Study Abroad: INR depreciating against Dollar, how to choose right destination

At a time when the INR is depreciating against the USD, it is important for the students to take a USD loan.

Depreciation of the rupee or INR against the US Dollar has impacted various sectors, one of the worst-hit segments is students who are planning to go abroad for studying in foreign universities. The falling of the rupee will cost them in various ways including tuition fees, cost of living and so on.

The Indian currency for the past few months has been extending its losses and each day making records of touching an all-time low against the US dollar, as currently, 1 US Dollar is INR 78.05 in the overseas market due to foreign fund outflows and fall in domestic equities.

According to Mayank Sharma, Country Head - India, Prodigy Finance, one of the student loan companies which provides loans in USD instead of INR: “At a time when the INR is depreciating against the USD, it becomes even more important for the students to take a USD loan.”

He explained that for instance, they choose to take an INR loan which covers their tuition fees of say $40,000 as of now. However, with the INR depreciating, there could very well be a scenario where the INR loan they have gotten sanctioned now only converts to say $38,000 or less.

In such a scenario, the student will have a shortfall. “The university tuition fee and the living expenses they will bear in the study destination (i.e. USA) will not change or reduce. However, due to the depreciating Indian currency against the USA, with an INR-designated loan, the student's capacity to manage these expenses will reduce and the student will have no other option but to find additional sources of funds to manage this situation. This becomes unnecessary stress for the student,” Sharma said.

Hence, as long as a student plans to stay in the study destination for at least a few years after graduating with a master's degree, a USD designated loan is always a better choice, since then the student can earn and repay in the same USD currency.

Aswhini Kumar, General Manager (India) & Vice President, MPower Financing says: “The fall in the value of the Indian currency against the US dollar may have a deep impact on the students' overseas education plans, especially if they are going to be borrowing for their education which is true for the majority of Indian students going abroad. This could result in the direct inflation of the tuition fees and the regular cost of living for the students. A majority of Indian students are dependent on collateral (of a real estate property) or cosigner to fund their foreign education dream. While it's true in several cases that the students have planned for their education for a couple of years before such a situation arises and it doesn't serve their long-term career goals to suspend/postpone their education for a temporary rise of the dollar; for some, the impact of a rising dollar can dampen their progress for foreign higher education.”

What options students should consider

The top study abroad destinations are still Canada, the USA, the United Kingdom and Australia and sliding of INR against USD will have bearing on the study abroad plan of Indian students.

Kumar said that Considering the majority of students are bound to fund their education with a loan, to combat this situation, it is wise for students to do extensive research on the most effective education loan provider available in the market. The students should consider institutions that provide a clear and full-service model. These aim at bridging the gap created by exchange rate fluctuations among different economic statuses. Firstly, good grades translate to a higher probability of scholarships which would reduce the natural burden on the student and of course, reduce the impact of the rising dollar. Secondly, the student needs to do thorough research on their loan product and the loan provider. A US loan provider offers a few benefits - the loan is in dollars, it's disbursed in dollars and it's repaid in dollars, so, there is no currency fluctuation risk, no loss of F/X conversion costs and no manual intervention needed.

Echoing the sentiments, Sharma said that studying abroad brings concern to students and parents alike, however, there are some points that one can keep in mind to tackle challenges better.

“There are a lot of study abroad destinations which are more economical, however, the quality of education may be compromised, defeating the purpose of pursuing higher education. Therefore, while these destinations are economical, they are probably not a good investment. It is advised that one shouldn’t consider the costs as the sole parameter rather the factors like quality of education and life, and job opportunities should be considered when selecting a study abroad destination.

Keeping the above in mind, there are some Study Abroad Destinations that are relatively economical vis-a-vis ROI. For instance, if you look at public universities in the US, they are relatively cheaper than their private universities counterparts. Likewise, in Canada and Germany as well, public universities are typically much cheaper than private ones.”

There are some factors which students and parents need to consider while planning a study abroad destination.

Quality of education

Prime importance should be given to the quality of education by students and parents while looking for study abroad options. A reputed institution offers the best faculties, research and opportunities to grow in your subject. Additionally, it would often help in making connections and expanding network in a foreign country
Researching the Country

It’s very important to research well about the country student is moving to or wishes to pursue studies from. Choice of the country determines and defines a student's experience abroad. Furthermore, it becomes crucial as the countries are wary in terms of employment, job opportunities, accessibility as well as the quality of life and well-being.

Map out a financial plan

While planning to study abroad, it is essential to have a financial plan in place where you have your funds and finance neatly laid out. It is advised to make a budget in advance so that you have a clear idea of your spending and other miscellaneous expenses. Students and parents should also ensure emergency funds are at their disposal in case of any unforeseen circumstance.

Fixed-rate loans or variable loans?

It is also important for students to check whether their university/institute has tie-ups with the financial institution for education loans. In several cases, such tie-ups help in faster loan processing and lower overall costs to the students.

Most importantly, students need to place a preference for fixed-rate interest loans over variable-interest loans. “A variable-rate product may, in some instances, offer a lower interest rate, but during the life of the loan, it has a high probability to be higher than the fixed-rate and at levels, which can make the fixed-rate much lower than the variable one. A fixed-rate offers necessary peace of mind, especially even when students are in school. The other aspect to look for is whether the loan amount covers just the tuition or other aspects of the students’ education such as living costs, books, etc as these are vital costs that every lender doesn’t cover as part of the loan and can put additional burden on the student. Some of these variables can significantly reduce the impact of the rising dollar against the domestic currency,” added Kumar.

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