Education Loans vs. Self-Finance to Study Abroad

29 Sep 2023

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Studying abroad is a dream for many students. It allows them to receive a quality education besides exploring new cultures and gaining global exposure; however, financing an international education can be a significant challenge for most students.

When funding their overseas study, students often contemplate options of self-funding and student loans.

In this blog, we will evaluate both options so that you can make an informed decision.

What is Self-Funding?

Self-funding refers to using personal savings, family contributions, or scholarships to finance one's education. Self-funding for studying abroad involves relying on your resources and financial capacity to cover tuition fees, living expenses, and other associated costs.

Study Abroad Student Loans

Student loans are financial tools designed to assist students in financing their education. These loans for students are specifically tailored for educational purposes and are available from various financial institutions, both private and government-backed.

An education loan for study abroad can cover tuition fees, accommodation costs, travel expenses, and other educational-related expenditures.

Types of Student Loans

There are two main types of education loans based on the presence or absence of collateral:

Collateral Loans:

These are loans that are secured by collateral. When a borrower pledges collateral to obtain a loan, the lender has some assurance of partial payment in case of unpaid loan obligations.

If the borrower fails to make timely payments, the lender has the right to sell the collateral to recover the outstanding amount. In India, public sector commercial banks are considered reliable sources of student collateral loans.

Unsecured Loans :

These loans do not require any collateral or security. Students who do not have sufficient assets to use as collateral can still access these loans. Unlike tangible assets, unsecured student loans are typically based on the borrower's creditworthiness, income potential, academic background and also based on the institution he enrolled.

Considering the rising cost of education and the importance of quality education, many individuals now view education loans as an investment.

Some of the education loan benefits include:

Competitive Interest Rates :

Education loans often come with competitive interest rates, generally lower than other types of loans. This helps to make the loan more affordable for students and their families.

Education loans often come with competitive interest rates, generally lower than other types of loans. This helps to make the loan more affordable for students and their families.

Flexible Repayment Options :

  • The bank provides flexible repayment terms, including a moratorium period, allowing students to start repayment after completing their education or finding suitable employment.
  • The maximum repayment upto 180 months after course completion + 12 months
  • Bank charges simple interest during Moratorium period.

Wide Range of Expenses Covered

  • The loan covers various expenses, including tuition fees, accommodation, travel, books, and other educational expenses, ensuring comprehensive financial support.
  • Need based Funding
  • Bank of Baroda provides upto 100% finance.

Building Credit History :

Successfully managing an education loan and making timely repayments can help students build a positive credit history, which can benefit future financial endeavours, such as obtaining other loans or securing better interest rates.

Education Loan Vs. Self-Finance

Several factors must be considered when comparing self-financing and education loans abroad. Let's take a closer look at some of these factors:

Financial Situation :

One of the most critical factors is your financial situation. Self-funding may be a viable option if you have substantial savings or access to funding from your family. However, if you lack the necessary financial resources, student loans can bridge the gap and make studying abroad a reality.

Interest Rates :

Interest rates play a significant role in the cost of borrowing. Education loans may have fixed or variable interest rates depending on the lender. It is crucial to compare interest rates and determine whether the interest accrued over the loan term is reasonable compared to the potential return on investment from studying abroad.

Debt Burden :

Taking on student loans means taking on a financial obligation that can impact your future. Considering the potential debt burden and how it may affect your post-graduation plans, such as career choices or further education, is crucial.

Self-funding eliminates the need to repay loans and offers more financial freedom once you complete your studies.

Which is Better: Self-Funding or Student Loans?

There is no one-size-fits-all answer to this question, as the best option depends on individual circumstances and preferences. Self-funding may be more suitable for students with significant financial resources or access to scholarships. It provides a debt-free education and greater financial independence.

When deciding between self-funding and student loans for studying abroad, it ultimately comes down to personal circumstances and priorities. Here are some final thoughts to consider:

Financial Capacity :

Self-funding is an excellent option if you have the financial means to cover your education expenses without relying on loans. It provides the advantage of graduating debt-free and offers greater financial independence after completing your studies.

Risk and Responsibility :

Self-funding risks depleting your savings or facing financial strain if unexpected circumstances arise. On the other hand, student loans come with the responsibility of repayment, which can be a burden post-graduation. It's crucial to assess your risk tolerance and long-term financial goals before deciding.

Interest Rates and Repayment Terms :

Student loans have varying interest rates and repayment options, so it's essential to research and compare different loan programs. Consider the impact of interest rates and repayment terms on your financial commitment.

Return on Investment :

Studying abroad can offer numerous benefits, such as enhanced career prospects, cultural exposure, and personal growth. Evaluate the potential return on investment from your chosen study program and assess whether the long-term benefits outweigh the cost of financing. Consider factors like the institution's reputation, the quality of education, and the potential for internships or job placements.

Future Financial Plans :

Self-funding may offer more flexibility and fewer financial obligations if you intend to pursue higher education or make significant financial commitments post-graduation. On the other hand, student loans may limit your financial choices.


The decision between self-funding and student loans to study abroad is complex. It requires thoroughly assessing your financial situation, risk tolerance, and long-term goals.

Self-funding offers the advantage of independence and graduating debt-free, while student loans provide the means to pursue your dreams when financial resources are limited. Remember to consider the interest rates, repayment terms, and potential return on investment when making your decision.

Ultimately, prioritise your financial well-being and choose the best option with your circumstances and aspirations.

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    The contents of this article/infographic/picture/video are meant solely for information purposes and do not necessarily reflect the views of Bank of Baroda. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Bank of Baroda and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Bank of Baroda or its affiliates to any licensing or registration requirements. Bank of Baroda shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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