Loans | Student loans: do the math first

At the beginning of the academic year for higher education, many consider a student loan to finance their studies. With rising interest rates, the cost of borrowing has increased and it is a double whammy for those going abroad for their higher education due to the depreciation of the rupee against the dollar.

Students should first calculate the total cost of their chosen program, such as course and exam fees, accommodation, food, lab, etc., and then apply for an education loan based on their needs. The maximum loan amount may vary depending on the student’s institution, educational history, repayment capacity and total family income. Students admitted to high-end institutions and with a good academic record are likely to get a larger loan.

The trend to study abroad is on the rise. Students should keep in mind that as the Rupee usually depreciates against the strongest foreign currency, with time and duration of the course, Rupee expenditure is likely to increase.

Warranty Requirements

For an education loan up to Rs 4 lakh, no collateral is required and the interest rate does not exceed the Prime Lending Rate (PLR). For loans above Rs 4 lakh, the interest rate cannot exceed PLR plus 1%. Some banks also offer student loans of up to Rs 7.5 lakh for higher education without collateral. However, any loan above Rs 7.5 lakh may require collateral of a minimum value equivalent to the loan amount and accrual of interest during the course and moratorium period.

Experts suggest that students should have a clear financial plan to fund their education, including part-time jobs and scholarships, and refrain from borrowing too much at an early stage. As student loans are disbursed in installments based on when tuition becomes due for the following terms, one should check the documentary requirements of the lender.

Dollar-denominated loans

Foreign lenders offer dollar-denominated loans to Indian students to study abroad. Students should do a fair amount of research before deciding between rupee and dollar loans. Adhil Shetty, CEO of Bankbazaar.com, says that with a dollar-denominated loan, costs can swell over time due to exchange rates. “However, if you move abroad and can afford to repay the loan, you can borrow from foreign institutions,” he says, and advises paying more than the minimum dues, which will protect borrower’s finances against currency fluctuations and will help out. debt faster.

Banks that provide dollar-denominated loans do not fund all courses or all universities. Product features such as amounts, repayments, interest rate should be carefully understood. Nilanjan Chattoraj, Manager, Credit & Product-Education Loans, InCred, a non-banking finance company, says: “Students should consider the weakening of the rupee against the dollar. Repaying a loan in Indian dollars can therefore become very difficult. Conversely, paying an Indian rupee loan from abroad is easier,” he says.

Although borrowing from a foreign lender may have certain advantages such as no co-borrowers, collateral and an optically lower interest rate than Indian rupee loans, the student may end up paying more for foreign currency student loan due to currency fluctuation. “Products are usually designed with students from their home countries in mind. Other challenges like repayment in foreign currency even when returning to India can be difficult, both in terms of process and cost,” says Prashant A Bhonsle, Founder of Kuhoo Fintech.

While the dollar student loan from an international institution may seem attractive due to lower rates compared to a rupee loan from a domestic institution, after that the actual rate at which the borrower will pay is the sum of the quoted interest rate and the annual depreciation of the rupee. Chaitali Dutta, personal finance wellness expert and founder of AZUKE, says that these loans do not have a moratorium period and the EMI starts from the next disbursement month. “A student could only approach a lender for a foreign currency loan after exhausting all possibilities of a domestic rupee loan for education,” she warns.

TO STUDY ABROAD

— Although taking out a loan abroad may have some advantages, you might end up paying more due to currency fluctuations

– Repaying an Indian rupee loan from abroad is easier due to currency fluctuations

— Go for a foreign currency loan only after you have exhausted all possibilities of a domestic rupee loan for education

— Banks that provide dollar-denominated loans do not fund all courses or all universities

About Judith J. George

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