Studying abroad on a loan? Here's the true cost—and the mistakes that can make it even higher

A foreign degree today can easily cost Indian families as much as ₹1 crore and in some cases even more, making overseas education one of the biggest financial commitments they will ever undertake. Rising visa restrictions and a weaker rupee have only added to the burden. Yet, an HSBC survey found that nearly 90% of Indian parents still aspiring to send their children abroad for higher studies.

Even parents who have diligently saved for years may find their education corpus falling short of the soaring cost of overseas studies. In such situations, many are tempted to dip into their retirement savings—a decision that can jeopardise their own long-term financial security. A more prudent approach is to bridge the funding gap through an education loan. However, borrowers need to choose their loan carefully, paying close attention to costs, repayment terms and other conditions, so that the debt remains manageable.

Here's look at what to check while applying for an education loan and how to pay off fast:

• Lenders assess several factors before approving an education loan. Your chances improve if you are pursuing a course with strong job prospects and high market demand. The reputation and ranking of the university you are admitted to also play an important role in the lender's decision. So, choose your course and the university carefully.
• While calculating the expenses, maintain a buffer of at least 10-15 per cent to cover currency shifts, visa delays, and other unexpected costs
• Many students and their families focus only on the tuition fee. But you should also estimate other costs like accommodation costs, health insurance, visa fees, travel costs, and the cost of study materials.
• When comparing education loans, look beyond the headline interest rate and evaluate the total borrowing cost. Charges such as processing fees and insurance premiums can significantly increase the overall expense. Private lenders typically levy processing fees of 0.8% to 1% of the loan amount, whereas many public sector banks charge a flat fee of around ₹10,000.

What is the real cost of loan?

“If you take a ₹1 crore loan, the number that matters most isn’t the principal but what you end up repaying,” says said Arijit Sen, SEBI Registered Investment Adviser, Co-Founder, Merry Mind.

For example, at roughly 8% p.a. over 20 years the EMI is about ₹83,600 and total repayment comes to roughly ₹2.01 crore — so you pay about ₹1.01 crore in interest.

How you can pay it off?

Two things are crucial here:

• A simple but powerful way to reframe this: every rupee you prepay is a guaranteed, risk‑free return equal to your loan rate. That makes early principal reduction one of the highest‑return, lowest‑risk “investments” you can make if your alternative is low‑yield bank deposits.
• Also, tenure is the silent multiplier: stretching the loan to lower EMIs can double the interest you pay over time, while shortening tenure slashes interest even if EMIs rise a bit.

Suggesting a practical approach to repay the loan, the expert suggest, you may try these small, habit‑friendly moves:

• Keeping a 3–6 month emergency buffer first, then automate one extra EMI a year (or the monthly equivalent) and set a modest annual EMI step‑up that mirrors expected income growth — both shorten tenure without feeling painful.
• You may use windfalls (bonuses, tax refunds) for early lump‑sum prepayments and always choose tenure reduction rather than lowering your EMI when you prepay.
• Consider a balance transfer only after you’ve calculated net savings after fees, and avoid topping up with unsecured debt. F
• inally, building a “prepayment ladder” of short‑term liquid instruments maturing in years 2–6 is effective. This allows you to capture early prepayments without sacrificing liquidity. These are practical, low‑drama changes that compound into big savings.

What's driving the rising cost of overseas education for Indian students?

One of the biggest factors driving up the cost of overseas education for Indian families is the steady depreciation of the rupee. “Since 1991, the rupee has lost nearly 73% of its value against the US dollar. As a result, a foreign degree that may have cost around ₹26 lakh in the early 1990s would now cost nearly four times more — roughly ₹1 crore — even if university fees had stayed flat,” Saurabh Mukherjea from Marcellus Investment Managers.

But tuition fees did not stay flat. “Foreign universities, especially in countries like the US and the UK, have consistently increased tuition costs by around 4% annually. Over 25 years, that alone doubles the education expense,” he further added. Both factor combined, the total cost of overseas education has increased nearly eightfold

How tighter visa rules impacting the students?

Several foreign countries, including the US, the UK, Canada and Australia, are tightening work permit norms, which means that many students could be forced to service their debt with the lower income they earn from a job in India.

“Even then, getting a foreign degree makes sense as it garuntees high employbility in India,” Mukherjea notes.