Exchange rate volatility adds a layer of complexity to student loan management for international students. They expose them to foreign exchange risks that can result in financial losses. The weakening of home currency can lead to higher repayment amounts, subsequently increasing the overall repayment burden. Continue reading this blog to learn more about how exchange rate volatility affects student loans.
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What is Exchange Rate Volatility?
Exchange rate volatility means rapid and unpredictable changes in currency exchange rates. It simply means that the exchange rates aren’t fixed. It constantly changes and fluctuates.
Sometimes, the value of the currency goes up and other times, the value goes down. This can either allow you to trade more of the other kind or lead to the weakening of the currency where you get less of one currency in exchange for another. This constant change is called the exchange rate volatility.
Also Read: Travelling to London for studies? Read about Currency Exchange in London and get complete information about the same.
Impact of Exchange Rate Volatility on Student Loans
Exchange rate volatility can significantly affect student loans for international students. It makes budgeting tricky. A loan in your home currency can lead to higher living expenses abroad and larger loan repayments due to a weaker currency.
It can impact the payment of tuition fees, living expenses, disbursement of funds, loan repayment, etc. Your finances will be impacted if there are frequent changes in exchange rates. You might end up paying more if the value of your home currency decreases. Check out the impact of this on student loans and other expenses.
Impact on Loan Amount
You must pay your tuition fees in the currency of the host country. However, exchange rate volatility can affect student loans taken to cover tuition fees. If the value of INR decreases relative to the currency of the host country, you end up paying more covering the same amount of tuition fees.
Consider an example, you took an education loan for pilot training of INR 5,00,000 for studies in the US.
The tuition fees were supposed to be disbursed on a certain date in July. However, due to schedule changes, the amount will now be disbursed in the first week of August. Now, if the exchange rate on the initial disbursement date was 1 USD = INR 80 and rises to INR 85 on the changed date, it will result in a financial burden.
The loan sanctioned amount remains unchanged and you will be expected to pay higher. This is due to exchange rate volatility as you need to pay more INR to repay an equivalent amount of USD. This affects your overall budget as the bank cannot increase the loan amount offered and you must manage all related expenses in the sanctioned amount.
Impact on Living Expenses Abroad
Exchange rate volatility can affect the cost of living expenses for international students. A weakening home currency reduces your purchasing power in the host country. This can potentially strain your budget.
Think of this, you plan to study in London. The estimated cost of living while budget planning came to be around GBP 1,300 to 1,400 (INR 1.40 lakhs to 1.50 lakhs as per 1 GBP = INR 108). Let’s say the exchange rate increased to INR 120.
This means your purchasing power has reduced in the UK now. Everyday expenses like rent, groceries, and transportation feel more expensive as the initial conversion doesn’t stretch far.
Impact on Funding
Many countries offer scholarships, bursaries, and other types of financial assistance like scholarships for PhD funding in France. However, the amount of funding received can vary due to exchange rate volatility. Fluctuations can lead to receiving lesser amounts if the value of the home currency increases.
Impact on Funds Transfers
Transfer of funds from the home country to the host country or vice versa is an important aspect of the study abroad journey. However, it can significantly impact the amount received via international wire transfers.
Also Read: Check this blog and learn all the differences between international wire transfers and forex card transactions abroad and choose the suitable option.
How to Deal with Exchange Rate Volatility?
The most common way to deal with exchange rate volatility is to use Forward Contracts, an instrument that lets you hedge/ lock exchange rates for future transactions. This technique of currency hedging for international students lets you mitigate the impact of fluctuations on student loans. You can talk to your bank when purchasing FRA (Forward Rate Agreements).
Another way to deal with exchange rate volatility is to create a budget with a buffer. This way you have a chance for financial management if the currency exchange fluctuations move against you.
Forex tips for international students can also help you manage the exchange rate volatility on student loans-
- Always monitor exchange rates between your home and host country to identify favourable exchange times.
- Get Forex cards. They offer locked-in exchange rates which are safer and more convenient than cash.
- For extended stays, an international student bank account in the host country can help you avoid ATM fees and simplify receiving payments.
- Beware of hidden charges like commissions and transfer fees when exchanging currency.
- Follow financial news and currency converter apps to track exchange rates and make informed financial decisions.
This was all about exchange rate volatility and its impact on student loans. By understanding the issue and taking proactive steps, you can navigate the financial stress.
To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
FAQs
Exchange rate volatility means rapid and unpredictable changes in currency exchange rates. It simply means that the exchange rates aren’t fixed. It constantly changes and fluctuates.
Exchange rate volatility can significantly affect student loans for international students. It makes budgeting difficult as a decrease in the value of home currency (INR) can result in paying more covering the same amount of study abroad expenses. It can impact the payment of tuition fees, living expenses, disbursement of funds, loan repayment, etc.
The biggest disadvantage of exchange rate volatility is that your finances are impacted as a result of frequent changes in exchange rates. Your purchasing power in the host country decreases and you end up paying more if the value of your home currency decreases.
Many countries offer scholarships, bursaries, and other types of financial assistance. However, the amount of funding received can vary due to exchange rate volatility because fluctuations can lead to receiving lesser amounts if the value of the home currency increases.
The most common way to deal with exchange rate volatility is to use Forward Contracts, an instrument that lets you hedge/ lock exchange rates for future transactions. You can also create a budget with a buffer and purchase Forex cards that offer locked-in exchange rates.
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