Higher education in private and foreign institutions is not only expensive, but the rate of inflation in the educational sector is also high. Apart from the tuition fee, students studying in foreign universities also need to spend money on rental accommodation or hostel fees, food, etc.
So, along with the cost of education, students desired to study abroad need to take into account the impact of inflation in the educational sector as well as the impact of price rise in rental, food, transportation etc while calculating the total cost.
Failing to take into consideration the impact of inflation may result in shortage of funds before completion of the course.
Apart from inflation, another factor that influences the cost of studying abroad greatly is the currency exchange rate. When the rupee becomes stronger, the cost of studying abroad reduces and it becomes expensive, when the Indian rupee (INR) becomes weaker.
“At MPOWER, we see this problem all the time: students used to have enough money (in rupees), but currency depreciation affects what they can afford in the US – perhaps during their final semester, final year, or for longer. A weakening rupee can result in a substantially increased cost of education. While an argument is usually made that the student may end up paying back on a higher dollar, there is a time value of money concept. The student / parents are borrowing at a high rate today, which results in more rupees borrowed per dollar, increasing the total interest burden. The payback time in 1-2 years is quite susceptible to other kinds of market volatility too,” said Ashwini Kumar, General Manager (India) and Vice President, MPOWER Financing.
So, while arranging for the funds for studying abroad, one should choose a way to minimise the impact of rupee depreciation on the fund.
One of the ways may be investing in foreign funds to reduce the impact of the devaluation of rupee on the return.
While taking an education loan, one may reduce the impact of adverse exchange rate by opting for a dollar-denominated loan.
“We recommend a dollar-denominated loan that is immune to such fluctuations. Students who take advantage of dollar-denominated loans enjoy certainty that they will have the funds made available to them when they need to be drawn upon. There is also the peace of mind to not worry about another variable that can significantly impact the total interest they have to pay back,” said Kumar.