of attendance. But if it doesn’t happen (varies from bank to bank), let’s say they could only fund you 65% due to collateral value, the remaining 35% is not to be shown immediately.
To ease your access to best education loans offers for India and abroad, Credenc is here to help you apply to multiple lenders through a single window application with utmost ease and convenience at absolutely no service charge and no visits to any bank.