Education loans for studying abroad get dearer

11 April, 2016

The sharp hike in tuition fees and gradual depreciation of the rupee has significantly increased the education loan burden on students studying overseas.

In the last five years, the rupee has fallen 40 per cent against the US dollar, from 44.30 levels in April 2011 to around 66.50 now.

HDFC Credila Financial Services, a subsidiary of HDFC engaged in the business of providing education loans, has seen the loan size for students going abroad increasing by 5-17 per cent over a period of four years.

The education loan burden, according to Neeraj Saxena, CEO of Avanse Financial Services (an education loan provider), is likely to increase by ₹3 lakh to around ₹35 lakh for a student planning to pursue an MS in the US, and by ₹5 lakh to around ₹45 lakh for an MBA in the US.

Ajay Bohora, Co-Founder and CEO of HDFC Credila Financial Services, said since the global financial crisis in 2007, most states in the US reduced their funding to state-owned education institutions, which has resulted in an annualised increase in tuition fees of 5-6 per cent.

Bohora added that the increase in tuition fees coupled with rupee depreciation has resulted in education loan expenses increasing by around 15.5 per cent annually.

Saxena expects some students, who have already applied for education loans for studying overseas, to come back to enhance or extend their loan. This could be the case for those students who are not able to arrange extra funds.

HDFC Credila too has seen parents and students seek an enhancement in their approved education loan amount by 4-8 per cent, mainly due to the currency depreciation.

"We have noticed that most students and parents have now started thinking about payback period and return on investment on their cost of higher education abroad. A depreciating rupee works in favour of Indian students who take up jobs abroad after graduating there," Bohora said.

Saxena said there has been a sharp decline in the number of students going to the UK where there are work visa restrictions post-study.

Between 2010 and 2013, there was a sharp dip in the number of Indian students going to the US. This period saw steep volatility in the rupee and eventually a steep devaluation of the rupee against the dollar.

Rajika Bhandari, Deputy Vice-President for Research and Evaluation at the Institute of International Education, said that Indian students rely more on US-based funding for their studies than their counterparts in some of the other countries.