In recent years, the Indian rupee (INR) has been facing a steady decline against major global currencies like the US Dollar, Euro, and British Pound. The impact of the falling rupee on education loans can be major as this makes it costlier by increasing the interest rate. As the rupee weakens, the cost of education in foreign currencies increases, leading to a higher financial burden for students and their families. Let’s understand how the falling rupee affects education loans for students studying abroad and how to save more.
Table of contents
- Impact of the Falling Rupee on Education Loans: Major Factors
- Increased Loan Amounts in INR
- Higher Repayment Burden
- Impact on Currency Conversion and Forex Expenses
- Rising Interest Rates
- Delayed or Increased Loan Disbursements
- Impact on Post-Graduation Employment
- Planning and Preparing for Financial Challenges
- FAQs
Impact of the Falling Rupee on Education Loans: Major Factors
Some of the major factors related to the impact of the falling rupee on education Loans include the increased loan amount in INR, higher repayment burden, impact of currency conversion etc. All these factors have different types of impacts on the education loan provided by the banks in India. Check in detail about all the factors that is related with the impact of the falling rupee on education loans.
Increased Loan Amounts in INR
The most immediate effect of a depreciating rupee on education loans is the increase in the loan amount required by students. Most education loans are disbursed in Indian Rupees, and the amount is calculated based on the foreign exchange rate at the time of disbursement. As the rupee weakens, students need to borrow more in INR to meet the same tuition fee, living expenses, and other educational costs in foreign currencies.
For example, if a student is pursuing a course in the USA, the tuition fees and living expenses are paid in USD. If the rupee falls against the dollar, the equivalent in INR becomes much higher. This means students must borrow more to cover the same costs, resulting in larger loan repayments in the future.
Also Read: Check here all the details on some of the best banks in USA for international students
Higher Repayment Burden
The repayment of education loans also becomes more challenging when the rupee depreciates. Since the loan is disbursed in INR but the expenses are in foreign currency, the conversion of the foreign currency loan amount into rupees at the time of repayment can lead to significantly higher amounts to be paid back. You should also go through the strategies to deal with education loan and inflation.
For example, if the student has taken a loan of INR 25 lakhs to study in the US and the rupee falls by 10%, the same loan might now require INR 27.5 lakhs to settle. This increases the repayment burden for students once they graduate and start earning, especially when their salaries are in INR.
Impact on Currency Conversion and Forex Expenses
Indian students studying abroad often need to transfer money for tuition fees, rent, and daily expenses. The falling rupee increases the cost of converting INR into foreign currency, making day-to-day living more expensive. Students who rely on their parents or family members to transfer money frequently face difficulties due to the unfavourable exchange rates. More INR is needed to convert into foreign currencies, leading to a higher financial strain on families.
Sometimes, the impact of inflation on the currency exchange rate also affects the student loan. Many students also use forex cards for international transactions, and with a weaker rupee, the value of funds in these cards diminishes faster. This means students may need to reload their forex cards more frequently, adding to the overall cost of living abroad.
Also Read: Check here all the details on student loan interest rate and find out the best education loan product for you
Rising Interest Rates
In addition to the impact on loan amounts and repayments, the falling rupee can also affect the interest rates on education loans. Many education loans are linked to the base rate or MCLR (Marginal Cost of Funds based Lending Rate) of Indian banks, which can fluctuate depending on economic conditions. When the rupee weakens, inflation and interest rates in India often rise as the government tries to control the economic impact of the currency depreciation. This can result in higher interest rates on education loans, further increasing the financial burden on students.
Delayed or Increased Loan Disbursements
Education loans are typically disbursed in instalments, and fluctuations in the exchange rate can cause delays in disbursements, especially if the foreign currency’s value rises suddenly. Banks may reassess the loan amount needed for disbursement based on the current exchange rate, which could result in higher disbursements or delays in the processing of funds.
Impact on Post-Graduation Employment
The falling rupee could also influence the type of jobs that students take up after their studies abroad. If students choose to stay and work in their host country post-graduation, the falling rupee means that any foreign salary earned will convert into a larger INR amount, easing their repayment burden. However, this depends on the job market and the student’s ability to secure employment abroad.
On the other hand, for students returning to India after completing their studies, their foreign-earned income may be less valuable when converted into INR. This could impact their ability to pay off loans if their jobs in India do not offer competitive salaries relative to their education loan repayments.
Planning and Preparing for Financial Challenges
Given the volatility of the rupee, it’s important for students to carefully plan their education loans and financial requirements. Here are a few strategies that can help:
- Currency Hedging: Students may explore currency hedging options, either through their bank or via forex cards, to lock in a favourable exchange rate for future expenses.
- Loan Top-Ups: Students can opt for a higher loan amount initially to account for currency fluctuations, ensuring they have enough funds to cover all costs.
- Fixed-Rate Loans: Choosing fixed-rate loans, where the interest rate does not fluctuate with the market, can offer some stability in repayments.
- Revised Financial Planning: Students and their families must revise their financial plans, taking into account the rising cost of living abroad and adjusting the amount needed for the loan accordingly.
The impact of the falling rupee on education loans is a pressing concern for Indian students studying abroad, affecting both the cost of education and the repayment of education loans. By understanding the implications and preparing ahead, students can make more informed decisions about borrowing, budgeting, and repaying their education loans. Check some FAQs based on the impact of the falling rupee on education loans:
FAQs
The falling rupee increases the amount Indian students need to borrow for studying abroad. As the value of the rupee declines against foreign currencies, students need more INR to meet the same tuition and living expenses in other currencies.
Yes, the repayment burden can increase. If the loan is taken in INR but the expenses are in foreign currency, a weaker rupee means students will need more INR to repay the same amount.
A weaker rupee leads to higher costs when converting INR into foreign currency. Students may need to transfer more money to cover tuition, living expenses, and other costs abroad.
Yes, in some cases. When the rupee depreciates, inflation may rise, and banks may increase interest rates on education loans, making repayments costlier for students.
Forex cards lose value faster with a weaker rupee, as students need to load more INR onto the card to meet their foreign currency needs.
Students can consider hedging their currency exchange, borrowing a larger loan to account for fluctuations, or opting for fixed-rate education loans to avoid interest rate hikes.
Yes, when the rupee depreciates, banks may reassess the loan amount and disburse a higher amount in INR to account for increased costs of tuition and other expenses.
If students stay abroad and earn foreign currency, the falling rupee works in their favour as foreign earnings convert to more INR, potentially easing loan repayments.
While a foreign currency loan might seem attractive, it carries the risk of exchange rate fluctuations. However, it may shield students from a rising rupee cost if they are earning in the same currency.
Students can plan their finances well in advance, adjust loan amounts for future currency fluctuations, and explore scholarships, part-time jobs, or currency hedging to manage costs effectively.
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.
