Rupee at 87 per dollar: Indian students must opt for INR loans abroad

Three years ago, on February 27, 2022, one US dollar was equal to Rs 75.07. Today, with the dollar strengthening, the exchange rate has risen to Rs 87. This has a big financial impact on students studying abroad.

 

Consider Shruti, an undergraduate student studying Business and Management in the United States. In 2022, her tuition of $50,000 plus living expenses of around $20,000 amounted to Rs 52,54,900 when calculated at an exchange rate of Rs 75.07 per dollar.  

 

By 2025, the rupee weakened by roughly 15.89 per cent, with the exchange rate now at Rs 87 per US dollar on February 27, 2025. As a result, her annual costs total Rs 60,90,000 – an increase of Rs 8,35,100 purely due to the shift in exchange rate.

 

 

"Over a four-year programme, if she has taken a loan, the amount increases, leading to higher EMIs and a greater long-term debt burden," said Prashant A Bhonsle, founder and CEO of Kuhoo Edufintech.

 

"The dollar's value against the rupee is expected to keep rising. In 2017, one US dollar was worth over Rs 65; now, it has surpassed Rs 87.47. Analysts predict it could exceed Rs 100 by 2027," said Ankit Mehra, co-founder and CEO of GyanDhan, an education financing marketplace.

 

Rupee loan vs dollar-dominated loan   

Indian students often come across a difficult question when it comes to borrowing: whether to take an education loan in Indian Rupees (INR) or US Dollars (USD).

 

"While USD loans might seem attractive due to lower interest rates, hidden factors like currency depreciation, repayment feasibility, and overall loan costs can make INR loans a more practical choice," said Adhil Shetty, CEO of Bankbazaar.com.

 

For those who have taken a loan in INR and are now working in the US, a depreciating rupee increases their purchasing power, making it easier to repay the loan. However, for students still studying, higher costs in INR terms can add financial strain. A dollar-dominated loan removes currency fluctuation risks but comes with its own considerations.

 

In simple terms, Shetty explains, "If a student takes a loan in USD, they must repay in dollars. This means that if the INR depreciates, the equivalent repayment amount in INR keeps increasing over time. For example, if the exchange rate is Rs 80/USD today but rises to Rs 90/USD a few years later, repaying the same dollar amount will require more rupees. In contrast, an INR loan from an Indian bank remains stable since both the loan and repayments occur in the same currency."

 

"Currency fluctuations make it difficult for many to accurately predict and plan for their education expenses, often leading to unexpected increases in costs. As the rupee depreciates, the loan amount in Indian currency increases, resulting in higher EMIs and a greater long-term financial burden," said Bhonsle.

 

Mehra explained, "Students need to look at the total cost of the loan to make a rational decision." Many students focus on the lower interest rate offered by international lenders. "However, the devil is in the detail," Mehra added.

 

Mehra explained that the total payments required when choosing a loan from an international lender compared to an Indian provider like GyanDhan could be substantial. "The difference in total payments you make could be enough to buy a Mercedes," he said.

 

For instance, a student taking a loan of $100,000, paid in equal instalments at the start of the first two years, faces different costs depending on whether they choose an international lender or an Indian financing option. The study period is two years, with no interest payment required, and simple interest is added to the loan. The repayment period is seven years, starting immediately after graduation.

 

International lender:  

Interest rate: 7.5%  

Processing fee: $2,500 or Rs 21,72,249 (2.5% of loan amount)  

EMI: Rs 1,52,074  

Total payments due: Rs 12,77,77,742  

 

GyanDhan:  

Interest rate: 9.6%  

Processing fee: Rs 10,000  

EMI: Rs 1,24,686  

Total payments due: Rs 1,04,00,000  

 

Punjab National Bank:  

Interest rate: 9.25%  

Processing fee: Rs 10,000  

EMI: Rs 1,61,416  

Total payments due: Rs 1,35,58,984  

 

Tata Capital:  

Interest rate: 11.50%  

Processing fee: Rs 99,120  

EMI: Rs 1,79,637  

Total payments due: Rs 1,50,89,501  

 

Why a 7.5% loan can be costlier than a 9.25 or 9.6% loan  

Interest rate parity explains the relationship between interest rates and currency exchange rates. If the rupee continues to depreciate at an annual rate of 4.8%, in line with its average 4.7% decline over the last decade, future EMIs will be costlier in rupee terms.

 

"The reason lies in effective interest rates and exchange rate movements. Even though 7.5% seems lower, the impact of INR depreciation (around 4% per year) means the actual cost in rupee terms rises. This means a 7.5% USD loan behaves more like an 11-12% INR loan over time. Furthermore, many USD-based loans apply compounding interest on unpaid interest during the moratorium period, which significantly increases the total loan amount. In contrast, most Indian banks charge only simple interest during the study period, leading to lower overall repayment amounts," Shetty said.

 

In other words, in 2022, the exchange rate was Rs 75 per US dollar. For a student who took a loan in USD, their EMIs are still fixed in dollars, but each dollar now converts to Rs 87 instead of Rs 75. This means that in rupee terms, their payments have increased by about 16% (87/75), making the loan more expensive when converted back to INR.

 

On the other hand, for someone repaying an INR loan while earning in USD, the situation works in their favour. Since the rupee has weakened, the same amount of dollars now converts to a higher rupee value, allowing them to clear their loan faster.

 

"Another advantage of INR loans is tax benefits under Section 80E of the Income Tax Act, which allows students to deduct interest paid on education loans from their taxable income. This significantly reduces the actual loan burden. However, USD loans taken from international lenders do not qualify for this benefit," Shetty said.

 

Repayment is another important factor. If a student plans to work in India after graduation, an INR loan is far safer because there is no exchange rate risk—the student earns in INR and repays in INR. On the other hand, a USD loan becomes unpredictable because salary growth in India may not keep up with the rupee’s depreciation, leading to higher repayment burdens in INR terms.

 

When an international lender makes sense  

Mehra suggests that students should consider international lenders only in the following cases:

< They do not have collateral but require a loan amount beyond Rs 30 lakh.

< The interest rate offered by the international lender is at least 5% lower than what an Indian bank is offering.