How to study abroad? Here's a primer which answers all your questions

Two years of enforced confinement at home appears to have heightened students’ desire to pursue higher education abroad. In just one year from 2021 to 2022, there was a staggering 69 per cent jump in the number of students who chose to study abroad. This wasn’t just a statistical anomaly because of the pandemic—the 2022 figure was also 28 per cent higher than the pre-pandemic year of 2019.

Of course, other factors were also at play. These range from the increasing affordability of foreign education to the limited number of quality institutes here, and the desire to migrate to countries with better standards of living.

As students start the application process for the 2024 session, here is a lowdown on the factors you should consider while making this all-important choice—not just of the course, but also country of study and financing options.

Comparative advantage

The US remains the most preferred destination, especially for technology-related fields since it is home to Silicon Valley. But there are others that are popular, albeit to a lesser degree, like Canada, the UK, New Zealand, Germany, Ireland, Australia, Spain, and Switzerland.

“Various countries are renowned for diverse areas of study. Students should look for countries that provide outstanding job opportunities in relation to their chosen field of study. Selecting the appropriate course that is not only interesting but also [promises] a prosperous career opportunity is essential. Therefore, moving to a destination where the preferred industry is thriving and has better future opportunities is crucial,” says Rajesh Kachave, Chief Business Officer–Student Lending and Insurance Business at Avanse Financial Services, a non-banking financial company (NBFC).

Besides, each country has its advantage. Ankit Mehra, CEO of education financing marketplace GyanDhan, explains that Singapore is known for its world-class universities, multicultural society, and excellent job prospects. Sweden, on the other hand, is gaining popularity because of its innovative teaching methods, strong emphasis on research, and inclusive society. Then there’s New Zealand, where education is relatively cheaper, and it has the added attraction of picturesque landscapes.

After you’ve set the coordinates for your preferred destination, you have to decide on financing options.

“Across multiple international master’s courses, we see average expenditure per student varies significantly. As per an industry report from [market intelligence firm] HolonIQ, this ranges from around $10,000 per year to more than $100,000 and can similarly vary from city to city, with annual price increases being respectively impacted by local inflation rates,” says Mayank Sharma, Head of Global Partnerships and Country Head India at Prodigy Finance.

Options aplenty

The good news is that for education loans, you no longer need to queue up at a bank branch or fill out tonnes of forms. The application process can be started over the internet and completed from the comfort of your home.

That brings us to the all-important question: Which financier should you choose—public sector banks, private ones, NBFCs or fintech companies?

Banks interest rates range from 9.8 per cent to 11.5 per cent. The cheapest rates are generally offered by public sector banks and, fintech companies may levy higher interest rates. Importantly, public banks offer borrowers a moratorium during which they are not required to make loan payments. This usually spans the duration of the course, with an additional six or 12 months while you’re searching for a job to ease the financial pressure. Private lenders, meanwhile, may charge simple interest from the time of disbursement, which can accumulate if not paid during the period of study.

Then there is the currency question. When applying for a student loan in your home country, you have the advantage of an established credit history or existing account. Additionally, you may have the option to borrow and repay in your local currency. Another possibility is providing collateral such as a property or having a parent, guardian, or family member co-sign the loan.

But there may be those who do not have any collateral or borrowing history or simply want to insulate themselves from foreign exchange fluctuations. For them, financing in a foreign currency can offer advantages as some lenders may not require collateral or a co-signer. Additionally, loans disbursed directly to educational institutions in a foreign currency can help avoid high international exchange fees.

There is a catch here. “There are only a limited set of lenders, and a limited set of courses eligible for foreign currency loans from fintechs. Moreover, international lenders typically show the headline interest rates that are charged to the customer. However, these rates are in a different currency and cannot be compared directly to the loans from the origin country (INR loans in the case of India). Once adjusted for the interest rate differentials, the rates are typically much higher than those offered by the domestic lenders,” says GyanDhan’s Mehra.

For example, Mehra explains that when faced with a choice of borrowing $50,000 at 10 per cent or Rs 41 lakh at 12 per cent, at first glance it may seem that the first option is better. But, you must see the bigger picture. Over the long run, the rupee’s value tends to depreciate. At present, the exchange rate is around 82 to the dollar, but with the expected 4 per cent annual depreciation in the currency, students who opt for the dollar loan will have paid back an additional Rs 4 lakh over the life of the loan, compared with those who choose the INR option.

The fine print

Finally, keep an eye out for associated costs. These can include interest rates, processing fees for loan applications, administrative charges, prepayment or foreclosure charges, late payment penalties, and loan insurance premiums. Additionally, there would be forex costs levied for foreign education loans.

You also need to pay tax collected at source (TCS) at 0.5 per cent if the amount transferred is over Rs 7 lakh as there is no TCS up to that level. In the case of self-financing, TCS is levied at 5 per cent. The TCS paid can be claimed as refund while filing income tax returns.

“It is crucial to compare rates and fees from different lenders to find the most favourable terms. An APR (annual percentage rate) is a standardised metric to compare different loan offers. However, this is not widely advertised in the Indian context, which makes the comparison harder. Platforms like GyanDhan provide the customer with guidance on picking the right loan in the absence of these standardisations,” says Mehra.

APR is a comprehensive measure that encompasses both the interest rate and any associated fees or additional expenses, revealing the total cost of borrowing.

Since foreign education is costly, relying solely on savings may be risky. It is wise to explore alternative funding options. Always look for scholarships as they can reduce your burden substantially. “Begin by researching various scholarship opportunities through websites (Buddy4Study, GyanDhan), university websites, government portals (National Scholarship Portal, Vidyasaarathi), and financial aid offices. Look for scholarships that align with your field of study and qualifications,” says Mehra.

It is also imperative to understand the importance of documentation. “Some important documents like KYC (know your customer), academic transcripts, details regarding course and fee, co-borrower’s KYC and income details, university acceptance letter, and collateral documents play a critical role in the application process. Any incomplete document or misrepresentation of information will result in rejection,” says Kachave of Avanse.

And last, but definitely not least, keep an eye on your credit score as it plays an important role while applying for an education loan.

 

@Teena_Kaushal