When it comes to financing higher education abroad, students often face a common dilemma: self-funding or taking an education loan. This guide compares both options, highlighting their merits, demerits, tax implications, and key factors to help you make an informed decision.
Also Read: Complete Guide to ICICI Globetrotter Student Insurance
Self-Funding for Abroad Studies
Self-funding is managing all overseas educational expenses without an educational loan. Usually, this includes utilising one’s personal or family savings, insurance policies, fixed deposits, funds from selling property or gold, and even borrowing from close relatives and friends.
Advantages of Self-Funding Overseas Education
- Free from Debt
The greatest advantage of self-funding is that it keeps you away from the mental and financial stress of repaying the loan. This lets you concentrate well on your studies and live a better quality of life.
- More Savings
Since you do not have to pay the loan amount or its interest, your savings are intact. You can use these savings later to buy a new house, car, or invest.
Disadvantages of Self-Funding Overseas Education
- Strain on Parents
As students typically do not have savings of their own at this age, parents are the ones who actually self-fund. So they often have to sell their property or gold, break an FD, or borrow money. This depletes their savings, deprives them of emergency funds or locks them in debt.
- TCS Deductions on International Remittance
TCS (Tax Collected at Source) is charged on self-funded international educational transfers made from India based on the amount transferred. Even though TCS is not applicable for transfers below Rs. 10 Lakhs, 2% is deducted from transfers above Rs. 10 Lakhs.
Also Read: How To Claim TCS Refund Online When Filing ITR?
Student Loans for Abroad Studies
Student loans are financial assistance offered by banks or NBFCs to cover various educational expenses. Student loans include collateral educational loans and non-collateral educational loans.
Advantages of Student Loans for Overseas Education
- Best for University Acceptance and Visa Approval
Students are required to demonstrate their financial ability to fund their studies abroad to secure admission and have their visas approved. It is commonly observed that an educational loan sanction letter acts as strong proof of financial eligibility.
- Income Tax Deduction
Education loan applicants can claim deductions on interest paid under Section 80E of the Income Tax Act in India, which can reduce the effective interest rate. Starting from the year the loan is taken, the deduction is valid until the full interest is paid or for 8 consecutive years, whichever comes first. Either you, your parents, spouse, or legal guardian can claim these deductions. Loans exclusively from gazetted financial institutions are qualified for this.
- Zero TCS on International Remittance
Irrespective of the transfer amount, no TCS (Tax Collected at Source) is deducted from educational money transfers.
- Boosts Credit Score
Timely repayment of educational loans enhances your CIBIL score. A high credit score is evaluated as a sign of financial discipline by institutions. This helps meet your future financial requirements, like a credit card or personal loan.
Disadvantages of Student Loans for Overseas Education
- Financial Stress on the Student
Even though student loans offer a moratorium period, students are bound to pay off the debt eventually. This can be a struggling phase if you cannot land a high-paying job.
- Interest Rate
Student loans come with an interest rate which is typically 9% to 11% for secured loans and 10% to 14% for unsecured loans. But students belonging to certain sections of society are eligible for an interest subsidy by the Government of India.
Self-Funding or Student Loan: How to Decide?
As self-funding and student loans possess their own pros and cons, it is important to evaluate your current position and future plans to choose the best option for your foreign studies. So always consider these factors before deciding.
- Financial Position
Self-funding is a feasible option if you have personal savings or enough familial wealth. However, you must also keep in mind that savings are also necessary to meet emergencies. So, if you think you won’t have enough savings left after spending them on your studies, opt for an education loan, which is safer.
- Future Plans
Self-funding is the best option if you have other financial obligations coming up after studies, because a loan can be a double load for you. If you are sure that the return on investment of your higher education is fair enough to pay your debt, an educational loan is a wise option.
- Independence
If you are a person who gives importance to financial independence, self-funding is suitable for you only if it is your personal savings. The next best option for you is a student loan because you can manage your education with your own earnings.
- Compare Financing Options
Talk to financial advisors and your friends who are currently studying abroad. Collect information, analyse it based on your vision, and decide whether to self-fund or take a student loan. And within the two options, choose the best financial tool after further research. For instance, compare numerous loan lenders before you choose one. ExTravelMoney lets you select the best loan provider in terms of ease of processing, interest rates, coverage, and repayment flexibility. With expert assistance and an online marketplace system, our team compares and connects you with the best bank/NBFC based on your preferences.
Choosing the right funding option can significantly impact your studies, finances, visa process, and future goals. So evaluate your resources, understand the costs involved, and choose wisely. If an education loan is the right fit for you, ExTravelMoney can help you find the best loan options with competitive rates and hassle-free processing.
Also Read: How to Send Money Abroad for Your Child’s Education
Ann Mariya Job is the Associate Content Writer at ExTravelMoney.com. Holding a Bachelor’s in Journalism, she excels in creating deeply researched, engaging, and crisp content. Her work helps readers understand the complexities of foreign exchange, overseas money transfers, and international travel.
