If you are planning to go abroad for higher education and you come from a modest financial background, then your parent’s low repayment capacity will no longer be an obstacle. As the number of students pursuing higher education abroad has steadily increased, so has the number of funding options. However, these loans are conditional and not all students will get the loan. Here’s how it works.

Grants and scholarships are too few and hard to get

The cost of studying abroad in an Ivy League college has a high cost that can run into the crores. Despite grants, scholarships and other financial aid, the net cost remains out of reach for many deserving Indian students. The only option left to them is to opt for a student loan.

“University Abroad grants and scholarships are limited to a relatively small student base. With the ambitious student population steadily increasing, this number may shrink, which could make higher education a a tough proposition for a significant segment of this population.Having a student loan greatly increases a student’s chances of gaining sought-after admission to the university of their choice,” says Arijit Sanyal, MD&CEO, Credila.

The loan is often conditional and the amount is limited

The student loan comes in two forms, secured and unsecured. Few students easily obtain an unsecured student loan based on good parental income and good repayment capacity. Students whose parents have sufficient assets also get a higher loan amount after pledging their assets as collateral. However, for other students without such strong financial status of parents, it has not been easy to get the desired loan amount.

“In the case of collateral, the assets of the parents play an important role because they are offered as security (guarantee) if the child or the parent cannot repay the loan. The student’s school records carry little weight because the financial institution has insurance,” says Eela. Dubey, CEO and co-founder of EduFund.

Many students who did not have a strong financial background often had to give up on their dreams. Although some of these students are used to getting a small unsecured loan, the loan amount offered by lenders has generally been much lower compared to a secured student loan. However, things have changed now.

New options offer a larger unsecured loan to cover more of the costs

Education finance has seen the emergence of many new financing options, especially for students who have no assets to offer as collateral. “New era fintechs are emerging and offering collateral-free student loans. These lenders check the student’s past academic performance and future earning potential as the main loan eligibility criteria,” says Ankit Mehra, CEO and co-founder of GyanDhan.

If you have merit and secure admission to some of the most prestigious institutions, funding may not be a big hurdle. “A popular alternative or supplement to grants and scholarships today are merit-based guarantees and co-signer free loans, such as those offered by Prodigy Finance, where students do not need to lean on traditional alternatives that can create a burden for them and their families, ensuring the only thing students need to worry about is their education,” says Mayank Sharma, Country Manager, Prodigy Finance.

Many of these new lenders are willing to take higher risks and offer a higher amount of unsecured loan to deserving students. “In the unsecured loan, no collateral is offered. The bank or financial institution takes a calculated risk based on the prospects of the child and their ability to repay the loan offered. Here, the bank assesses a plethora of documents including the applicant’s background, academic records and the caliber of the student.In the case of an unsecured loan, applicants can receive up to Rs. 40 Lakhs depending on the course and chosen university” , explains Eela.

Some lenders offer an even larger amount as an unsecured loan, but again, these are only offered to a select few students who are going to study at the most reputable institutions. “Based on the merits of an application, we provide unsecured loans even up to Rs 75 lakh,” says Sanyal.

How Lenders Decide Who Gets a Higher Unsecured Loan

By offering a higher student loan amount, these lenders are taking a big risk, but this is done after careful evaluation of many factors. “As part of this approach, we assess the profile of the student in detail. There are around 50 to 60 criteria that are assessed to derive a student’s employability potential score. Some of these parameters are the past academic performance, continuity in education, entering test scores, university/institute pedigree, course selection based on existing skills and more,” says Rajesh Kachave, Principal commercial – Education loans, Avanse Financial Services.

The background placement and compensation offered to previous students, who have taken the same course at the same institution, plays an important role in deciding whether or not to get the desired unsecured loan. “Student is not required to provide collateral or co-signer to apply. Free collateral/ and co-signer loans are offered based on student profile and background. We review course and school which the student wishes to attend, as credit risk is assessed based on future income and student potential,” Sharma explains. “Parents’ occupation or ability to repay is not considered in determining the same thing. Thus, the student can finance his studies without imposing a financial burden on the parents,” adds Sharma.

Closing the last mile gap

Despite all efforts, if you are still short of funding, you can fix it after you start your studies abroad. “There are other avenues like financial institutions that offer foreign currency loans without the need for a co-signer or any collateral. Repayment can be made in any currency without any prepayment penalty. These The loans only require interest payments for the duration of the course, and the principal amount and accrued interest can be paid after completing the course,” says Eela.