Indian students going abroad to face a triple whammy of inflation, forex and interest rates

• On an average, a loan could get extended by around ₹3.5-5 lakhs depending on the rupee exchange value at the time of the loan, said Ashwini Kumar, VP at MPower Financing.
• Apart from tuition cost, Indians students also have to support themselves abroad and living expenses are going up as well.
• The third part of the triple whammy is from rising interest rates.
  

19-year-old Sakshi Shewale from Mumbai has been planning to go to Georgia in Europe for her medical course. The course costs around ₹30 lakh for the five-year course and unlike many others, her father is bankrolling it, without her having to take a loan.

Yet, in the last few months a lot has changed. Europe is in the throes of a possible recession, the value of Indian rupee is depreciating and more importantly, inflation in the continent is also impacting budgeted expenses.

“Looks like I might have to take a loan after all because my living expenses will change drastically. I have spoken to students who live there and they all tell the same story,” Shewale sighs.

Her story is similar to a number of Indian students wanting to study abroad but those who have already taken admission this year have it worse – on rupee depreciation alone. Since the beginning of 2022, the rupee has fallen more than 7% against the dollar.

‘Loans could balloon by ₹3.5-5 lakh’
If a student had taken a loan in March this year, when rupee was at 75 against the dollar, it would add a few lakh into the loan, as per Ashwini Kumar, VP at MPower Financing, a public benefit corporation that helps students to study abroad.

For every dollar of the loan, an extra ₹7 is added and it would inflate the loan and the interest as well. “On an average, a loan could get extended by around ₹3.5-5 lakh depending on the rupee exchange value at the time of the loan,” Kumar told Business Insider India.

The problems don’t end there. Apart from tuition costs, Indian students also have to support themselves there and living expenses are going up as well. The Eurozone inflation is being pegged at 10%, as per estimates. Inflation in the US too has recently hit a 40-year high, messing with economics of students abroad. Most Indian students head to these destinations.

The third part of the triple whammy is from rising interest rates. This financial year, the Indian central bank raised repo rates four times and the base rates now stand at 5.9%. More interest rate hikes are expected in the near term and most experts see base rates stabilising once it’s around 6-6.5%.

“Loans linked to MCLR and BPLR will see a gradual increase in the interest rate in the near future. The EMIs of current and future borrowers will rise due to this,” said Ankit Mehra, CEO and co-founder of GyanDhan, an education loan market place.

Moreover, the psychological impact of a possible depreciation in rupee will also largely play on the minds of US and Europe-bound students and their parents, said Kumar.

Students still eye foreign degrees
Studying abroad is going to become much more expensive. However, experts say that this is not discouraging students from pursuing their higher education dreams. Shewale too intends to absorb the extra costs but does not intend to change her plans.

“The return on investment in terms of quality of education, career growth, international exposure, skills developed, and networking has more intrinsic worth,” said Mehra.

Kumar too says that students who are planning to go abroad this year and the next, have been planning it two years before, and it’s unlikely that the road bumps will change their plans, though some may choose to delay it.

“There are a few sections of society wherein parents are managing the EMIs on the border, which is due to get affected. A student who had to arrange ₹25 lakh for their overseas education prior to the rate hike will find it difficult to arrange for additional funds given the parental income has not increased proportionally to the hike in the interest rates,” said Mehra.

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