Overseas education plans hit by currency woes

Indian students are having to rethink their plans for a foreign education after a sharp slide in the Indian rupee against major Western currencies, and banks cutting back slightly on loans for overseas study because of a perception that the graduate jobs market is tightening.

With the rupee depreciating, foreign education becomes more expensive, and this might reduce the take-up of education abroad loans as students may prefer cheaper higher education in India, according to M Narendra, chair and managing director of Indian Overseas Bank.

But for now, some students are deferring overseas courses.

KS Arvind applied to several American universities for an undergraduate degree but the depreciation of the rupee against the dollar has forced has forced him to wait. “I was supposed to join this January. But I have deferred it to next year in the hope that the rupee will become stronger by then,” he said.

Even if the tuition fee increases marginally in a year, it could cost him less in living expenses if the exchange rate improves, he said.

The rupee has fallen over 18% against the dollar in the last year. It was Rs44.72 to the dollar in January 2011, and ended at a low of Rs53.07 to the dollar at the year-end. This means a typical student loan of around Rs1.5 million rupees raised from a bank in India would yield US$28,000 instead of US$33,000.

Sunaina Ghosh, a final year student at Delhi University, said she would need an extra Rs538,000 (US$10,600 at current exchange rates) in 2012 compared to 2011.

“I am in two minds on going to the US for a masters course. The current status of the rupee versus the dollar has pushed up my course fee by almost 20%. I will also have to spend extra on living expenses,” she said

For students willing to spend the extra money, obtaining a loan could be a challenge. According to the Reserve Bank of India, lending on education loans grew only by 17% in October 2011, compared to 24% in October 2010.

“Banks may now see higher risks for students in terms of job potential and the ability to pay back the loan,” said Prashant Bhonsle, country head of Credila Financial Services, who felt that global uncertainty could have led to the slowing in education loan growth.

“Even when the rupee was strong, Indian banks were cautious in giving out education loans. With the rupee depreciating, students will find it difficult to convince banks to part with loans of larger value,” said Naresh Gulati, chief executive of Oceanic Consultants, an agency that helps Indian students with admissions abroad.

Indian banks lend up to a maximum of Rs2 million for higher education study abroad. While there is no collateral for loans up to Rs400,000, loans between Rs400,000 and 750,000 require a third-party guarantor.

Credit above Rs750,000 needs to be backed by tangible collateral security such as property, preferably houses, government securities, gold, shares or a third party with assets matching the loan amount.

However, Renuka Raja Rao, country coordinator for EducationUSA Advising Services at the United States-India Educational Foundation, said students would not find it difficult to get bank loans as long as they were going to accredited US institutions, and met the conditions set by the banking system in terms of margin, guarantors and-or collateral security.

She said EducationUSA had not observed any decrease in student interest in American programmes as a result of the costlier dollar.

“Students choose the US as a study destination after careful research and they thus make well-informed choices. Besides, the increase is marginal, and is unlikely to affect the majority of students.”

Overseas education consultants said students are either looking at alternative sources of funding like scholarships or picking up campus part-time jobs to tide over this funding crunch.

For many who are not able to arrange either, waiting for the rupee to cool off is the only option.