SBI Fixed Interest Rate Abroad Education Loan

Most lenders offer an interest rate that is calculated by the following formula:

Interest Rate = Spread + Index

Spread, the fixed part is between 1% and 4% for most lenders. The variable part, the index, is based on the MCLR (marginal cost of funds-based lending rate), which is decided by the banks on the basis of various factors including operating costs, a period of the loan, and the marginal cost of funds. Each bank calculates its own MCLR. This change in MCLR is the reason behind the fluctuating rate of interest. Many popular banks clearly mention their fluctuating interest rates on education loans in the terms and conditions that often get ignored by the student. 

This stands true for most other banks that offer education loans to students. Despite the recent guidelines from RBI to link the rate to repo rate, banks (except Bank of Baroda) have not made the required changes in their structure. The case is far worse for NBFCs. In their case, they can lend at any rate as per their desired profit and are free to change the rate of interest according to their changing operating profit or money market.  In such a scenario, the newly launched fixed Interest Rate on Education Loan by SBI has come as a silver lining in the cloud for all students who are wary of the fluctuating rate of interest on education loans. 

Let us take a closer look at this offering by the pioneers of education loan in India and get a clearer picture of what is the interest rate for education loan in SBI. 
Started in November 2019, this scheme is the first of its kind in India for any bank that offers education loans. In a market where all other lenders offer education loans at a floating rate of interest, SBI has decided to launch its fixed-rate education loan scheme so that students do not have to worry about fluctuations in the rate of interest on their education loan in the future. Under this scheme, the education loan will have a stable ROI throughout the loan tenure. For example, if a person takes a loan today at 9.2%, the interest rate will remain the same throughout until repayment, irrespective of currency fluctuations or any other factors. This will ensure that students repay exactly what they plan and prepare themselves for.

To understand the new scheme better, let us compare the new scheme, i.e., the SBI fixed interest loan scheme with the traditional SBI floating interest loan. 
For this, let us take an example of a student who began with the repayment of his education loan of INR 40,00,000 in October 2017 when the education loan interest rate of SBI was 9.7%  (as discussed initially and planned by the student). Let the repayment tenure be 10 years. Since the loan has fluctuating interest rates, let us take a look at the table below depicting increased interest rates and their impacts on the monthly and overall EMIs to be paid.

This new scheme will definitely have a big financial impact on the student who chooses to opt for fixed ROI over fluctuating ROI. A student, who took a loan of INR 40 lakhs in 2016 from an NBFC, could have saved up to INR 4 lakhs on repayment if it were not for the fluctuating interest rates. These funds could otherwise be utilized towards half-yearly housing and utilities and covering other living costs while working in a foreign nation. 

SBI was the first bank to launch student loans in India and has constantly offered education loan for abroad studies at the lowest interest rates over the years. It continues in its pursuit of helping students with their higher education, and this new scheme is a step in that direction too. Understanding how a floating rate of interest puts pressure on the borrower, SBI has come up with this unique fixed ROI scheme that will allow students to avail an education loan at the lowest rates of interest that will be fixed throughout the loan tenure. Moreover, the current ROI at which SBI is offering education loan is one of the lowest in the last few years. So if you take a fixed-rate loan from SBI now, the current ROI will be fixed for the entire tenure of the loan. Can it get any better than this? 

GyanDhan, the country’s first and only education focussed financing platform, recommends students to request a callback and enquire about the fixed rate of interest education loan scheme launched by SBI as the bank offers the lowest rate of interest among all lenders. The bank also accepts third-party collateral in case a student does not own collateral to offer for the loan. Features like these and the ease of financial planning and management (of course) make us recommend this scheme to all our students.