How to pick a study-abroad loan amid weak rupee, tougher work visa regime

Taking a rupee loan and deciding a loan amount based on conservative estimates of earnings prospects should keep you safe

With tighter visa rules and rising overseas education costs, experts say students and parents should borrow cautiously, factor in currency risks and hidden costs, and assess repayment capacity realistically before taking an education loan.

Tightening work permit rules

Students and families should factor in the impact of tightening rules for working abroad when deciding on their loan amount.

 

“Families can consider rupee-denominated education loans from Indian lenders to reduce currency risks if students return to India, where opportunities in high-growth sectors are expanding,” says Vibha Kagzi, founder and chief executive officer (CEO), ReachIvy.com.

 

Abhishek Kumar, a Securities and Exchange Board of India (Sebi)-registered investment adviser and founder of SahajMoney.com, points out that students and families must stress-test their repayment capacity based on Indian salary standards rather than inflated foreign wages.

 

“If post-study work opportunities shrink, students may have to repay large foreign-currency loans with lower Indian incomes. Families should borrow conservatively and avoid risking key assets like homes,” says Kumar.

Lenders’ approval criteria

Lenders consider global university rankings, institutional accreditation, and the historic placement data or immediate earning potential of the chosen course.

 

“STEM programmes and business degrees from top-tier institutions receive faster approvals and lower interest rates because they carry a lower risk of default,” says Kumar.

 

Lenders assess the course’s employment potential, career prospects, and the student’s academic profile. Courses that are in high demand improve the chances of approval.

 

“Students can improve loan approval chances through strong academics, good credit score, admission to a reputable university, relevant experience, reliable co-signers, and timely documentation,” says Kagzi.

Estimating the cost properly  

Students and parents should assess the total cost of education rather than focusing only on tuition fees.

 

“Families often underestimate living costs and overestimate part-time income. Loan estimates should include accommodation, insurance, visa, travel, study materials, currency fluctuations, and an emergency buffer,” says Kagzi.

 

According to Kumar, a frequent mistake is failing to account for local price inflation over the multi-year duration or ignoring the hidden impact of foreign exchange rate fluctuations on future disbursements.

 

“Families also consistently underestimate miscellaneous initial costs like refundable housing security deposits, visa processing fees, and emergency contingency reserves,” says Kumar.

Margin money borrowers must have

Margin money varies by lender, loan size, and destination. According to Kumar, for foreign education loans from Indian public sector banks, the standard margin money requirement is typically 15 per cent to 25 per cent for loan amounts exceeding Rs 4 lakh.  

 

“Many private lenders offer 0 per cent margin loans for top global universities,” says Kumar.

Impact of a weakening rupee  

A depreciating rupee directly increases the effective cost of overseas education. “For example, a master’s programme in the US costing around $100,000 would have required approximately Rs 88 lakh when the dollar was at Rs 88, but the same programme costs nearly Rs 96 lakh at an exchange rate of Rs 96 per dollar. This significantly increases the financial burden on families,” says Damini Mahajan, founder of WemakeScholars. She adds that families should factor in rupee depreciation, but large cash buffers may not be necessary, as many lenders offer top-up loans to cover cost increases.

 

Adhil Shetty, CEO, BankBazaar emphasises that a 5–10 per cent rupee depreciation over a multi-year course can sharply raise overseas education costs, which are already rising 7–11 per cent annually due to currency moves and global inflation. “Families should keep a 10–15 per cent buffer for currency swings and unexpected costs, but avoid excessive borrowing that raises EMIs and interest costs,” says Shetty.

 

“Families should avoid borrowing to the limit, keep a contingency buffer, and plan for further rupee depreciation,” says Prashant A. Bhonsle, founder and CEO of Kuhoo, which provides education loans for students.

Choosing the right lender

Besides interest rates, borrowers should also consider processing fees, insurance costs, disbursement flexibility, and top-up loan eligibility.

 

“Prodigy Finance charges up to 4.2 per cent as an origination fee plus about US $500 as a processing fee, versus 0.8 per cent–1 per cent processing fees at Indian private lenders and around Rs 10,000 at many public banks. Students should also check top-up eligibility,” says Mahajan.

 

Public banks usually offer lower interest rates, while private and specialised lenders provide faster approvals and higher sanctions. Some foreign lenders also offer collateral-free loans for select universities.

 

“Beyond interest rates, borrowers should compare fees, moratorium interest terms, prepayment rules, and service quality, especially as education loans can run 10–15 years,” says Shetty.

 

Evaluate turnaround time and certainty of sanction. “With tight admission and visa timelines, a lower rate matters little if slow loan approval causes students to miss deadlines,” says Bhonsle.

 

The right lender is not necessarily the cheapest one. “It is the lender whose product structure best matches the student’s academic journey, career trajectory, and family cash flows. That distinction matters enormously in education financing,” says Bhonsle.

Understanding moratorium period

The moratorium period is one of the least understood and most costly aspects of education loans. “A moratorium covers the course period plus 6–12 months after graduation. But interest continues to accrue and gets added to the principal if unpaid, raising future EMIs,” says Bhonsle.

 

Interest starts accruing from the day the loan is disbursed, not when repayment begins. If unpaid during the moratorium, it gets added to the principal, increasing the repayment burden.

 

“On a Rs 10 lakh loan at 9 per cent over four years, pre-EMI interest can run into several lakh. Borrowers should check if moratorium interest is simple or compound, and whether unpaid interest will be added to the principal,” says Shetty.

 

Mahajan points out that EMIs don’t have to be paid during the moratorium period. However, interest continues to accrue, and its treatment varies across lenders. Understanding these differences is critical because they can substantially impact the total cost of the education loan. “Many private banks and non-banking financial companies (NBFCs) require full or partial interest payments during the moratorium. If unpaid, the interest may be added to the principal, increasing the repayment burden,” adds Mahajan.

 

Public sector banks usually make interest payments optional during this phase.

 

“Families that can afford it should pay the accrued interest during the study period to reduce the loan burden later. Some also choose to start full EMIs early, though this is optional,” says Mahajan.

 

According to experts, if possible, borrowers should pay at least the interest during the moratorium, as unpaid interest gets added to the principal, increasing future EMIs.

 

“Paying interest during the study period is usually easier than handling a larger loan later. Even occasional lump-sum payments can help reduce the overall burden,” says Shetty.

 

According to Bhonsle, paying interest during the moratorium also helps students build a credit history early, improving future borrowing prospects.

Avoid these repayment mistakes

The biggest mistake is treating an education loan casually after graduation. “An education loan is often a young person’s first major credit product, and repayment behaviour can shape their financial profile for years. Avoid missed EMIs,” says Bhonsle.

 

“Inflation and exchange rates can raise costs. Missing EMIs hurts credit scores and attracts penalties, so borrowers should stay in touch with lenders and monitor loan statements regularly,” says Shetty.

 

The tax deduction under Section 80E is available for a maximum of eight years from the year repayment begins. “Borrowers should avoid using the Section 80E benefit during the moratorium, and instead plan repayments to maximise the deduction over the eligible period,” says Mahajan.

 

When making a lump-sum payment, borrowers should tell the bank whether they want lower EMIs or a shorter tenure, otherwise the bank may decide based on its own policy. “For instance, a borrower who prepays ₹5 lakh may intend to reduce monthly EMI obligations, but the bank could instead shorten the loan tenure, leaving the EMI unchanged,” says Mahajan. 

 

(The writer is a Mumbai-based independent journalist)