Education Loan vs Self-Financing: Which Is Better for Studying Abroad?

While education abroad has its appealing advantages, the rising cost of education and accommodation abroad are two significant factors influencing many students’ decisions to pursue their studies abroad. While education loans continue to be a popular choice to cover these expenses, several students and their parents often gravitate towards self-funding these expenses.

What’s the difference between education loans and self-funding?

A study abroad education loan is a form of credit borrowed from a bank, NBFC, or other financial institution, often against collateral. This amount needs to be repaid later, in addition to the interest accumulated through Equated Monthly Instalments (EMIs). 

Self-funding or using personal savings refers to paying for educational expenses using personal or family savings, investments, or other financial resources. This usually requires careful financial planning and understanding of the costs associated with studying abroad. While self-funding does not involve debt, it can affect long-term financial planning, and individuals should be careful with estimating the required costs.

Which is better for you? - Education loans or Personal Savings

The best option depends on individual choice. Here’s a snapshot of what you can consider to determine whether to opt for education loans or self-fund your studies abroad.

Financial Savings

Self-funding often involves liquidating personal savings, precious assets or emergency funds, which can impact your long-term savings and safety net, whereas student loans allow you to keep your savings intact and use the borrowed amount for education-related expenses. Several education loan in India offer unsecured loans, which do not require collateral against the borrowed amount. The eligibility depends on the student's academic profile, future earning potential and the co-applicant’s income and credit profile.

Coverage

Education loans typically cover a large portion of education expenses, including tuition fees, rent, food, travel, learning devices, etc. Allowing you to study stress-free without worrying about arranging large sums of money every semester.

Financial Discipline

Education loans lay the foundation for financial discipline. When you pay your EMIs on time, it not only helps you build a strong credit score but also teaches you to manage your finances better. Timely loan payment also makes future borrowing smoother and more affordable. A great borrowing advice is to pre-plan your repayment ahead of time. You can calculate EMI for education loan payments using various online EMI calculator tools available on lenders' websites. This calculation will give you an estimate of what will be fixed due every month, and allow you to stay financially prepared. 

Hopefully, that gives you an idea of what might be best for you. Either way, education abroad is a precious journey that gives back in more ways than one, especially when you think about a secure future.