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How can a foreign education be planned efficiently given the current state of the currency?

Photo by Mimi Thian on Unsplash

In August 2001, 1 USD was worth Rs. 47.1000; however, on December 20, 2021, it was only worth Rs. 78. It is currently Rs. 81.43 as of today (Oct. 4, 2022), the day I’m writing this. It has reached its highest point to date or ever.

The INR has dropped about 7% in just the first seven months of this year, is still trading in a tight range, and has already surpassed the psychological threshold of Rs. 80 for a dollar.

source : Google

Several sectors have been impacted by this depreciation of the rupee against the US dollar. This involves the importation of items like electronics, gold, coal, crude oil, and coal. Anyone who intends to invest or travel overseas is likewise affected.

But the students and families who were considering pursuing an education abroad are one group that would be severely hurt on a number of fronts.

The students who desire to study abroad are among the most severely impacted groups since, in addition to paying higher tuition, their costs of living will also increase due to the depreciating rupee. They will also have to deal with the decadal high inflation that most advanced countries are experiencing on top of this load.

So, what choices do students have?
Most families who want to send their kids to a foreign school, especially if they haven’t planned for a while, take out an education loan, sometimes even gold loans or personal loans, to pay for their education.

It is no longer an easy choice to take out a loan when the INR is declining and there is no sign of a stop in sight, pushing up interest rates.

In light of the aforementioned reality, students and their parents should conduct extensive study on a variety of topics, including the educational institution they wish to attend and several other topics, in order to save as much money as they can.

Yes, the only concern you must consider or prepare for when taking out a student loan is currency movement. However, there are a few other questions you should be able to answer before sending your children to study abroad. All those elements will be covered in this post.

How to save your overseas education money from the weakening rupee

1. Create a Financial Plan –

Parents should have started this process much earlier; in fact, the ideal moment to begin budgeting for a child’s education is at the time of the child’s birth. But now is the second-best time because it’s better late than never.

But after getting to this point, even the student who wants to study abroad must learn the fundamentals of setting up a budget, finding side jobs, and comprehensive financial planning.

If you have at least a few years until your intended study abroad year, you may still have time to get some, if not all, preparations in order.

You should add at least 15 to 20 percent to the total of the specified expenses—which you must pay upfront to the university—in order to account for any unexpected costs that might arise in regular circumstances.

You should plan for at least a 25% higher budget in these inflationary times when even the natives struggle to make ends meet.

2. Open an Overseas Bank Account-

One of the simplest methods to protect against a decline in the value of the Indian rupee is to open a bank account denominated in a foreign currency. Any foreign bank that has registered with the RBI (Reserve Bank of India) for such reasons may be used to open such foreign currency accounts.

Although there are annual limits on the amount of money you can move to a foreign currency account, you will be safeguarded against additional INR depreciation if your money is locked in at the present rates. If the value of the rupee rises significantly in the future, you always incur the risk of booking losses.

To open such an account, students require valid identification such as a passport, proper study visa, address proof, and student ID card from the admitting university or school.

Most foreign universities have a partnership with a local bank that facilitates the opening of such an account even while you are in India. You can operate these bank accounts like any other when you land there. But you must remember that most foreign currency deposits, however, do not offer any interest income.

3. A loan for education in a foreign currency

Take out student loans in foreign currency rather than Indian rupees if you want to pursue a degree from a foreign university. The RBI has approved it, but it’s unclear how banks will deliver it. However, when the value of the Indian Rupee is falling and is anticipated to fall even lower in the future, this proposition becomes even more alluring.

For instance, at an exchange rate of Rs. 80 per dollar, one may take out an education loan of Rs. 32 lakhs to pay for a year of schooling that would cost USD 40,000. However, if the rupee continues to depreciate by another 4% (its historical yearly depreciation since the 2000s), the second year’s equivalent sum of $40,000 will need at least Rs. 33,28,000 instead.

A falling rupee can have a negative impact on your goals even in the short run. This is due to the INR’s nearly 7% decline in value against the USD alone in 2022. In only those few months, this amounts to an additional expense of Rs. 2.25 lakhs!

On the other hand, if the same student had taken out a loan in US dollars at the start of the year, her obligation would have stayed the same notwithstanding the decline in the value of the rupee.

4. Research the Country-

This need to be the initial action. One needs to be certain which country should be chosen for the foreign education and why, as well as what would be the overall tentative cost, even before considering or arranging for the loan.

It is crucial to research a nation’s educational system as well as the overall cost of education for the full programme. For instance, the price of medical school in private medical institutions in India is four to five times higher than it is in the majority of East European nations. This was brought to light when thousands of Indian students were left stranded in the war-torn region during the Russia-Ukraine crisis.

The total cost of education is influenced by a variety of factors, including employment and job prospects, accessibility, quality of life, social security, and the education policy of the host nation. For instance, all students in Germany, whether they are nationals or foreigners, are given a free education. However, the expense of living and the language are two significant barriers.

I suggest speaking with a “Fee-Only” foreign education consultant. These days, there are many such experts available who can offer you a comprehensive picture of the price, lifestyle, advantages, and hazards of the educational systems of other nations. You can anticipate an unbiased opinion because their interest is not in granting you a visa but in providing advice that is conflict-of-interest free.

5. Education Quality-

You should never cut corners when it comes to education. That is one of the main reasons you decided to study at a reputable university overseas rather than at home. The goal of the endeavour is defeated if you compromise on the nation or the school merely for the sake of earning a foreign degree.

You may access the best teachers, research, resources, environment, and opportunity to broaden your horizons at a reputable college. More importantly, having access to the alumni and connections network on a global scale will help you launch a prosperous career.

Therefore, when contemplating prospects overseas, students and parents should give the utmost attention to the quality of education. While some places may be less expensive and cheap, they might not be a wise investment.

You can ask the university for an alumni reference. It is better to be aware of the institution’s placement history.

6. Are Loans Fixed-Rate or Variable-Rate?

With a fixed-rate loan, you can plan your repayment schedule with stable EMIs and a predetermined tenure. A variable-rate loan, on the other hand, enables you to profit from reduced interest rates but can be quite painful in an inflationary climate. Most banks prefer to only make loans that are connected to repo rates.

One would do better to understand the math and how it affects other financial situations given the reality of imported inflation and a declining rupee that we are currently witnessing. If you feel comfortable with a Fixed rate loan, go for it. Variable rate loans may climb more, and once they do, they might stay elevated for a long time before dropping. It is difficult to predict what the rate will be in a few years.

Despite the fact that fixed-rate loans are often more expensive than variable ones. As banks like to shield themselves against changes in interest rates both domestically and internationally.

7. Select A Cheaper Education Loan-

You must not jump the gun and sign the dotted line with the first lender that approves your loan. Thorough market research would reveal that if one lender is willing to offer you an education loan, then there are certainly some others as well. And you might get a better deal there!

As discussed in the previous point, the students should consider the lenders that provide a clear and full-service loan product. With a long chain of satisfied customers, you will find that their cost of funds is also very less allowing them to offer the best rates.

LenderAnnual Interest Rate (%)
State Bank of India7.00-10.15
Bank of India6.85-9.35
ICICI Bank10.50 onwards
Punjab National Bank6.95-10.40
Bank of Baroda7.45-9.90
Axis Bank13.70-15.20
source: PaisaBazar 

8. Bonus Point: Invest Internationally

People who have practically the entire corpus set aside to pay for their children’s international education may be able to find an alternative solution to reducing the dangers associated with currency depreciation. They can invest in stocks in the nation where your children are/will study by repatriating the entire amount.

The assets can be redeemed as and when the tuition and other fees are due, and the surplus corpus can be kept in a comfortable fund. Return of Capital, not Returns on Capital, must be your sole criterion for selecting these types of funds. This is due to the fact that the goal is challenging, immediate, and error-free. You must therefore only invest this corpus in the most highly rated, least volatile assets.

Conclusion

A foreign education would undoubtedly expand your horizons and introduce you to a new world. With a few exceptions, it can assist you in turning your employment aspirations into reality considerably earlier than with a degree from an Indian college.

You can still afford to attend your dream school with diligent planning, budgeting, and research.

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