Want to study abroad? Here’s the money plan to get you there

medium120338374When Mumbai-based Sneha Sawant announced her decision to study in the UK, her father Santosh was caught off guard. Sending kids abroad is a dream for many Indian parents due to the promise of a fancy job, global exposure and top-tier education. According to the HSBC Quality of Life Report 2024, which surveyed 1,456 affluent Indians, 78% of parents either plan to send their children abroad for education or already have a child studying at a foreign university.However, without meticulous financial planning, this dream can spiral into a costly nightmare — as Santosh discovered. The staggering cost of international education left him rushing to arrange a large education loan as there were no prior savings.Funding a child’s education abroad demands foresight and strategy. Sneha is due to fly abroad in August to London Metropolitan University to do her MSc in pharmaceutical science.“Studying overseas requires a disciplined financial approach. Parents must account for tuition fees, living expenses, travel costs and currency fluctuations,” says Piyush Kumar, regional director for South Asia, Canada and Latin America at IDP Education.Start earlyThe key to avoiding financial strain lies in starting early. Consider Amal Biju’s parents, who began saving for his education when he was just 10 years old. Their foresight paid off when Biju secured admission to a university in Ireland in 2024. Biju will be done with his master’s this year and will be able to repay the loan quickly because only a small amount of money was borrowed. Of the ₹35 lakh required, his parents had accumulated enough to borrow only ₹10 lakh.“We weren’t sure if Biju would study abroad, but we saved anyway,” says his mother, a central government employee.This is a very smart move for parents who save for their child’s education. After calculating the correct amount needed, starting early is the first step towards reaching the target corpus as it helps you enjoy the benefit of compounding and beat inflation. This is more important considering that education inflation is higher than normal inflation.Rohit Shah, founder & CEO, GYR Financial Planning, agrees, “Instead of assuming a standard 7% inflation rate, we recommend budgeting for a 10% annual increase to account for both inflation and rising education costs abroad.”“Then, there is currency depreciation that can hit just as hard,” adds Vivek Banka, founder, Goal Teller. medium120338419Invest wisely, adjust with timeStarting early allows parents to invest aggressively in equity, which typically outpaces inflation over the long term. However, if you are starting late, try investing in a mix of asset classes. For example, if the admission is 3-5 years away, a recommended allocation is 60-65% in equity and the rest in fixed-income assets. As soon as the goal approaches, that is, it is less than three years away, not more than 20% of the portfolio should be in equity.“A common mistake that we see our clients make is that they wait for the last minute to exit equity. Such optimism can backfire,” says Banka.Another common mistake that parents make is dipping into their retirement savings to fund their child’s education. This is the exact mistake that Sneha’s father made.“My daughter’s decision to study abroad came late, and her education became my priority,” he explains.While this sentiment resonates with many Indian parents, it’s a risky move. “You can secure an education loan, but there’s no retirement loan,” cautions Shah. Prioritising your child’s education over your financial security can leave you vulnerable in your later years. medium120338399Try to avoid loansIf you haven’t built a sufficient fund, a loan might be your only option. It may sound counterintuitive, but opting for an unsecured loan may be better for some people. You might pay a 2-3% higher interest rate, but it safeguards your assets in case of a mishap. Both secured and unsecured loans have their advantages and disadvantages. Still, Banka recommends avoiding loans altogether, if possible. “If you need to borrow, it means you are living beyond your means. If you must borrow, try to apply for a maximum of 20% of the amount needed,” he advises.Sometimes, a loan is the only feasible option. Take Mahati Bandekar, who studies in Italy. She was offered a scholarship and didn’t want to miss the opportunity, so securing a loan worked in her favour. However, there are key considerations to keep in mind while borrowing.“Don’t forget to compare interest rates across different lenders. The rate mostly depends on factors such as the university’s ranking, course and prospective job opportunities after graduation,” says Kumar of IDP Education.Mahati’s father exemplifies managing multiple goals effectively. Five years ago, when he realised his daughter was keen on foreign education, he began saving. His only miscalculation was not pinpointing the exact amount. “I didn’t know which country she would choose, so I didn’t have a definite corpus in mind,” he admits. medium120338442Scout for scholarshipsThe corpus required varies widely by country. Education in the US or UK can cost almost 3-4 times more than other destinations. That’s why Biju opted for Ireland over the US. “I was getting quality education at a fraction of the cost compared to the big four countries,” says Biju. He’s not alone. Many students are now choosing countries like Germany, Russia, France, New Zealand and Ireland due to uncertainties in visa rules and economic conditions.Life in the US has also become tough. Foreign students, like Indians, are afraid to visit their families in their native countries for fear of not being allowed to step back on American soil. Immigration and education consultants say that inflationary conditions and lack of adequate job opportunities in countries like the UK and Canada can also make conditions tough for students once they graduate. While these geopolitical shifts are key drivers, the high cost of traditional destinations is also playing a major role in this trend.One more way to reduce expenses is by scouting for scholarships. Mahati secured a scholarship worth ₹6 lakh, which gave her the courage to pursue her dreams in a foreign land. Note that scholarships, typically, do not cover the entire cost of your education. They give some relief, but you still have to make up for the remaining cost. Aside from financial planners, you could also reach out to career counsellors. They help identify opportunities tailored to your profile and guide you through the planning process, from admissions to finances.Biju took help from New Delhi-based Global Edge, Sneha consulted IDP Education and Mahati relied on WeMakeScholars, a platform that simplifies loan applications with no charges. Interest rates for all three ranged from 11% to 13%, as they opted for unsecured loans with a co-applicant. medium120338456Book stay in advanceWhile most conversations focus on tuition, many parents and students overlook the cost of accommodation, another major expense.“With limited on-campus housing available, students must look beyond university halls and opt for verified accommodations through trusted platforms. Booking early doesn’t just offer peace of mind; it can help save 20-30% in rental costs,” says Saurabh Arora, founder & CEO, University Living, an international student accommodation managed marketplace.Booking through a trusted platform is a must because of the risk. Mahati’s father recalls the stressful night when his daughter was stranded on her first day abroad. “I had booked the hotel in advance from India, but no one told us small European hotels don’t offer late check-ins,” he says.He also warns against committing to long-term rentals before physically inspecting the place. “It’s better to book for 3-6 months until the student settles in and understands the local options,” he advises. Many accommodation contracts have strict cancellation clauses, and early exits can result in heavy financial losses.Sneha, Biju and Mahati’s stories highlight that funding studies abroad is a marathon, not a sprint. Start early, invest wisely and avoid compromising your retirement. If loans are necessary, choose judiciously. By planning with precision — factoring in inflation, currency risks and stay- and destination-specific costs — parents can turn their kids’ dreams into reality without impacting their own financial stability.As Shah says, “A bright future for your child shouldn’t come at the cost of your own.” medium120338139How much does it cost to borrow?Riju MehtaAmid the many Trump tremors rocking the world is the stringent education policy in the US, which has had Indian banks anxious about doling out foreign education loans. Though most banks are in a watch-and-wait mode, it’s poor timing for students already reeling under the rising cost of foreign education, not just in the US, but in other countries as well.The steady fall of the rupee has been compounded by increasing visa fees and proof of funds requirements, as well as higher cost of living and a paucity of jobs in top destinations like the US, Canada, UK and Australia.Higher costs mean that despite a 15% fall in the number of students going abroad for higher education in 2024, as per the ministry of external affairs, the non-banking financial companies’ (NBFCs) total education loan AUM (assets under management) has been estimated to grow by 40-45%, from ₹43,000 crore in March 2024 to ₹61,000 crore in the current financial year, as per a Crisil Ratings report.Should you take a loan now?With foreign education costing ₹20-80 lakh a year and uncertain job prospects, how much should you dip into your funds, provided you have enough, and how can you borrow? “Given the level of fees, there is a judgement call to be taken, as the ability to repay the loan will be contingent on the ability to procure a job,” says Madan Sabnavis, chief economist, Bank of Baroda.It’s important to consider the return on investment; it won’t make sense if you take a ₹40 lakh loan and end up with a ₹80,000 job. “One should opt for the loan if one is going to an Ivy League college or for a master’s or PhD degree, which will genuinely add a tangible, sizeable value to your career, and not simply because you want to tick a box,” says Dinesh Rohira, founder, 5nance.com.“The cost of studying abroad can be prohibitive, and an education loan provides flexibility to manage expenses. However, parents should evaluate the quantum of the loan on the basis of their current repayment capability,” says Kamal Sabhlok, head, secured lending and microfinance business, RBL Bank. medium120338284Benefits of education loanDon’t forget that the tax benefits will also help cut your cost of the loan.“There’s no cap on deduction that can be claimed against the interest paid for an education loan under Section 80E, making it an attractive tax planning choice. Additionally, remittances for education loans are exempt from TCS (tax collected at source), unlike self-funded remittances, leading to further savings,” points out Arjun Chowdhry, group executive & head, retail lending, cards & payments and affluent banking, Axis Bank.Besides, the moratorium period means that the loans enable students to pursue a course of their choice without worrying about full EMI payment during the course tenure, adds Chowdhry. medium120338308What’s on offer?Foreign education loans are being offered by both public and private sector banks, NBFCs and other private players. “Financial institutions usually cover the total expenses, including university tuition fees, lodging, books and living expenses. However, every lender has a policy on margin depending on the nature of the loan (secured/unsecured), institute, course, country, etc,” says Sabhlok.Rates and loan size: Interest rates typically vary from 8.5% to 14%, depending on the lender, type of loan, course and institution, while the loan size depends on the bank’s limits and can go up to ₹3 crore. “Several banks offer multi-crore financing for foreign education. For instance, SBI Global Ed-Vantage advertises financing up to ₹3 crore, with collateral-free loans up to ₹50 lakh for select colleges,” says Adhil Shetty, CEO, BankBazaar. Bank of Baroda, on the other hand, gives up to ₹1.5 crore under the Baroda Scholar scheme.Repayment term: While the typical repayment term is seven years, it can easily range from 5 to 15 years, or even higher for some private lenders.Moratorium period: Most financial institutions offer a moratorium period that extends for 6-12 months after the completion of the course. Hence, the EMIs begin after sufficient time has been provided to the student to secure a job. medium120338329Secured or unsecured?Education loans are essentially of two types: secured and unsecured. While banks typically offer secured loans, some NBFCs offer unsecured loans as well.Secured loans require collateral in the form of an asset, such as property, an existing home loan, jewellery, bank deposits, etc. This means that the bank has covered its risk and can offer lower interest rates and bigger loans. Unsecured loans, on the other hand, do not demand collateral, which translates into faster processing time and 200-400 basis point higher interest rates. For loans below ₹7.5 lakh, no collateral is usually required.“Unsecured loans are not ideal. These are easily available, but the trade-off would be higher in terms of interest rates, shorter tenures, bigger EMIs and no moratorium,” says Shetty.“Unsecured education loans are good for small-to-medium funding needs when you have a credible academic plan but no collateral. However, for large amounts, explore secured loans or scholarships to reduce financial stress,” says Sabhlok.