Embarking on an international study adventure is a life-transforming opportunity, but it often comes with a hefty price tag that can turn your dreams into a financial puzzle.
Picture this: you’ve just received an acceptance letter from a prestigious university abroad, your heart races with excitement. Then, reality hits. Tuition fees, accommodation, travel expenses – suddenly, the cost of studying overseas becomes overwhelming. To make matters worse, financial support for Australian students planning to study abroad is limited, and navigating the process can be convoluted.
In this guide, we’ll break down the different types of loans available for Australian and New Zealand students planning to study abroad, highlighting their eligibility criteria, benefits, and constraints. Understanding these financial options will help you make an informed decision that supports your educational goals without compromising your financial stability.
What are the different forms of financial support available for students
There are essentially three different forms of financial aid available to ANZ students to fund higher education costs:
- HECS
- Personal Loan for Education Purposes (from a bank)
- Student Loan (from a dedicated tuition loans provider)
Depending on the type of study you’re pursuing and your financial situation at the time, eligibility for these three types of loans can differ widely. Below we’ll break down each loan type and help you understand what’s needed to successfully apply.
HECS
In Australia, the Higher Education Contribution Scheme (HECS), part of the Higher Education Loan Program (HELP), offers interest-free loans that students repay only after they reenter the workforce earn over AUD 54,435.
Eligibility Criteria:
- Available to domestic students only (Australian and New Zealand citizens/permanent residents) – international students are not eligible for HECS loans.
- Must be enrolled in an eligible course at a recognized institution, all of which are located in Australia – this means individuals planning to study overseas (i.e. at popular universities in the US, UK, Europe or Asia) are not eligible for HECS
Benefits:
- Interest-free: Although the loan thresholds are indexed to inflation, there is no additional interest. For 2023, the rate was 7.1%, ensuring the system keeps up with the cost of living.
- Deferred repayments: Repayments are deferred until your income exceeds a certain threshold (AUD 54,435 for the 2024-2025 academic year).
- Income-based repayment: Higher earners repay more, while low-income earners pay less. Repayments increase with income, ensuring lower-income graduates are not burdened.
Constraints:
- Limited to tuition fees: HECS loans can only be used for tuition fees and related educational costs, not for living expenses.
- No international student access: International students cannot apply for HECS.
- No study abroad access: Domestic students (i.e. Aussie and New Zealanders) planning to go overseas to study are not eligible to apply for HECS.
Personal Loan for Education Purposes
Personal loans are unsecured loans offered by banks and financial institutions. These loans can be used for a wide range of purposes, including education-related expenses, travel, and living costs. Unlike secured loans, which are backed by assets like your home or car, personal loans are typically unsecured, meaning they do not require you to pledge an asset as security.
Many of the major banks in Australia and New Zealand — ANZ, Commonwealth Bank of Australia (CBA), and Westpac — promote Personal Loans for Education Purposes as a loan type, however prospective students often face challenges securing approval during the application process. In many instances, this is due to the unsecured nature of these loans, meaning students who are unemployed during the study period (or have limited income) face difficulty meeting the income thresholds required by banks, often resulting in loan rejections.
Eligibility Criteria:
- Available to Australian citizens or permanent residents planning to study abroad.
- International students may be eligible for personal loans in Australia, but eligibility criteria vary by lender.
- Credit History: A strong credit history is typically required, and some lenders may require a co-signer if you have limited credit history.
- Income thresholds: implemented by lenders to ensure applicants can effectively service the loan throughout the duration of their study.
Benefits:
- Flexibility: Can be used for tuition, living expenses, travel, and other costs.
- Higher Loan Amounts: Loans can cover more than just tuition fees, including living expenses.
Constraints:
- Higher Interest Rates: Personal loans typically have higher interest rates compared to bank student loans (starting around 6–10%).
- Immediate Repayment: Repayments often start immediately, which can be challenging for students who are not earning an income while studying.
- Unsecured: Since these loans are unsecured, lenders may impose strict eligibility criteria, including income thresholds.
Student Loan Providers (Financial Institutions)
Given the challenges students have historically faced financing international higher education, dedicated student loan providers have started to emerge in various markets. These financial institutions are equipped to offer loan products that are specifically tailored to the unique needs of students traveling abroad for university.
Spark Finance is currently the only provider offering student loans specifically for Australians and New Zealanders planning to study abroad. They also provide loans to international students studying in Australia.
Eligibility for Spark Finance:
- Australian and New Zealand citizens: Must be accepted into an eligible undergraduate or postgraduate course at a recognized institution.
- Students enrolling in undergraduate coursework are required to apply with an Australian or New Zealand citizen or permanent resident (typically a parent of close relative) who can handle repayments on their behalf until they graduate and enter the workforce).
- International Students: Eligible for loans, however these students must apply with a cosigner who is an Australian or New Zealand citizen or permanent resident.
Benefits:
- No Income Thresholds: Spark Finance recognises that students may not work at all – or have limited income – for the duration of their study; for this reason, we take into account future earning potential rather than relying solely on expected immediate earnings to assess applicants.
- Flexible Terms: Spark Finance allows loan repayments to be deferred for up to six months after graduation (for students undertaking postgraduate coursework).
- Specialized Loans: Loans are tailored for educational and living expenses, meaning Spark Finance handles tuition payments directly with the students’ enrolled university.
- Quick disbursement: Loans are often processed quickly, with funds available within days.
- Penalty-Free Repayment: unlike other loan providers, Spark Finance wants to help facilitate students to reduce debt meaning they offer early repayments with no penalties.
- Co-signer Options: If you have limited credit or are applying as an undergraduate student, Spark Finance may allow a co-signer to help you qualify.
Constraints:
- Higher Interest Rates: Rates are typically higher than government-backed student loans (i.e. HECS), ranging from 6%–10%.
Comparing Options for ANZ Students Traveling Abroad for University
If you’re heading overseas to study, you’re likely aware that HECS isn’t an option for financial support. To effectively assess alternatively loan types, there are three major criteria to keep top of mind:
Eligibility
- Banks: While banks will promote personal loans for education purposes on their website, income requirements are often prohibitive for students planning to enrol in full-time coursework. Borrowers should be encouraged to research earning thresholds to understand whether or not they are likely to qualify for a loan.
- Student Loan Provider: Spark Finance offers loans for all ANZ students heading overseas for any degree type (postgraduate and undergraduate). An additional requirement for undergraduate students is the cosigner, so understanding whether a parent or relative is willing to apply alongside you for the loan is critical.
Interest Rates Comparison
- Banks: Rates are often highest given the unsecured nature of the loan.
- Student Loan Provider: Spark Finance offers competitive rates for student loans versus banks and international student loan providers (i.e. Prodigy Finance), with fixed and variable options (although rates are still higher when compared to HECS).
Repayment Terms and Conditions
- Banks: Often require immediate repayments, starting with fixed monthly instalments over a 2 – 7 year period.
- Student Loan Provider: Fixed monthly payments, with a negotiable term of up to 10 years. Undergraduate students are required to commence repayments when tuition commences (typically handled by the cosigner), whereas postgraduate students have the option to defer repayments for up to 6 months after graduation.
Loan Amount Limits
- Banks: Loan approvals are typically heavily tied to income and creditworthiness, meaning borrowing potential can vary widely depending on the individual’s unique circumstances.
- Student Loan Provider (Spark Finance): assesses applicants based on future earning potential as well as current financial circumstance, meaning ANZ students can be eligible for loans that cover both tuition and living expenses (up to AUD 200,000).
Tips for Choosing the Right Loan Type
Choosing the right loan for your education is important. Here are some key tips to help you make an informed decision;
- Understand Loan Types: Bank student loans offer lower rates and repayment flexibility but are only for tuition fees. Personal loans offer more flexibility but have higher rates and stricter eligibility criteria.
- Evaluate Interest Rates: This is important to help you determine if it would not stiffen your cash flow in the future.
- Assess Repayment Options: If you’re unsure about future income, choose a loan with flexible repayment terms, such as Spark Finance, which allows deferral for six months.
- Compare Loan Providers: Don’t just focus on the interest rates – look at fees, loan limits, and repayment flexibility.
In conclusion, both bank student loans and personal loans have their advantages and drawbacks. Bank student loans are often the better choice for students due to tailored benefits, but personal loans can provide greater flexibility if you need funds beyond education expenses. For expert advice and tailored financial solutions, visit Spark Finance.
