Education Loan vs. Scholarship: Which Is Better for Studying Abroad?
Studying abroad is a life-transforming experience as it allows one to receive a world-class education, international exposure, and enhanced career opportunities. Nevertheless, foreign education has prices that could stagger the students of families with average incomes. Fortunately, there are two wide areas of financing with respect to students, i.e., education loans and scholarships. The scholarships can be considered as a source of free money that one does not have to repay, whereas the overseas education loan is a more reliable source of financial aid with which one can find the funds to pay virtually all the costs of studying in another country.
This blog will tell you the difference and compare the education loans and scholarships, and explain how to make better use of which one is more apt to meet your needs. Be it an abroad study loan, an abroad education loan, or funding in terms of a scholarship, we will not leave it unattended.
Understanding the Basics
What is a Scholarship?
A scholarship is a financial award granted to students based on academic merit, financial need, or other eligibility criteria. Scholarships are offered by governments, universities, private organizations, and NGOs, and they do not need to be repaid. They can be full (covering tuition, living, travel) or partial (covering part of your costs).
What is an Education Loan?
An education loan for studying abroad is a financial product provided by banks and Non-Banking Financial Companies (NBFCs) to help students cover their higher education costs. These abroad education loans can be secured (with collateral) or unsecured (without collateral) and must be repaid over time with interest after the completion of studies.
Types of Abroad Education Loans
1. Secured Loans (With Collateral)
Offered mostly by public sector banks like SBI, Bank of Baroda, and Canara Bank. Students must pledge an asset like property, FD, or insurance as collateral.
2. Unsecured Loans (Without Collateral)
Offered by private banks and NBFCs such as Credila, Axis Bank loan, InCred, Avanse education loan, and Auxilo. These loans require a co-applicant with a strong financial profile.
Types of Scholarships for Studying Abroad
- Merit-Based Scholarships – Based on academic performance (e.g., Erasmus Mundus, Inlaks)
- Need-Based Scholarships – Based on family income (e.g., Tata Trusts Scholarships)
- Government-Funded Scholarships – Sponsored by country governments (e.g., Chevening, Fulbright, DAAD)
- University Scholarships – Provided directly by universities to attract global talent
- Subject-Specific or Minority Scholarships – For specific courses, gender, or communities
Detailed Comparison: Education Loan vs. Scholarship
| Feature | Abroad Education Loan | Scholarship |
| Repayment | Mandatory after the moratorium | Not required |
| Interest | 8% – 14%, depending on lender | None |
| Eligibility | Based on creditworthiness, co-applicant, and admission | Based on merit, need, or profile |
| Availability | High, especially from NBFCs | Limited, highly competitive |
| Processing Time | 2–4 weeks | 2–6 months |
| Coverage | Full or partial: tuition, living, travel | Full or partial: varies by scholarship |
| Number of Students Benefiting | Thousands annually | Limited to hundreds per program |
| Renewal | Not applicable | May require academic performance |
Pros and Cons
Pros of Overseas Education Loans
- Accessible to most students with admission to a recognized university
- Covers nearly 100% of the cost
- Quick processing and flexibility (especially from NBFCs)
- Helps build credit history
Cons of Overseas Education Loans
- Needs to be repaid with interest
- May require a co-applicant or collateral
- Adds to financial pressure post-graduation
Pros of Scholarships
- Free financial aid — no repayment needed
- Prestigious and valuable for a resume/CV
- Less financial stress after graduation
Cons of Scholarships
- Highly competitive and limited in number
- Uncertain outcome
- May cover only part of the total expense
Top Abroad Education Loan Providers in India
| Provider | Type | Loan Amount | Interest Rate |
| SBI Global Ed-Vantage | Secured | Up to ₹2 Cr | 8.5%–10% |
| Credila | Unsecured | ₹Up to 1 CR | 10.75%–12.25% |
| Axis Bank | Secured | Up to ₹ 1 CR | 10.75%–13% |
| Avanse | Unsecured | ₹ Up to 1.2 CR | 10.75%–11.75% |
| InCred | Unsecured | ₹75 Lakhs | 11.25%–12.5% |
Popular Scholarships for Indian Students Studying Abroad
| Scholarship | Destination | Eligibility |
| Fulbright-Nehru Master’s Fellowship | USA | PG courses, Indian citizens |
| Chevening Scholarship | UK | Future leaders, professionals |
| DAAD Scholarship | Germany | Master’s and PhD |
| Erasmus Mundus Joint Master’s Degree | Europe | Multi-country PG programs |
| Inlaks Shivdasani Foundation Scholarship | USA, UK | Merit-based |
| Tata Scholarship (Cornell University) | USA | Indian undergraduates |
Which Is Better: a Scholarship or an Education Loan?
Go for a Scholarship If:
- You have excellent academic records or achievements
- You meet special eligibility criteria.
- You apply early and can wait for the result.s
- You want to avoid long-term de.bt.
Opt for an Abroad Education Loan If:
- You don’t qualify for scholarships
- You need funding quickly.
- You want a guaranteed source of financial aid.d
You are okay with repayment after completing your degree.
In most cases, students combine both: they use scholarships to reduce their costs and education loans to cover the remaining amount.
Final Verdict: Both Have Their Place
While scholarships are the most cost-effective way to fund your education, they are difficult to secure due to limited availability and stiff competition. Abroad study loans, on the other hand, are accessible, flexible, and can fully fund your education if you plan properly.
So, the best approach is to:
- Apply for as many scholarships as possible
- Simultaneously, prepare your education loan documentation.
- Use both together, if needed, to minimize your financial burden.
FAQs
1. Will it be possible to take a loan in case I obtain a scholarship?
Indeed, the combination of partial scholarships and loans is common among many students.
2. Is a scholarship more favorable than a loan?
It is preferable to have scholarships. It is easier to get loans.
3. How much am I allowed to borrow?
Maximum 2 Cr (secured); up to 1 Cr unsecured.
4. Are scholarships that cover livelihood?
Others need to, in particular, the fully-funded ones, such as Fulbright or DAAD.
5. Do government bank lending rates attract lower interest rates as compared to other bank lending rates?
Yes, typically around 8-10 percent as opposed to 11-14 percent with the help of a private lender.
6. Is it possible to have a non-collateralized loan?
Yes, depending on your profile, through the private banks and Non-Banking Financial Companies (NBFCs).
7. Does the competition offer any scholarships to average students?
Other need-specific or area-specific scholarships do not require the highest grades.
8. And is interest charged on loans tax-deductible?
Well, it is tax-exempt under Section 80E of the Income Tax Act (India).
9. What is the duration in the period of a loan’s moratorium?
The course normally takes ~ 6-12 months’ grace.
10. Are the scholarships repaid in the event of dropping out?
There are scholarships that need to be refunded in case of non-adherence to their guidelines.