How To Financially Plan Your Study Abroad | Photo credit: BCCL
Many Indian students have dreams of studying abroad. However, studying abroad comes with its own challenges. The most important being the financial. The cost of education abroad is high for most fields compared to the costs in India. However, your dream of studying abroad can come true if you plan it right. Therefore, good planning is essential to ensure that sufficient funds are available to you whenever you need them.
After passing your entrance exams for foreign universities, you will have plenty of time to organize funds, but it is always recommended that you be well prepared to avoid any last minute inconvenience. Here are some important steps to prepare your finances for education abroad.
Choosing the right foreign institution
There can be many universities abroad that can offer top-notch education in the field that you or your child want to study. As a first step, you need to make a list of these universities and compare them based on their course structure, fees, expected living costs, university scholarship support, quality of placement , etc. You want to optimize the quality of education and affordability without hurting your finances.
Become eligible for a loan
A student loan is one of the easiest and most convenient ways to finance your study abroad expenses. However, you can only get an education loan if you meet the loan eligibility criteria. To apply for a loan, you must be an Indian citizen. Additionally, to be eligible for an education loan, lending institutions would require you to provide the admission confirmation letter from the foreign college / university. Typically, banks require collateral which can be around 100% of the loan amount. Most credit institutes would ask for a co-applicant. It could be your parents or your siblings. Since eligibility requirements vary from bank to bank, it would be wise to do your research well.
Estimate the amount needed
You will need to be prepared with the amount you would need for your course abroad. When estimating the amount, consider tuition, living and travel costs, study material costs, etc. For international courses, you can get a loan of up to Rs. 1 crore. If you are going for a student loan, you will also need to assess the cash margin required. It is this part of the cost of education that you have to pay out of pocket. The rest is paid by the bank in the form of a student loan. The margin requirement varies for each bank.
Be prepared with a guarantee and a guarantor
You can opt for a secured or unsecured student loan. In a secured loan, the bank needs collateral as collateral or a third party guarantor before giving you a loan. Typically, you will not be required to provide a guarantor or collateral for loans up to Rs. 4 lakh. But the larger the loans, the greater the risk for the lender, and therefore the greater the need for collateral or guarantor. Collateral can be securities, gold, property, a term deposit, or whatever is acceptable to the lender.
Choosing the right lender for your student loan
You can take out a student loan from a bank or an NBFC. Evaluate lenders based on factors like interest rate, processing fees, maximum loan allowed, maximum term allowed, approval and processing time, margin money requirements, ease of fulfillment the eligibility criteria, the moratorium period, etc.
Invest well in advance for education abroad
The 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 a student loan could be around Rs. 2.5 lakh to Rs. 7.5 lakh. You must be prepared to pay for the margin money. The best way is to start investing well in advance to accumulate the necessary funds. Some lenders charge a lower interest rate if the borrower makes a larger margin on the student loan.
Impact of inflation and currency depreciation on education abroad
When estimating the cost of education abroad, you should also consider the impact of inflation and the depreciation of the domestic currency on the total need for funds. For example, your child has been admitted to a university in the United States. The cost of the early education program was $ 70,000. Assuming an exchange rate of Rs. 75 / $, you had to pay Rs. 52.5 lakh ($ 70,000 x 75). Later the inflation in the destination country increased and the cost rose to $ 72,000 by the end of the course i.e. the total need for funds rose to Rs. 54 lakh (in assuming the exchange rate has remained at the same level i.e. Rs. 75 / $) i.e. Rs. 1.5 lakh higher than the initial valuation. Now, in the same period, if the INR also depreciates against the USD, your cost will increase further. Also, suppose in the same example the average exchange rate during study has increased from Rs. 75 / $ to Rs. 77, the cost of education will increase to Rs. 55.44 lakh (Rs 72,000 x 77), i.e. approx. Rs. 2.9 lakh more than the initial appraisal.
When assessing your study abroad fund requirements, you should also consider the impact of inflation in the destination country and the risks of the currency depreciating in the home country. to avoid a fund crisis later.
|Details||Total cost of studies (In US $)||Avg. Exchange rate during studies (INR / USD)||Cost in national currency (In Rs.)||How much more are you paying than the initial estimate? (In rupees)|
|Increased costs due to inflation in the destination country||72,000||75||5,400,000||150,000|
|Depreciation in national currency against foreign currency||72,000||77||5,544,000||294,000|
(Note: The table is for illustration purposes only, the figures mentioned are not factual)
If you plan the financing of your education abroad well, you can organize the required fund without any difficulty.
Adhil Shetty is a guest contributor. The opinions expressed are personal.