Global Investments, Alternative Financing Emerging As Popular Substitutes To Education Loans For Studying Abroad

Education loans are among the most popular and widely-used means for funding higher studies abroad.

According to the last available government data, in financial year 2021-22, around 69,898 Indian students took education loans to pursue studies overseas, a sharp rise from earlier years. The total amount of loans disbursed was to the tune of Rs 7.58 thousand crore. 

With living costs and fees ranging between Rs 15 lakh and Rs 20 lakh annually, taking a loan seems to be the obvious option.

But now, other innovative funding sources and international strategic investments are becoming popular, providing means for students to pay for higher education without long-term debt.

Students are considering many options, such as income-share agreements and foreign stock investment to fund their study abroad.

High Interest On Education Loans

Loans for higher studies abroad typically carry a rate of interest of 8-15 per cent, and thus, repayment is a huge burden on students as well as parents. 

Repayment is difficult for most students during the initial years of their careers, especially those pursuing their studies in high-cost locations, such as the US, the UK, or Australia.

Although scholarships and assistantships serve to minimise costs, they never manage to pay for the whole amount, leaving the students relying on loans that may take several years to repay. 

Alternative Financing Options 

To minimise dependence on debt, students are adopting alternative funding models.

Income Share Agreements (ISAs) are becoming increasingly popular, especially for studying in countries, such as the US and Germany.

In an ISA, a legally binding contract between the student and the educational institute, students do not pay initial tuition fees but commit to contributing a percentage of their future earnings for a specific number of years after graduation. This model is based on repayment tied to income, providing flexibility that is absent in traditional loans.

Crowdfunding platforms have also become a source of education financing. Many students use online fundraising campaigns to gather contributions from friends, family, and even strangers who believe in their academic aspirations.

Some platforms cater specifically to students, connecting them with donors or investors willing to fund their education in exchange for a share of future earnings or other returns.

Education-oriented peer-to-peer (P2P) lending is also an option. Unlike bank loans, P2P lending sites connect students with personal lenders who charge them interest at negotiated rates, which tend to be lower than the rates charged by banks. The sites provide more convenient terms for repayment and negotiable interest rates.

How Global Investments Can Aid Education Financing

In addition to alternative funding, international investments are an active way of financing foreign education. Students and parents can invest in international stocks, mutual funds, and exchange-traded funds (ETFs) and, over time, build wealth, thus minimising or even obviating the use of loans. 

Appreciation of the value of stronger currencies like the dollar or euro adds to the worth of these investments.

For instance, a parent investing in US equity funds or direct stock a decade prior to the higher education of a student would be able to create a substantial corpus.

Even frequent, moderate investments are enough to generate returns that would sponsor tuition fees and living expenses. Moreover, rental yields from real estate in high-return markets overseas can generate a stable stream of income to finance studies.

Prashanth Ranganathan, founder and CEO of Zinc, an edu-wealth platform, says, “For parents just starting with global investments, the key is to begin early and plan with their child’s future education costs in mind. Instead of relying only on rupee-based savings, they should explore options like dollar-denominated investments, international mutual funds, and ETFs.” 

He adds: “To protect against currency fluctuations, a well-balanced mix of multi-currency assets and a step-by-step investment approach can help. Staggered investments smooth out forex volatility, ensuring more stability. With smart investment tools and AI-driven guidance, families can confidently bridge the gap between saving in rupees and paying in dollars—making their child’s global education journey financially stress-free.”

Is It A Viable Alternative?

Though alternative financing and foreign investments hold great promise, they also carry risks. ISAs are based on future income, which is uncertain. Crowdfunding is not guaranteed to succeed, and investment markets go up and down. 

But for those who start planning early and look at various financial options, these alternatives can cut down substantially on the use of education loans.

As the price of international education grows higher, a mix of alternative funding and smart international investments can provide a viable solution, moving education funding away from debt and toward long-term financial stability.