The falling rupee translates into increased overseas education expenses as a dollar would cost more than earlier in terms of a rupee.
Sajjad Bazaz
Continuous fall of the rupee to a new record low against the US dollar every other day is emerging as a main concern among students who are studying abroad on the back of an education loan. The weakening of the rupee will continue to deeply impact students’ overseas education plans and add to their financial burden. The rupee has already crossed the 80 mark against the US dollar and if market experts are to be believed, its fall would continue further.
According to official statistics, over 13.24 lakh students from India went abroad for higher studies with most of them heading to the USA (4.65 lakh) followed by Canada (1.83 lakh), UAE (1.64 lakh) and Australia (1.09 lakh), among others.
From bankers’ perspective, the falling value of the rupee against the dollar would result in larger ticket sizes as a borrower would need to avail a higher amount to cover extra expenses, including the tuition fees and other necessary costs. Notably, the tuition fees and living expenses constitute the two main components of the students studying abroad where all education expenses are necessarily to be paid in the US currency.
Precisely, the falling rupee translates into increased overseas education expenses as a dollar would cost more in terms of rupee than earlier.
Basically we are living in a century where millennials are unprecedentedly witnessing a worsening economic situation. At the same time, they are continuously engaged in changing their priorities to live an economically convenient life. Today, when young individuals start peddling their lives, either as students or employees, debt looks like the best solution to them to boost their morale on the financial front. However, it has proved only a temporary fix that later sets in to drag them into a debt trap. This 21st generation is totally apart from the past generations as they are struggling under the weight of heavy bank loans.
Managing the cost of education isn’t simple today. It’s simple only when you ride on an education loan scheme to fund the expenses. But these funds are not free. Education loans come at a cost. If the current burgeoning bad loan scenario is taken into account, chances are that the loan would become a debt trap for student borrowers.
A report reveals that a three or four year graduate degree from a government college for a student pursuing a basic course is around Rs 2,63,622 per year. For professional courses like the much sought-after engineering and medical streams, the fees veer upward to approximately Rs 6,23,107 per year. Elite management institutions like IIM (or any other private university in the country offering a management course) charge between Rs 8-Rs 23 lakh. However, the education expenses in private colleges and universities are skyrocketing for varied higher courses, especially engineering and medicine.
It is here that the banks come into play to bridge the financial gap of households through their education loan schemes to fund the study expenses. The rising cost of education and the urge of parents to give the best of the higher courses to their wards are fast changing the education landscape into a loan-based system, at least in the higher studies category. The changing pattern of the system rests on the assumption that after completing the higher education, the student borrower would get lucrative jobs with steady income and repay their loans. However, these assumptions remain hypothetical and after completing their degrees joblessness becomes a companion for most of the student borrowers. Millions of such students stand pushed into a debt that they have been carrying now for years.
The joblessness of the student borrowers has directly impacted the banks as there is increasing default in the repayment of education loans. A recent data reveals high defaults of about 8 per cent in the education loan portfolio of the banks. Non-performing assets (NPAs) in this category of loans, including public sector banks (PSBs), were 7.82 per cent at the end of June quarter of the current financial year. As per the Report on Trend and Progress of Banking in India 2020-21 by the RBI, the outstanding education loans of all banks increased to Rs 82,723 crore as of March 25, 2022 from Rs 78,823 crore as of March 2021.
This sharp increase in non-performing assets (NPA) in education loans is a matter of concern, as it could hamper the growth of bank credit for higher education in the country, according to an occasional paper published by RBI. In fact, banks have already started exercising caution while sanctioning education loans. In the given situation, genuine cases are overlooked by the banks and there are delays in sanctioning the loans.
Meanwhile, in the context of J&K, a trend is catching up fast among the students to fly abroad for pursuing studies irrespective of their parents’ financial position. Here they capitalize on the easy access to funds through education loans. In other words, pursuing a degree from a foreign university is a new emerging passion among the local student community and gives less importance to relevance of such degrees in their career building. Most of the foreign degree holders are not matching the local job requirements and they continue to struggle to get a job or get engaged into any other self-employment venture matching to their skill and education qualifications.
Basically, it is relatively the easier access to education loans, which has pushed the student community to explore frontiers in education which are normally beyond their horizon. In normal course, education loans are fast turning into a burden for student borrowers with a direct impact on their future. Instead of guiding them into jobs, the loan burden has engaged them in a struggle to get out of the debt trap.
There are few important things for the students to consider before availing education loan facility for studies abroad. Firstly, they should not look at a foreign university because someone in their vicinity is already there. They have to understand that going abroad for studies comes at a huge cost. The courses in foreign universities are very expensive. Since they are borrowing money to fund the expenses, they have to repay it along with interest. Higher the repayment period, the more they have to pay back. So, what is more important for the students is to evaluate their future employability before boarding for studies abroad. Employability aspect is more important and should not be compromised.
Parents sending their wards abroad for studies have a tendency to wipe out all their savings in a jiffy and load them with a huge burden in the form of outstanding education loans. It would have been better for them to plan early to get enough time to save for their education abroad.
Since foreign education expenses are to be paid in dollars, the falling rupee against dollar makes the situation worse for students as they have to shell out more with every fall of the rupee.
Secondly, access to education loan is easier as compared to other form of loans. But its repayment can be more stressful. Since these loans come with a repayment holiday which includes course period and some more months after completing the course, the student borrowers should use this moratorium period for saving a portion of their earnings. Out of this saving, they can later on fund their EMIs. It would also be better to repay the interest portion on a monthly basis. They would avoid accumulation of their loan amount at the end of repayment holiday and would also earn rebate on interest rate. Subsequently, EMI will also reduce.
The student borrowers have also to keep in mind that their good repayment history of education loans would help them to secure a good credit score, which means they can get easy access to other forms of loans in future.
Lastly, as far as education loans for studies abroad are concerned, banks have a responsibility to help students as a career guide. They should also consider chances of employability of students in foreign countries, at least in the country where they would be pursuing the degree, before sanctioning the education loan.
Precisely, at the moment funding a students’ education abroad is risky for the bank as much as it’s for the student.
Sajjad Bazaz heads Internal Communication & Knowledge Management Department of Jammu & Kashmir Bank Ltd. The views expressed are his own and not of the institution he works for.
