Racial attacks, weak global economy or a slowdown in hiring, nothing seems to distract Indians from the ‘foreign’ fixation when it comes to pursuing higher studies.
But before you embark on your ambitious venture, have you considered if you really need the degree? Do you have the funds to finance the course and will you be able to repay the loan?
Will the degree enhance your earning capacity drastically? Go through this checklist to ensure you don’t run into unlikely hurdles before you hop on to that flight.
1) Should I leave my job?
Be sure why you want to pursue higher studies. If you expect to work in the country where you study, research the employment scenario and jobs on offer. If you want to use higher qualification for career growth in India, be sure of getting a job immediately after finishing the course.
“You should conduct research on the scope and likely salary packages you can get after completing the course. This will also give you an idea about how much loan to take and your repayment capacity,” says Pankaj Mathpal, certified financial planner.
Another common mistake is in the choice of course. If you are working, it is better to pursue one that is relevant to your current job. “I often see engineers taking up a course in MBA, thinking that the jobs will be more lucrative in the financial services industry,” says Mathpal.
“What they forget is that they will have to start from scratch and their work experience may not be considered. Hence, unless an engineering student is passionate about finance, he should opt for a Masters in Science programme,” he adds.
2) Plan early:
The entire application process, which includes taking tests, evaluations and securing letters of reference, is timeconsuming. Ideally, students should plan one year before the admission season starts.
“The students who plan to take admission in Fall 2011 (October 2011—January 2012) have already started identifying universities and funding options for courses of their choice,” says Saraswati Vishwanathan, founder and principal counsellor, Gyanfoundation, a firm offering consultancy services for overseas education.
For instance, an MBA, a post graduate degree or PhD programme requires you to take certain tests such as Graduate Record Examination (GRE), Graduate Management Admission Test (GMAT), Test of English as Foreign Language (TOEFL) or International English Language Testing System (IELTS). It is advisable to take these exams at least 10-12 months before the admission deadline.
3) Start saving:
You may not always qualify for a scholarship, so if you are currently employed and want to go abroad for higher studies in a few years, start saving now.
Mumbai-based software professional Nisha S. Nair, 25, is clear about doing her MBA from one of the top US universities. “I have been saving money to meet a portion of the overall cost of the course. I don’t want to take the burden of repaying a huge loan,” she says.
She has been investing 10,000 every month in a mutual fund through SIPs and also deposits 25,000 in mutual funds once in six months. She has accumulated around 6.8 lakh so far.
4) Scholarships & bursaries:
Most universities offer scholarships to meritorious students. There are also part-time work options to supplement your income. Students can consider applying for loan scholarships, also referred to as fellowships or trust loans.
The Aga Khan Foundation, Inlaks Scholarships, Rotary Ambassadorial Scholarships, JN Tata Endowment and KC Mahindra Education Trust are some popular options. The terms and conditions of aid vary.
In case of JN Tata Endowment, the selected students need to start repaying the one-time loan scholarship (interest free) from the fourth year of the grant of scholarship, or once he secures employment, whichever is earlier. It has to be repaid by the seventh year.
5) Education loans:
Banks offer education loans, but the collateral and terms are more stringent for overseas degrees. The collateral could be in the form of fixed deposits, National Savings Certificates, insurance policy or even a house worth the loan amount.
You may also require a co-borrower depending on the bank and the loan amount. This amount is capped at 20 lakh, with students having to pay 15% of the cost from their own pockets. What if you get cheaper aid once you reach the foreign institution of your choice?
A loan is secured in two stages—approval and disbursal. Though the total loan amount is approved in principle, it is disbursed on an annual or semester basis, depending on the requirement. “We don’t disburse the loan unless the student puts in a request,” says a general manager with Andhra Bank.
The repayment period ranges from five to seven years and starts a year after the completion of the course, or six months after you secure a job, whichever is earlier.
“Before you finalise the bank, check how they compute the interest rate. Some banks, especially many public sector ones, offer an EMI holiday during the study period,” says Harsh Roongta, CEO, Apnaloan.com.
“Hence, it is in the best interest of students that they or their family pay the interest component during the study period. This eases the repayment burden to a considerable extent,” says Roongta.
Till 2007-8, students used to borrow from overseas banks, which offered softer interest rates for students—at a concession of 0.5-1 percentage point. “Now, these overseas banks insist on the co-guarantor being a green card holder and a long-term citizen as a prerequisite for sanctioning such loans,” says Vishwanathan.
If you are spending a fortune on an overseas degree, you should treat it like an investment. Do your homework well, so that it pays off in the future. Most foreign or private sector banks charge a simple or compound interest on the loan. If you do not repay it during the study period, it keeps getting added to the principal amount. Once you start repaying the loan, the EMI is calculated on this accumulated principal. So, you will end up paying interest on the interest.