Top-up loans can help finance your studies abroad, but may not come cheap

Apart from the higher interest rate, they may also require you to offer additional collateral

The 13.2 per cent depreciation of the rupee against the dollar year-to-date has affected a large number of people who have expenses in foreign currency. 

Those who will be hit particularly hard include people who plan to send their children abroad for studies, and those whose wards are already studying overseas. 

While the rupee has depreciated 13.2 per cent against the US dollar, the exact level of change in costs will depend on the country in which the student is studying. 

Says Amit Gainda, Chief Executive Officer, Avanse Financial Services: “The  exact increase in cost will depend on the movement of the rupee against the currency of that country.” 

The rupee’s sharp depreciation calls for parents and their wards to realign their strategies. Changing the country the child is headed for is one option. 

According to Ajay Bohora, co-founder and manage director, HDFC Credila, “Students can opt for a Master’s degree in countries that offer free education or quality education at subsidised rates, such as Germany, Norway, Austria or Belgium.” 

Parents and students may also need to re-assess their financial situation and consider applying for an additional education loan to fund expenses. The quantum of education loan is linked to the cost of education, and to the value of the collateral, in the case of secured loans. Normally, loans cover expenses such as 100 per cent of the tuition fee, as determined by the university, living expenses, books, computer, and project expenses, travelling and other expenses. 

If you have taken an educational loan, but need more money to fund your study abroad, opt for a top-up loan from your existing bank. The additional loan amount sanctioned depends on your maximum loan eligibility and your current outstanding amount. 

Suppose that you were eligible for a loan of Rs 4 million but had taken a loan of only Rs 3 million. Of this Rs 2 million has already been paid and the outstanding loan amount is Rs 1 million. In this case, your net eligibility will be Rs 3 million (Rs 4 million minus Rs 1 million).

In case your current bank refuses to meet your additional funding requirement, look at other banks and NBFCs. Says Anand Subramaniam, business head–education loans, Bank of Baroda: "If another bank agrees to lend, then you can either take a fresh loan or opt for a transfer of your existing loan from the old to the new bank." NBFCs like Avanse and Credila also provide additional education loans in the form of top-up loans and refinancing of student loans. 

Whether a top-up loan will be sanctioned depends on the bank or financial company’s policies. The additional loan option may also include collateral, which will in turn be linked to the applicant and the co-borrower’s merit and credit-worthiness. Additional collateral will also help you enhance the loan amount you are eligible for. 

Adds Gainda: “Providing additional collateral will increase the applicant's loan to value (LTV) ratio and also help him get a competitive rate of interest.” 

The interest rate on education loans is either fixed or floating, and varies between 9.3 per cent and 15 per cent. 

It depends on factors like the student’s academic record, experience, loan amount availed, loan tenure, the education institute, and market conditions. 

Top-up loans are usually priced higher than existing loans. Adds Gainda: “Interests rates on top-up loans vary between 12-15 per cent. They are usually higher, and also depend on prevailing loan rates.”

To cope with higher costs, students with exceptional grades should also look out for scholarships and engage in part-time work. 

They should also plan their expenses well and keep a tight rein on their budget and lifestyle.