How to financially plan your foreign education & nbsp | & nbsp Image source: & nbspBCCL
Many students in India dream of studying abroad. However, studying abroad comes with its own set of challenges. The biggest is financial. The cost of education abroad is high for most streams as compared to the 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 you have sufficient funds at your disposal whenever you need it.
After clearing your entrance exams for foreign universities, you will have plenty of time to arrange the funds but it is always recommended to be well prepared to avoid last minute distress. Here are some important steps to prepare your finances for foreign education.
Choose the appropriate foreign institution
There can be many foreign universities that may offer first-class education in the field that you or your child would like to study. As a first step, you should compile a list of these universities and compare them on the basis of course structure, fees, expected living expenses, tuition aid from the university, quality of employment, etc. You want to improve the quality of education and affordability without hurting your finances.
Make yourself eligible for a loan
Education loan is one of the simplest and most convenient way to finance your education expenses abroad. 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. Furthermore, in order to be eligible for an education loan, the lending institutions will require you to submit an acceptance confirmation letter from the foreign college/university. In general, banks require an additional guarantee, which can be about 100% of the loan amount. Most lending institutions require a co-applicant. They can be your parents or your siblings. Since terms and conditions of eligibility vary from bank to bank, it would be wise to do your research well.
Estimate the amount required
You must be prepared with the amount you will need for your course abroad. While estimating the amount and factor in 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 will also have to assess the required financial margin. It is that part of the cost of education that you have to pay out of pocket. The bank pays the rest as an education loan. Margin requirements vary for each bank.
Be prepared with guarantees and guarantors
You can choose a secured or unsecured education loan. In a secured loan, the bank needs collateral as a collateral or third party guarantor before granting you the loan. Generally, you will not be required to provide a guarantor or guarantee for loans of up to Rs. 4 lakh. But the higher the loans, the greater the risk to the lender, and therefore the greater the need for collateral or guarantor. The collateral can be securities, gold, property, fixed deposit, or anything acceptable to the lender.
Choose the right lender for your education loan
You can get an education loan from a bank or NBFC. Rate the lenders based on factors like interest rate, processing fee, maximum loan allowed, maximum allowed term, approval and processing time, margin needs, ease of meeting eligibility criteria, deferment period etc.
Invest well in advance for foreign education
The bank may require a margin of around 5% to 15% of the total fund requirements. For example, if your money requirement is Rs. 50 lakh, margin required on education loan can be around Rs. 2.5 lakh to Rs. 7.5 lakh. You must be prepared to pay the margin money. The best way is to start investing early to accumulate the required funds. Some lenders charge a lower interest rate if the borrower contributes more margin money to the education loan.
The effect of inflation and currency depreciation on foreign education
While estimating the cost of foreign education, you should also consider the effect of inflation and devaluation of the local currency on the total fund requirements. For example, your child has been accepted into a university in the United States. The education program initially cost $70,000. Assuming an exchange rate of Rs. 75/$, you had to pay Rs. 52.5 lakh ($70,000 x 75). Later, the inflation increased in the destination country and the cost rose to $72,000 at the end of the cycle i.e. the total fund requirement escalated to Rs. 54 lakh (assuming the exchange rate remained at the same level, Rs.75/dollar) i.e. Rs. 1.5 lakh more than the original evaluation. Now, during the same period if the value of the INR also decreases against the US dollar, your cost will escalate further. In addition, suppose in the same example, the average exchange rate during the studies increased by Rs. 75/$ to Rs. 77, the cost of education will increase to Rs. 55.44 lakh (Rs 72,000 x 77), i.e. approx. rupee. 2.9 lakh more than the original evaluation.
While assessing your money requirements for foreign education, you should also consider the impact of inflation in the destination country and the chances of currency devaluation in the home country to avoid a money crunch later on.
|details||Total cost of studies (in US dollars)||Average exchange rate during the study (INR / USD)||Cost in local currency (in rupees)||How much do you pay more compared to the original estimate? (in rupees).|
|High cost due to inflation in the destination country||72000||75||5,400,000||150,000|
|The depreciation of the local currency against the foreign currency||72000||77||5,544,000||294,000|
(Note: The table is for illustrative purposes only, and the numbers listed are not realistic)
If you plan well to finance your foreign education, you can arrange the required funding without any difficulty.
Adel Shetty is guest contributor. The opinions expressed are subjective.