Planning to apply abroad and stressed about your education loan application? Keep reading to find out the difference between private vs government-backed education loans for abroad.
Education loans offered by private vs government-backed banks differ in interest rates, moratorium periods, processing costs, and payout, are different.
Government banks are those where the government itself holds the majority of the bank’s stock, as opposed to private banks, where the majority of shares are held by shareholders.
State Bank of India, Bank of Baroda, Bank of India, and the Central Bank of India is the government banks whereas ICICI Bank, Axis Bank, and HDFC Bank fall in the category of private banks.
Government banks vs. private banks
- Quantum of Finance: Secured education loans and unsecured education loans are the two main divisions of overseas student loans. Government banks like SBI and BOB can provide up to 1.5 Crore in financing for secured education loans, but private banks like Axis Bank and ICICI Bank can provide financing ranging from 75 lakhs to 1 Cr. The amount of funding for unsecured overseas education loans is up to 7.5 lakhs for government banks and up to 40 lakhs for private banks.
- Rate of Interest: Both public and private banks have different rates of interest. Private banks have a higher return on investment than government banks. The interest rates offered by the State Bank of India and Bank of Baroda for loans for international education are 8.5% to 9.5%. For secured education loans from private banks like Axis Bank and ICICI Bank, the interest rate ranges from 9% to 10%, and for unsecured education loans from 11% to 13%.
- Processing Time: Government banks process loans for international education in up to three weeks, whilst private banks process loans in up to ten days. This is one of the reasons we suggest applicants apply for international student loans at least three months before the program’s start date.
- Processing Fees: Compared to government banks like SBI, BOB, BOI, etc., the processing fees levied by private banks like ICICI Bank and Axis Bank are greater. To be precise, processing fees charged by government banks are 10,000 + GST, whereas fees charged by commercial banks might reach 1% of the total amount of the student loan.
- Disbursement: The sum of the education loan is disbursed to the appropriate university’s bank account by both public and private banks. These banks send the money into the currency card that is issued by the same institution that provided the loan in order to pay for living expenses.
- Repayment Tenure: This refers to the length of time that the applicant has to pay back the financial institution for the student loan in Equated Monthly Instalments (EMIs). After the moratorium period is up, the education loan EMIs start. Government and private banks both provide up to 15 years for repayment.
- Moratorium period: The moratorium period is the portion of the loan term during which the applicant for an international education loan is exempt from making any loan payments to the financial institution. In other words, lending institutions provide students with a waiting time of between 6 and 12 months. For government banks, the moratorium term is up to 12 months, whereas it is up to 6 months for private banks.
- Serving Simple Interest: After an overseas education loan has been disbursed, serving Simple Interest for government banks is optional, however serving Simple Interest for private banks is required.
- Age Restrictions: Applicants between the ages of 18 and 35 are eligible for loans from both public and private banks for international education. To qualify for an education loan from these banks, applicants over 35 must have a solid academic and financial background.
- Tax Benefits: Under section 80E, financial institutions of both the private and public sectors are qualified to receive tax benefits.
Conclusion
These are some of the key factors that should be taken into account when selecting an appropriate financial institution for an education loan for studying abroad. Both public and private banks have advantages and disadvantages.
