How to financially plan for your foreign education  |  Photo Credit: BCCL
Many students in India nurture a dream of studying overseas. However, studying abroad comes with its own sets of challenges. The biggest being the financial one. The cost of overseas education is high for most streams compared to costs in India. However, your dream of studying abroad can turn into a reality if you plan it well. Hence, good planning is a must to ensure that sufficient funds are at your disposal whenever you need them.
After you clear your entrance exams for the foreign universities, you would get ample time to arrange funds but it’s always recommended to be well prepared to avoid last-minute distress. Here are some important steps for preparing your finances for foreign education.
Choose the right foreign institution
There can be many foreign universities that may be offering top-class education in the field you or your child may want to study. As a first step, you must compile a list of such universities and compare them basis their course structure, fees, expected living expenses, scholarship assistance from the university, placement quality, etc. You want to optimise for education quality and affordability without hurting your finances.
Make yourself eligible for a loan
An education loan is one of the simplest and convenient ways to fund your foreign education expenses. However, you can get an education loan only if you meet the loan eligibility criteria. To apply for a loan, you need to be an Indian citizen. Further, to be eligible for an education loan, lending institutions would ask you to furnish the admission confirmation letter from the foreign college/university. Generally, banks require collateral security which could be around 100% of the loan amount. Most lending institutes would ask for a co-applicant. They can be your parents or siblings. Since the terms and conditions for eligibility vary from bank to bank, it would be wise to do your research well.
Assess the amount needed
You will have to be prepared with the amount you would need for your overseas course. While estimating the amount, factor in the college fees, living and travel expenses, study material expenses, etc. For international courses, you can get a loan of up to Rs. 1 crore. If you are going for an education loan, you would also have to assess the margin money needed. It is that part of the education cost you must pay from your pocket. The rest is paid by the bank as an education loan. The margin requirement varies for each bank.
Be ready with collateral and a guarantor
You can opt for either a secured or an unsecured education loan. In a secured loan, the bank needs a collateral as security or a third party guarantor before granting you a loan. Generally, you would not be asked to provide a guarantor or collateral for loans up to Rs. 4 lakh. But the larger the loans, the bigger the risk for the lender, and therefore the bigger the need for the collateral or guarantor. A collateral can be financial securities, gold, property, fixed deposit, or anything acceptable to the lender.
Choose the right lender for your education loan
You can take an education loan from a bank or an NBFC. Evaluate the lenders based on factors such as interest rate, processing charges, maximum loan allowed, max tenure permitted, approval and processing time, margin money needs, ease in fulfilling the eligibility criteria, moratorium period etc.
Invest well in advance for foreign education
Bank may require a margin of around 5% to 15% of the total fund requirement. For example, if your fund requirement is Rs. 50 lakh, your margin requirement on an education loan could be around Rs. 2.5 lakh to Rs. 7.5 lakh. You should be prepared to pay for the margin money. The best way is to start investment well in advance to accumulate the required fund. Some lenders charge a lower interest rate if the borrower contributes greater margin money on the education loan.
Impact of Inflation and currency depreciation on foreign education
While estimating the cost of foreign education, you must also consider the impact of inflation and domestic currency depreciation on the total fund requirement. For instance, your child got admission to a university in the US. The cost of the education program at the beginning was $70,000. Assuming an exchange rate of Rs. 75/$, you had to pay Rs. 52.5 lakh ($70000 x 75). Later, the inflation in the destination country increased and the cost shoots up to $72000 at the end of the course, i.e., total fund requirement escalated to Rs. 54 lakh (assuming exchange rate remained at same level i.e., Rs. 75/$) i.e., Rs. 1.5 lakh more than the original assessment. Now, during the same period if the INR also depreciates against the USD your cost will further escalate. Additionally, let’s assume in the same example, the average exchange rate during studies increased from Rs. 75/$ to Rs. 77, the cost of education will increase to Rs. 55.44 lakh (Rs 72000 x 77), i.e., approx. Rs. 2.9 lakh more than the original assessment.
While assessing your fund requirement for foreign education, you should also factor in the impact of inflation in the destination country and chances of currency depreciation in the home country to avoid a fund crisis later on.
|Details||Total cost of studies (In US$)||Avg. Exchange Rate during studies (INR/USD)||Cost in domestic currency (In Rs.)|| How much more you pay, compared to original estimation? (In Rs.)
|Cost escalation due to inflation in destination country||72,000||75||5,400,000||150,000|
|Depreciation in home currency against the foreign currency||72,000||77||5,544,000||294,000|
(Note: The table is only for illustration purposes, mentioned figures are not factual)
If you plan well for your foreign education financing, you can arrange the required fund without any difficulty.
Adhil Shetty is a guest contributor. Views expressed are personal.