Is it worth taking out a student loan to study abroad?

The popularity of studying abroad has nearly tripled in the last two decades. As of 2022, approximately 7 million students were studying outside of their home country in places like Australia, the USA, and the UK. One of the top host countries for international students is Canada, thanks to its growing economy, world-class universities, and welcoming people.

Indian students specifically are becoming more likely to study abroad. About 1.5 million Indians are currently studying abroad, with that number growing each year.

While not everyone needs to take out a student loan to study abroad, many international students do. It can be expensive to pay tuition fees and living expenses in a foreign currency, especially for a student without a steady income.

Taking out a student loan is a great way to pay for your international education if you manage the loan well. Passage provides international students with student loans that are specific to their personal profile. Check out you eligibility for a student loan with the loan eligibility tool.

Why so many students are choosing international education

International education is on the rise as students seek a more global perspective in their careers. The growth of the internet and social media has also given students more access to international education programs and the desire to discover new cultures.

For some international students, studying abroad means receiving a higher level of education. Students desire to study in countries such as Canada because they have world-class universities and research facilities that their home countries may not have.

What is a student loan, and how does it work for studying abroad?

A student loan is a loan specifically used to pay for the costs of a higher education. It covers tuition fees, living expenses, books, and other related costs.

International students can take out a student loan to cover the cost of their undergraduate, postgraduate, or professional program abroad. International students do not qualify for federal loans, but rather private student loans from banks, credit unions, or private lenders.

The payment terms for each loan will be different. Factors such as the loan amount, repayment terms, and grace period change depending on the student’s individual profile. While going through the loan application, it’s important to understand the loan terms you are applying for and how they might affect you post-graduation.

Eligibility criteria for an education loan to study abroad

The lender determines who is eligible for what loan. Typically, eligibility for a loan revolves around your full-time admission into a recognized university or college. You may also need to meet age requirements and prove your financial ability to pay back the loan.

Standard eligibility criteria for an education loan include:

• Admission letter
• Cosigner
• Collateral
• Good credit history

Passage, however, doesn’t require students to have a cosigner to apply for an education loan. Students can check their eligibility via Passage’s loan eligibility tool to see what loan amount and payment terms they qualify for.

Key factors to consider before taking out a loan for international studies

Before you take out a student loan, it’s important to consider your life post-graduation. Overseas study is a great opportunity to experience quality education, but if you take out a loan to do so, you’ll have to pay back that money once you leave school.

Consider your career goals and the job you might attain after graduation: does the salary cover your loan expenses plus your living expenses? How long might you have to wait to grow enough in your career to be able to pay back the loan? Passage offers insight into the average salary for skilled trades, healthcare workers, and STEM job opportunities so that international students can predict their salary post-graduation and calculate how they will repay the loan.

Visa regulations are also another key factor to consider. Will you be able to stay in Canada and work after graduation? How long might it take you to get legal status to work? Unfortunately, some students have to move back to their home country after studying abroad and finding work there. This might mean making a smaller salary but still owing thousands in student loan debt.

Comparing interest rates on student loans

Interest rates on student loans are the percentage amount that a lender charges a borrower to borrow the money. Interest rates can be fixed or variable.

A fixed interest rate means that the rate will not change throughout the loan period. Passage offers loans at a fixed interest rate of 11.95% to help students maintain a consistent payment schedule.

Variable interest rates may decrease or increase during the loan payback period, depending on the market. This could mean that the interest rate you agree to today ends up being smaller than the interest rate you receive after graduation.

Choosing a loan based on the rate of interest is very important to determine how much you are really going to be paying in the long run.

Repayment options after graduation

Students loans often have specialized repayment options for students to help them pay off the loan successfully while studying and after studying.

Many student loans offer a grace period before the student is required to start making loan payments. Typically a grace period is about 6 months after graduation or leaving school. This gives the student enough time to find a steady paying job to begin paying back the loan once they are done with their studies.

Income-based repayment plans adjust your monthly payment based on your income and family size, not on how much you owe. Your monthly payment is calculated as a percentage of your discretionary income, and payments are adjusted annually based on your circumstances. This is great for students because it means that if they make a smaller salary after graduation, they pay a smaller monthly payment. As their salary increases, so does their monthly payment.

An “interest-only during study” repayment plan requires the student to pay only the interest on the loan while in school and nothing towards the principal. Instead of making larger payments towards the full loan amount, students would make smaller payments that only cover the interest.

Choosing a loan with the flexible repayment options that match your needs is important to making sure that you’re able to pay the loan back on-time after graduation.

Are there tax benefits for student loans?

Many countries do offer income tax benefits for student loans, including India, the U.S and some parts of Europe.

For example, in the USA, individuals can claim up to $2,500 of student loan interest paid in a tax year as an above-the-line adjustment to their income. In India, students can deduct the entire interest paid on an education loan from their taxable income.

Talk with a local tax professional in your home country to determine what tax benefits you can claim from your student loans.

Pros and cons of taking an education loan for studying abroad

One of the biggest pros of studying abroad is the access it provides to top universities. Countries such as Canada offer international students the opportunity to learn in research facilities that can’t be found anywhere else in the world, with professors who are the top experts in their field. It’s an opportunity to grow and learn more than their home country may be able to offer. Having international experience is also a great way to grow a network and find better job opportunities in the future.

Education loans offer deferred payment options, allowing students to study at peace, knowing they don’t have to begin paying back the loan until graduation. Personal loans do not offer this grace period, making this a major perk of education loans.

Educational loans do come with risks. If the job market is weak when the student graduates and they can’t find a high-paying job, then the financial burden of the loan can feel heavy. Getting a job straight after graduation isn’t guaranteed, but the loan repayments may not wait for the student to settle into their career.

Study loans can also be emotionally and financially stressful for the student and their whole family. Knowing that you will have constant installments for loan repayment can cause stress for everyone involved.

Alternatives to education loans

Not every international student must take out an abroad education loan to study in a country like Canada. Like there are many loan options on the market, there are also many alternatives to loans that could be beneficial to some individuals.

Scholarships and financial aid, for example, are a great way to pay for an international education. International students can apply for scholarships through their university to receive “free” money towards their tuition costs, living expenses, books, etc.

Working part-time, if possible, is another way to pay for an education without the need of a loan. This is challenging for individuals who are studying full-time, but a small income while studying can help to alleviate the financial burden of the educational expenses.

Considering all of the options for financially supporting an overseas education is important to find the best option for your specific circumstances.

How Passage helps international students get a student loan to study abroad

Passage helps international students achieve higher studies in Canada by providing student loans that cover their tuition, educational expenses, cost of living, etc.

To help students make an informed decision, Passage also provides a number of tools that show students how much they might make post-graduation as well as their monthly payments with a fixed interest rate.

Passage loan application forms are easy to complete online and don’t require students to have a cosigner like other financial institutions. To see what student loan you qualify for, check out our loan eligibility tool.

FAQs

Can I pay for my education with credit cards?

Typically, tuition fees and educational expenses are more than the limit amount on a credit card. Although smaller expenses can be paid with a credit card, the total educational expenses are typically too big to pay with a credit card.

Do student loans offer fixed deposits for monthly payments?

Yes, you can pay your student loan with fixed deposits. It’s a great way to ensure that you pay back the loan on time!

Does my credit score affect my eligibility for a student loan?

For international students without a credit score, lenders will look at other factors like income, bank statements, credit history, etc. to determine their eligibility for a loan.

Do I need a co-applicant for a student loan?

With Passage, having a co-applicant is not necessary to apply for a student loan.

What does EMI stand for?

EMI stands for equated monthly installment. It refers to the amount of money a borrower pays to lenders every month to repay a loan.

What is a moratorium period?

This is a full pause on your loan repayment during the entire course and usually 6-12 months after your completion of the course. Interest may still accrue during this time.

What does disbursement refer to?

Disbursement means the process of releasing or paying out loan funds to you or directly to your educational institution.

Are student loans unsecured loans?

An unsecured loan requires no collateral upfront. The loan is based on creditworthiness or a cosigner. Student loans can either be unsecured or secured, depending on the lender. Secured loans typically have lower interest rates but pose the risk of losing the collateral if you default.