Hyderabad: Financial planning is crucial when studying abroad, yet many students fall into debt due to poor preparation. Experts highlight that students often struggle with loan repayment because they don't fully understand the loan structures and overestimate the opportunities they would have to repay that loan.
Repayment terms depend on the type of loan chosen. Some loans offer a moratorium period during which interest accrues, but payments begin after the course is completed. Others require immediate interest payments, with principal repayment starting once the borrower secures a job. A third option requires both interest and principal payments to start from day one.
"In my opinion, while the interest rate is important, the borrower's repayment capacity is more critical," said Pankaj Dhingra from FinTram Global. "Iinterest rates can be high, but many countries offer benefits like reduced interest rates and moratoriums, especially for students at reputable universities. If you consider the after-tax interest rate, it becomes more manageable. For instance, if the pre-tax interest rate is 7-8 per cent, after accounting for tax benefits, the effective rate is lower. You should also consider the opportunity cost such as the return you could have earned from a fixed deposit."
Another major issue is that students often fail to fully research the expenses they would face in a foreign country. "Many students overly rely on the assumption that they can repay their loans once in the host country, but they often overlook the local costs," explained Dhingra. "While factors like currency devaluation and recession are significant, many students are unaware of the full costs they will encounter. For instance, a course might have a $6,000 tuition fee, but students may only realise after arriving that additional costs like medical insurance, course materials, travel, accommodation and daily expenses are not accounted for. This lack of clarity leads to poor financial planning."
Additionally, many students are unaware of local restrictions on earning money while studying. "Students can typically only work part-time, which limits their ability to repay loans. They often assume they can get side jobs to cover expenses but only discover the limitations on work hours and job types after they arrive," Dhingra continued.
"It’s essential to choose countries that allow you to earn while studying. For example, in Ireland, hourly wages for part-time work are higher than in the US." Finally, students must always have a Plan B. "Many qualifications are valid in India too, which provides another avenue if plans abroad don't work out," Dhingra advised.
