Sudarshan Motwani is the founder and CEO of BookMyForex, an online marketplace for foreign currency exchange. He has introduced several new products and delivery channel-innovations throughout his banking career of over 30 years. He holds a postgraduate diploma in finance and marketing from Delhi University. In this interview, he talks about the dos and don’ts involved in seeking an education loan.
What are the advantages of new age technology-backed currency exchange marketplaces?
Traditional foreign exchange providers such as banks and money changers typically add a hefty margin for exchanging currency that can range from 2.5% to 7% over the interbank rates, which is the base rate at which banks deal with each other. Awareness on using the right forex products and the right service providers can alleviate these charges almost entirely. Digitization has paved way for forex marketplaces which make an excellent choice for all currency exchange requirements. The new age start-ups in this segment compare forex rates across hundreds of banks and forex companies in every city and find out the best rate in one’s area. They also provide additional options to freeze rates online or to book a rate alert.
What are the things students should know about overseas remittances?
Students should do a thorough check of the entire course fee structure. Studying the prospectus with extreme care is necessary to identify all the aspects covered in one’s overall fees. Careful evaluation and communication with the concerned authorities in case of any confusion help avoid unwanted situations such as asking for emergency money. Furthermore, this helps to identify the various sources of scholarships available.
Students can make use of online forex marketplaces for transferring funds. It is essential to keep a close watch on the forex rates. Various online forex currency exchange platforms provide live forex rates in real-time and allow customers to freeze the rates for three working days and transact when the customer’s preferred rate is available (rates can be frozen only during working hours of the Indian market). Online forex marketplaces have significantly reduced the complexity associated with foreign currency transfer. Through them, customers can transfer money abroad in the fastest possible way with zero bank processing charges.
Be aware of policy changes. As per the recent Liberalised Remittance Scheme, the total amount of remittances in a financial year must not exceed US$2,50,000 for educational purposes. Parents who wish to send their children money need to produce only a proof of identity and proof of residence apart from a PAN card. In case the funds are being transferred directly to the university, they can be sent under the “education abroad” category that requires the student to submit a copy of education visa, passport, and PAN card (an I-20 form is also needed for American universities). Payments for remittances must come from a savings bank account and can be transferred via NEFT/ RTGS or cheque (Cheque payments are subject to realization).
What is the basic and correct procedure for a student loan? What are the things students should take care of?
Studying abroad can be expensive. Parents are advised to do the serious financial planning and intensive research on the interest rates and repayment terms of education loans offered by various banks and lending companies. Another vital aspect to saving cost is to consider the forex rates being provided by various banks, financial institutes, and new age marketplace models.
Keep the following in mind before applying for a student loan:
Compare interest rates: Banks in India offer student loans for studies abroad at different interest rates. However, there are different coverages under the loan that must also be considered, such as the inclusion of tuition fees, travel expenses, the cost of the hostel, the cost of books, and so on, which are a part of the loan clauses. The loan that overall suits your requirement must be pursued.
Check for banks in liaison with your future institution for concessions. Certain universities abroad are recognized by some of the leading lenders in the country and have a student loan liaison with them. Always check this aspect before taking up the loan. You may also want to consider the fact that the loan amount you apply for may not really match the actual amount you receive, owing to currency rate fluctuations. Therefore, for forex requirements, always choose a currency exchanger that hedges you from the market fluctuations by offering live rates.
Keep all documents ready. A loan is a complicated process and wherever money is involved, documentation will be involved. As you survey the banks for their loan process, also check the list of documents needed for applying for a student loan for overseas education.
You will need a co-signer. Any student loan for a value over Rs 5 lakh will require a co-signer. This person is mostly a parent who will be a joint owner of the loan and will have to agree to pay the debt in case you are unable to pay back the loan on time. The co-signer will need to have a good credit record and will also need to submit certain documents for your loan to get through.
Check for repayment period clause. Most loans have a moratorium period after which you are needed to pay back the money through EMIs. Check this clause carefully as you need to arrange for the money to be paid back after the said duration and accordingly arrange for it, or pick up a part-time job.
What is the difference in loan requirement for students applying to study in India versus the students applying to universities abroad?
The main difference is the quantum of finance required. Banks can approve up to a maximum of Rs 10 lakh to study in India and up to a maximum of Rs 20 lakh to study abroad. The other factor that affects costs is the foreign exchange rate. Certain banks make it mandatory for all loan disbursements to be sent to the university abroad using the bank’s own forex department and therefore using the bank’s own rates, which are typically much higher than rates that can be received elsewhere. In such cases, even if the bank’s interest rate is not too high, the end customer ends up paying a higher premium on foreign currency exchange. The rest of the requirements are same. Even the documents required are similar.
Does the monetary standing of parents affect the student’s education loan?
Co-borrowers are of two types. First is primary, which is your parents, siblings and your spouse. Then there is secondary, which is your father-in-law, grandmother, and so on. If one of your parents is listed as a co-borrower on the education loan application, then yes. However, a relative such as your brother, spouse, or any other family member with a good income and who can support your education loan application can be your co-borrower. The bank would then consider such a co-borrowers’ income in determining the loan eligibility. If the family member listed as a co-borrower resides abroad, their collateral asset has to be in India for them to be accepted as a co-borrower.
In case a student is unable to pay off the loan for a while, is there any facility by which he/she can pause the pay-off for few months?
Banks can extend or pause the pay-off on loans based on the capacity to repay or on the relationship a bank shares with the debtor. This usually happens when a student is unable to get a job after the completion of their degree, or due to situations that arise and need immediate monetary attention. These are exceptional circumstances and a student can work out a payment plan with the bank. Some banks allow loan deferment, but it is hard to convince them. For exceptional and genuine cases where the student is not getting a job due of macroeconomic conditions, lenders may consider extending the repayment period.
Usually, education loans have tenures of five to seven years. However, as per the guidelines, the tenure can be extended up to 10 years for loans up to R7.5 lakh and 15 years for loans above it. Banks also give an extension if the student is unable to complete the course on time for reasons beyond his/her control. The maximum extension in such situations is two years.
The article was first published in The Hindu on FEBRUARY 05, 2017.