Falling rupee, restricted loans scupper study abroad

For thousands of Indian students aspiring to a world-class higher education, the rupee’s continuing depreciation against American and British currencies has been a major setback. Some may have to postpone their studies for a year, while others are desperately seeking additional loans to cover the shortfall.

The rupee has depreciated by around 20% against the United States dollar this year alone.

Mallika Ghosh, who secured admission to a leading British university, has requested a deferment. “With the rupee’s depreciation my costs have gone up 20%,” she said. “I hope that by the next term the rupee will have stabilised and regained.”

She added that it was already a struggle to scrape together £12,000 (US$18,700) for tuition fees and another £8,000 (US$12,500) for living expenses.

As Ghosh has already secured admission, looking at other countries for cheaper courses is not an option. Raising an extra 20% was a huge challenge, she said. “If I had applied to other countries such as Germany or France or Singapore earlier, the increase in costs would not have hit me so hard.”

Loan restrictions

Some students are seeking extra bank loans. However, a Rs2 million (US$36,500) ceiling on loans for overseas education is making this difficult.

“I have already secured a Rs2 million loan from a national bank and I was denied any additional amount,” said Ankur Sarthi, a final-year undergraduate student at Delhi University.

It is common for students to apply for a student loan several months in advance of taking up a place overseas. Sarthi secured a loan two months ago. “I had applied to universities across multiple countries. Now I have to pick the cheapest country and also one that gives me opportunities to earn while I study,” Sarthi said.

The loan limit has not changed since 2001 when the exchange rate was Rs25 to Rs30 to the US dollar compared to around Rs50 now. In 2001, a maximum loan could cover an Indian student’s full education costs in most countries. Now, it is barely enough for one year.

The Indian government has urged banks not to turn down education loan applications from deserving candidates. But banks remain cautious. According to records, education loans are prone to higher defaults.

“You have to look at the return on an expensive higher education abroad. If a student spends Rs2 million to Rs3 million on education in a world-class institution but struggles to get a well paying job, is the education worth it?” asked a senior official at a public sector bank who did not want to be named.

The government’s much-delayed credit guarantee fund for education, to support higher education and skills training by providing surety to banks against student loans, has yet to be implemented.

The fund was mooted in 2012 by then finance minister Pranab Mukherjee to ease the risks for banks of lending to students. Bankers regard education loans as high-risk, non-performing assets.

India’s slowing economic growth and a gloomy jobs outlook in the past four years have fuelled fears of risky loans, while the number of students seeking loans has gone up significantly.

As of March 2013, there were 2,509,465 education loan accounts with a total amount outstanding of Rs5.352 billion. Over 5% of outstanding student loans had turned bad, up from 2% in 2008.

However, according to some reports, banks are contemplating extending the repayment period of loans taken to pursue higher studies abroad, to spread interest payments over a longer period and reduce the cost.

But many students say they may have to borrow from relatives.

Support for students

Students already enrolled in institutions abroad will have little relief. However, universities should do their bit to help prospective students, experts believe.

Ravi Lochan Singh, managing director of the Kolkata-based consultancy Global Reach, feels it has been “a very difficult last few months” for Indian students – just when American, British and Canadian universities have been gearing up for admission.

“It is time these institutions stepped in and helped out the [Indian] students who are about to reach their campuses,” Singh said. Scholarships or India-specific grants of up to 10% of the tuition fee should be offered to bridge the widening gap between planned and real costs.

“Universities should freeze their tuition fees for a few years. Universities do teach economics, and the first lesson relates to demand and supply and how the price is fixed. We should let that be applied here too,” Singh said.

Last year Australia eased restrictions on working hours for Indian students, particularly postgraduates, to help them cope with the impact of the depreciating rupee.