MS applicants spend considerable time and resources preparing for the GRE, shortlisting and applying to universities, and choosing the best university abroad (when lucky enough to receive multiple admits).
Many believe the challenges end with an admission to their chosen university; all that’s left is picking a visa interview date and booking flight tickets.
It’s comes as a shock when one realises that the annual Cost of Attendance (CoA) - usually exceeding $50,000 per year - requires additional funding, beyond what personal and family savings can afford.
To add to this stress, the financing decision must be made quickly, sometimes resulting in uninformed choices based on limited information.
The best idea is to gain an understanding of financing options while preparing applications and waiting for school responses. Knowing the options empowers MS aspirants to make the best decisions for the academic and financial futures.
So what’s out there?
Public sector banks: Collateral Loans
A number of banks offer education loans with collateral for masters abroad. Key features of such loan offers include:
- Up to 90% CoA cover. In some countries, the remaining 10% must be paid upfront into the bank by the borrower; this is sometimes known as margin money.
- A variable interest rate of ~10.5%. In some cases, a discount may be applied for taking insurance against the loan. For, example, you may receive a 0.5% discount for such insurance although this is still an additional cost which factors into the total cost of a loan.
- In some countries, public sector banks require both collateral and a co-signer for loans. It’s important to be prepared for extensive paperwork and a long loan approval period.
- While it’s not a universal norm, the collateral requested in some countries requires parental property to be put on the line - an option that isn’t available to everyone.
Non-Banking Financial Corporation (NBFCs): Co-signer Loans
NBFCs in some countries are enabled to provide financing for international education. Typical features of these loan offers include:
- An offer of up to 100% CoA cover, though a co-signer is always required, and collateral is often required for high value loans.
- A proprietary interest rate which isn’t defined by a governing financial institute. It’s important to understand the full cost of any loan (including factors in hidden fees like loan sanction letter fee and currency conversion charges) to enable loan comparison.
- Loans might be assessed on the basis of co-signer credit score, as well as their salary and other credentials. This can be a real challenge for MS applicants whose co-signers are retired or have not built their credit histories.
International lenders: No co-signer, Collateral-free Loans
Some lenders, such as Prodigy Finance, provide loans to international students, often in the currency of the study destination country. Key features of such loan offers include:
- Loan cover up to 100% CoA without collateral or co-signers; these are merit-based loans provided on the basis of admission to a top-ranked international school.
- Customised interest rates that have a fixed component and a variable component – which is often the LIBOR rate of the loan currency.
- Online application processes that are often quicker than other loan providers - and typically more transparent as well.
- Prodigy Finance’s future earnings model assess your potential based on your post-masters income and career direction.
In addition to no co-signer, education loan for ms without collateral, Prodigy Finance borrowers are also eligible for value-added benefits like scholarships and careers support.
Comparing loan options
Comparing loans isn’t necessarily as easy as looking at the interest rates offered. Still, an understanding of interest rates is a good starting point; it’s something that comes with every loan, but it’s not always calculated in the same way.
Most education loans work with variable interest rates - and all variable interest rates have two components: a variable base rate and a fixed margin. To make an effective loan comparison, it’s critical to understand both parts.
1. Fixed margin - This is the fixed rate part of interest rate and it doesn’t change over the life of the loan (study, grace and repayment periods). In some countries, fixed margin is known as the spread. Whatever you call it, this rate is personal, relating to your financial status.
2. Variable base rate - This is the portion of the interest rate which changes periodically. The base rate used is often dependent on location:
- For Indian banks, the variable rate is the MCLR (8.45% as of July 01, 2018) which is unique for each bank, though the Reserve Bank of India (RBI) defines how it’s calculated.
- Loans issued in the Brazilian Real currency float on the Selic rate (6.50% as of June 20, 2018).
- In the US, 3-month LIBOR (2.33% as of July 09, 2018) is one of the most popular base rates for loans.
- 3-month GBP LIBOR (0.71% as of July 09, 2018) is the standard for UK loans.
- 3-month EURIBOR (-0.32% as of July 09, 2018) is applied to loans offered in Euro. (NB: If the prevailing variable rate is negative, a zero rate is applied, effectively making the interest rate fixed until the variable rate turns positive.)
3. Annual Percentage Rate (APR) - This reflects the annual financial impact on the borrower, taking into account all fees associated with the loan. For international lenders, the additional fee is usually just the administration fee on the loan. Local lenders on the other hand, may have multiple hidden fees associated with the loan. (These might include: an administration fee, loan sanction letter fee, fee for insurance against the loan and currency conversion fees associated with each disbursement.).
Remember: The APR is not the interest rate applied on the loan, but simply a loan comparison tool intended to help one assess multiple loan offers across different lenders.
Interest rates are only the beginning
While APR allows a comparison of the costs of two different loans, it’s not the only metric that can (or should be used).
There are always other factors that may be more important to MS students, such as the length of time it takes for approval (and then disbursal), the ease of securing the sanction letter (loan letter) which is critical for international student visa applications, and the ability to make early loan repayments (which reduces the overall amount paid).
The real key to comparing education loans for international education
The table below summarises key feature of the above categorisation of lenders, providing a quick reference and loan comparison guide for MS aspirants - and using Prodigy Finance as the example for international lenders:
|
|
Public sector banks |
NBFCs |
Prodigy Finance |
|
Loan amount |
Up to 90% CoA |
Up to 100% CoA |
Up to 100% CoA |
|
Collateral |
Required |
Required for loans over ~$55K |
Not required |
|
Co-signer |
Required |
Required |
Not required |
|
Interest rates |
10.5% (variable) |
11.25%-11.85% (variable) |
5% - 8.5% + 3-month LIBOR* (variable) |
|
Fees |
Admin fee, insurance, currency conversion fee, etc. |
1% sanction letter fee, currency conversion fee, etc. |
2.5% admin fee |
|
APR |
Upwards of 10.5% |
Upwards of 11.25% |
7.83% - 11.53% |
|
Repayment period |
Up to 15 years |
Up to 12 years |
Up to 20 years |
|
Prepayment penalties |
None |
Not permitted during first 6 months, restricted to 3 times per year |
None |
|
Documentation required |
Extensive, hard copies |
Extensive, hard copies |
Simple, soft copies |
|
Average approval time |
2 - 4 weeks |
2 weeks |
2 weeks |
|
Value-added benefits |
None |
Student discounts |
Scholarships, career support, student discounts |
*3-month USD LIBOR is 2.33% (as of July 09, 2018)
^ Annual Percentage Rate (APR) incorporates the annual impact of all fees associated with the loan - it is a tool for comparing loan offers
Keep in mind that every loan offer has its own merits - and you should consider all of your options carefully. This quick guide is just a jumping off point to get you started. Education is an investment and study loans are a commitment; you’ll want to consider the future as well as the present because that acceptance letter is just the beginning.
Want to see the terms Prodigy Finance can offer you?
Applying for Prodigy Finance’s no-cosigner, collateral-free loans takes just 30 minutes. And, with no obligation to accept a provisional loan offer, there’s no reason to wait. Apply for a loan now
