Education Loan Myths vs Facts for Study Abroad

Getting an education loan for overseas studies involves more than choosing a lender and submitting an admission letter. Students often have questions about collateral, CIBIL scores, interest rates, repayment and loan disbursement.
Unfortunately, common education loan myths can lead students to rule out suitable lenders, underestimate borrowing costs or misunderstand the approval process.

This guide explains 13 important education loan myths and facts for Indian students planning to study abroad. It also clears up study abroad loan myths and student loan misconceptions about Indian banks, NBFCs, US private lenders and international education loan providers.

Book a Free Session Now!

Common Education Loan Myths at a Glance

Understanding these study abroad education loan myths and facts can help you compare financing options without relying on assumptions.

Myth 1: A University Admit Guarantees Loan Approval

Myth: Once you receive admission to a foreign university, your education loan is guaranteed.

Fact: A university admission letter is an important requirement, but it does not guarantee loan approval. Lenders also assess your course, university, requested loan amount, academic background and financial eligibility.

Indian lenders may review your co-applicant’s income and credit profile, while some international lenders also consider your future earning potential.

An admission offer makes you eligible to apply for certain loan products, not automatically eligible for approval.

Myth 2: Every Education Loan Requires Collateral

Myth: Pledging some form of security is needed when applying for an education loan abroad.

Fact: Education loans that are both secured and unsecured are obtainable for pursuing foreign studies.

While secured education loans need some collateral, unsecured ones do not require any such guarantee. SBI’s Global Ed-Vantage plan is one of them which provides unsecured funding for selected students.

The availability of unsecured funding depends on the lender, university, course and applicant’s financial profile.

Myth 3: No Collateral Means No Co-Applicant

Myth: If an education loan does not require collateral, it also does not require a co-applicant.

Fact: Collateral and co-applicant requirements are separate.

Many Indian lenders offer unsecured loans but may still require a financially eligible parent or another acceptable co-applicant.

However, certain international lenders offer loans without either requirement. MPOWER Financing, for example, offers eligible students loans without collateral or a cosigner.

Students should check both requirements before applying.

Myth 4: Students Need a CIBIL Score

Myth: Every student must have a strong CIBIL score to qualify for an education loan.

Fact: Students without an established credit history can still qualify for certain education loans.

For Indian bank and NBFC loans, lenders may assess the co-applicant’s credit profile rather than requiring the student to have an extensive credit history.

Some international lenders use different underwriting methods. MPOWER, for example, considers academic performance, credit standing where applicable, and future earning potential.

A student’s lack of CIBIL history does not automatically prevent loan approval.

Myth 5: A Low Co-Applicant CIBIL Score Means Automatic Rejection

Myth: A low co-applicant CIBIL score means your education loan application will always be rejected.

Fact: A low score may influence the chance of getting approved, although the decision is based on the lending institution’s credit policy as well as the complete application form. Income, outstanding debts, payment history, loan amount, and security are among those considered by some lending institutions.

Students can explore whether a different eligible co-applicant, secured loan or alternative lender would be suitable. Approval is never guaranteed.

Myth 6: The Lowest Interest Rate Is Always the Cheapest Loan

Myth: The education loan with the lowest interest rate advertisement is always the most advantageous one.

Fact: It’s not true that interest rate is the sole determinant of the loan cost.

Things to keep in mind when comparing education loans include:

• Interest rate and APR if it applies
• Processing fees and originations
• Interest type (fixed/variable)
• Duration of repayment
• Moratorium interest
• Foreign currency/exchange rate exposure
• Conditions for loan prepayment
• Total amount to be repaid

The loan with a marginally higher interest rate may prove more beneficial due to other favorable factors.

Myth 7: Moratorium Means No Interest Accrues

Myth: Interest is not charged on the education loans during the moratorium period.

Fact: While a moratorium delays payments of the principal amount or EMI, interest may continue to be charged on the outstanding amount.

In fact, SBI’s Global Ed-Vantage scheme, for instance, calculates simple interest both during the course as well as moratorium period and the interest earned can further be capitalized.

Some international lenders require interest payments while the student is studying. Always check the repayment schedule before accepting an offer.

Myth 8: Loan Approval Means Immediate Disbursement

Myth: Once the lender sanctions an education loan, the entire amount is immediately transferred.

Fact: Loan sanction and disbursement are different stages.

After sanction, lenders may require completion of documentation, security formalities, university fee schedules or other disbursement conditions.

Funds may also be released in instalments according to the university’s academic or fee schedule.

Some lenders can sanction or disburse funds before the visa or I-20 stage under specified conditions. SBI Global Ed-Vantage, for example, advertises sanction and disbursement before I-20 or visa issuance.

Students should confirm the expected disbursement date and requirements directly with their lender.

Myth 9: Education Loans Cover Only Tuition Fees

Myth: Education loans can only be used to pay university tuition.

Fact: Depending on the lender and loan product, education loans may cover several eligible study-related expenses.

These can include:

• Tuition and mandatory university fees
• Accommodation and living expenses
• Books and study materials
• Travel expenses
• Health insurance
• Equipment and computers
• Other approved academic expenses

SBI Global Ed-Vantage lists tuition, hostel fees, travel, books and several other eligible expenses. MPOWER also identifies tuition, health insurance and living expenses as eligible costs for its supported US education loans.

Coverage limits and permitted expenses vary between lenders.

Myth 10: Only STEM Courses Receive Education Loans

Myth: Students pursuing non-STEM courses cannot qualify for overseas education loans.

Fact: Education loans are available for eligible STEM and non-STEM programs.

SBI’s Global Ed-Vantage scheme includes eligible graduate, postgraduate, diploma, certificate and doctoral courses across disciplines at supported foreign institutions.

International lenders may also support eligible programs outside traditional STEM fields, including certain business and professional degrees.

However, course and university eligibility must be checked individually. A non-STEM course is not automatically excluded, just as a STEM course does not guarantee approval.

Myth 11: A Secured Loan Guarantees Approval

Myth: Providing property as collateral guarantees an education loan.

Fact: Collateral can support a secured loan application, but lenders still conduct academic, financial and legal checks. They may evaluate the student’s admission, university, course, loan requirement, repayment capacity and collateral documentation.

Property valuation, ownership records and legal acceptability can also affect the sanction decision.

A secured loan is therefore not automatically approved simply because the applicant owns property.

Myth 12: Every Student Receives the Same Loan Terms

Myth: Students applying to the same lender receive identical interest rates, loan amounts and repayment terms.

Fact: Loan offers can differ according to the lender’s scheme and the student’s eligibility.

Factors may include:

• University and course
• Requested loan amount
• Academic profile
• Co-applicant income and credit history
• Collateral availability
• Loan structure and currency
• Repayment terms

For example, SBI abroad education loan publishes different terms for secured and select collateral-free Global Ed-Vantage loans.

Always review your individual sanction letter or loan agreement rather than relying only on advertised rates.

Myth 13: Applying to Multiple Lenders Improves Approval Chances

Myth: Submitting as many education loan applications as possible guarantees a better chance of approval.

Fact: More applications do not automatically improve approval chances.

Every lender has its own eligibility criteria. Applying without checking those criteria can lead to unnecessary applications, delays and potentially multiple hard credit inquiries.

A better approach is to compare lenders first, understand their requirements and apply to options that suit your academic and financial profile.

Where available, use eligibility checks or prequalification processes that do not affect your credit score before submitting full applications.

Apply for an Abroad Education Loan!

What to Check Before Accepting an Education Loan

The best way to avoid study abroad loan myths is to understand the actual terms before signing the agreement.

Check these factors:

• Loan amount: Does it cover your eligible education expenses?
• Interest rate: Is it fixed or floating?
• Total borrowing cost: What are the fees and expected total repayment?
• Moratorium: Will interest accrue or payments be required during study?
• Collateral: Is acceptable security required?
• Co-applicant or cosigner: Who is legally responsible for repayment?
• Disbursement: When and how will the lender release funds?
• Repayment: What are the EMI amount, tenure and prepayment conditions?
• Currency: Could exchange-rate movements affect repayment?

Also compare borrowing with scholarships, family contributions and other available funding. Self-financing is not automatically better or worse than taking an education loan; the right choice depends on affordability, financial flexibility and the cost of borrowing.

How Nomad Credit Helps Students Compare Loan Options

Understanding education loan myths is only the first step. Students also need to identify which lenders match their university, course and financial profile.

Nomad Credit helps students explore education loan options from Indian banks, NBFCs and international lenders.

Students can compare options based on:

• Secured and unsecured loan availability
• Co-applicant and cosigner requirements
• Loan eligibility and funding needs
• Interest rates and repayment terms
• Lender-specific documentation requirements

By comparing suitable options be it with or education loans without collateral, students can make informed financing decisions instead of relying on common student loan misconceptions.

Concluding Remarks

Education loans support you in studying abroad despite your financial background. Take advantage of them to fulfill your academic goals overseas. Don’t let a myth become a hindrance in the process. Research well to understand the nitty-gritty of overseas education loans. 

Debunk the myths of study-abroad education loans with the right guidance. Visit Nomad Credit, your overseas education partner. Our expert counselor evaluates your profile and extends personalized support in the education loan application, documentation, abroad admissions, and student visas at zero cost. Save big and step into greatness. Connect with us today!

Loan Finder

Find Your Best Loan
Options in Minutes

Explore Offers Now