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How to study abroad in an inflationary environment

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A prevailing challenge this year is high inflation. Inflation in the U.S. just hit a 40-year high, while Indian wholesale price inflation reached a 30-year high in June. This global economic uncertainty means that Indian students planning to study abroad can be better prepared if they familiarise themselves with how to handle changes around the following three areas: interest rates, currency exchange rates, and rising tuition costs.

Sasha Ramani

Choose a fixed-rate loan instead of a variable-one

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Let’s start with inflation’s impact on interest rates. Most Indians studying abroad avail variable-rate loans, which have rates that change based on market interest rates and are out of the student’s and lender’s control. With nations worldwide raising rates to combat inflation, students taking out variable-rate loans may have to contend with much higher interest rates than they were initially expecting.

Students can address this challenge by taking out a fixed-rate loan instead of a variable-rate loan. Fixed-rate loans have fixed (predetermined) interest rates for the loan’s entire tenure. These loans have a constant EMI (monthly instalment) and students have certainty that their payments will never increase over time — regardless of what happens with market interest rates.

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Borrow dollar-denominated loans

Next, consider foreign exchange rates. The Indian rupee just hit a new record low due to investors’ expectations that the U.S. Federal Reserve will raise interest rates. This raises the cost (in rupees) that Indian students face when pursuing an overseas education.

Students often select a rupee-denominated loan for their education, but currency depreciation affects what they can afford overseas — perhaps during their final semester, their final year, or for longer.

This is why we recommend that students borrow U.S. dollar-denominated loans for the entirety of their foreign education. The loan proceeds are immune to currency fluctuations, and students can enjoy the certainty that they will have the funds made available to them when they need to be drawn upon. A dollar-denominated loan provides students with peace of mind in knowing that regardless of currency volatility, they have the funds necessary to complete their education.

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There are ways to reduce cost of an overseas education

Finally, students have to contend with rising tuition. Historically, U.S. tuition prices have risen at twice the general inflation rate. If these trends continue, American universities will soon be raising their already-high tuition rates even higher.

There are several ways to reduce the cost of an overseas education, such as choosing a shorter master’s or MBA program instead of a longer one. But it’s also important for students to choose a reputable lender that can offer top-up and last-mile funding and that has a history of working with their institution. Foreign universities will often recommend lenders and scholarship providers that have supported their students before, so students shouldn’t hesitate to ask admissions officers or financial aid professionals how students like them have funded their education in the past.

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Studying abroad is often a complicated journey with lots of different factors to consider. High inflation worldwide has created several new challenges for students to contend with. Fortunately, careful planning and considering different lending options can help Indian students continue to thrive abroad.

The author is Sasha Ramani, Associate Director of Corporate Strategy at MPOWER Financing

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