Loan vs self-funding: Studying abroad is a life-changing decision, and how candidates choose to fund their journey is equally important. The decision between taking an education loan and self-funding education affects not only the candidates' finances but also their mental preparation, long-term planning, and risk tolerance. In the section below, we highlight the pros and cons, financial nuances, and strategies for using loans versus self-funding to study abroad, helping candidates make the right decision. 

What Is Self-Funding?

Self-funding means that a student finances their education abroad using personal or family resources without depending on any loan or external credit. Self-funding is interest-free, provides complete control over finances, and saves time on loan applications. However, it may consume long-term savings and create financial stress.

Common Sources of Self-Funding:

• Personal or family savings

• Fixed deposits, mutual funds, or stocks

• Liquidation of assets

• Income from a family business

• Sponsorship by a relative

• Use of foreign bank accounts or international funds

What Is an Education Loan?

An education loan is borrowed money specifically provided to cover the cost of higher education. It is to be repaid after the completion of the course, usually with interest. Loans provide accessibility to large funds and help maintain liquidity but come with interest costs and strict repayment commitments.

Key Features:

• Available from public and private banks, NBFCs

• May be secured (with collateral) or unsecured (without collateral)

• Covers tuition fees, living expenses, travel, books, etc.

• Moratorium period available (6–12 months post-study)

Eligibility Requirements:

• Admission to a recognized university abroad

• Good academic records

• Co-applicant (usually parents)

• Collateral (for loans above a certain amount)

• Income proof of the co-applicant

Interest Rates:

• Public Banks: 8.5% to 10.5%

• Private Banks: 11% to 15%

• NBFCs: Up to 16–18%

Types of Student Loans to Study Abroad

Before applying for financial aid, it's important to understand the different types of student loans available for studying abroad. Below are the types of student loans to study abroad:

Based on Security:

• Secured Education Loans: Require security such as property or fixed deposits. Lower interest rates. Offered by banks like SBI and BOB.

• Unsecured Education Loans: No security needed. Higher interest rates. Offered by NBFCs like HDFC Credila and Avanse.

Based on Lender:

• Public Banks: SBI, Punjab National Bank

• Private Banks: ICICI, Axis Bank

• NBFCs: Avanse, InCred, Auxilo

• International Lenders: Prodigy Finance, MPower Financing

Based on Course:

• Undergraduate loans

• Postgraduate loans

• Professional/technical education loans

Self-Funding vs Education Loan

Before deciding how to finance education abroad, students must consider the pros and cons of both self-funding and education loans. The table below breaks down the difference between Self-Funding vs Education Loan:

Advantages and Disadvantages of Education Loans

While loans offer financial flexibility and access to higher education, they also come with the responsibility of repayment and interest. The section below contains the advantages and disadvantages of Education Loans:

Advantage:

• No need for upfront capital

• Encourages financial planning

• Offers tax savings

• Enhances financial independence

Disadvantage:

• Interest burden post-graduation

• Mandatory repayment regardless of job placement

• Risk of default if the job search is prolonged

• May require a co-applicant or collateral

Advantages and Disadvantages of Self-Funding

Self-funding can offer complete financial independence and peace of mind, but may also pose risks to family savings and future financial plans. Below are the advantages and disadvantages of self-funding:

Advantage

• No debt or financial obligation

• Complete peace of mind post-study

• Quicker and easier visa process

• No credit checks or legal agreements

Disadvantage

• Heavy strain on family finances

• Reduced financial security for emergencies

• May compromise future investment plans

• Limits the choice of universities if the budget is tight

Countries Where Loans Are Accepted

When planning to study abroad with the help of an education loan, it’s important to know which countries accept loan sanction letters as valid proof of funds. Below is a list of countries that commonly accept education loans:

• United States: Accepted as valid proof of financial capability for a visa.

• United Kingdom: Student visa applications allow sanctioned loans as funds.

• Canada: Loans are accepted; some students may need to convert part into GIC.

• Australia: Loans are valid; supporting documents must be thorough.

• Germany: Requires a blocked account and additional financial proof if needed.