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Falling rupee leads to surge in demand for top-up education loans

Falling rupee leads to surge in demand for top-up education loans

Experts say that for students struggling with an increased financial burden, top-up loans may be the solution to fill the gap left by exchange rate fluctuations. 

How depreciating rupee has impacted education loans How depreciating rupee has impacted education loans

The depreciating rupee is a concern for students studying abroad as it means they will have to shell out more to complete their courses to cover the currency risk. This shortfall has led to a jump in demand for top-up education loans as tuition fees and living expenses have become costlier. Consider this: On December 20, 2011, $1 was equal to Rs 52.77, while on July 19, 2022, it crossed an all-time low breaching Rs 80.  

“We definitely see an increase in demand for top-up loans. Historically, these requests used to be very infrequent.  We realised that because of the depreciation, students will need top-up loans so we've just done a survey within our customer base itself for students who are in the second year of college right now. And right now, we have received over 100 applications and the average ticket size requirement is Rs 6.5 lakh. A couple of years we've probably got a total of 10 applications,” said Ankit Mehra, CEO and Founder of GyanDhan, an education financing marketplace. 

Experts say that for students struggling with an increased financial burden, top-up loans may be the solution to fill the gap left by exchange rate fluctuations. 

Ashish Fernando, Founder and CEO, iSchoolConnect agrees, “The recent spike in top-up loans is the second episode of this kind in the past two years. iSchoolConnect loan partners, comprising licensed banks and NBFCs, witnessed a steep rise in demand for top-up loans after COVID struck in 2020. The pandemic ravaged international students, who were required to leave their dorms and hostels, stay in hotels to survive, and buy exorbitant flight tickets to return to India. Responding to the crisis, a few banks established an emergency fund of Rs 2 and 4 lakh to assist students who requested top-up loans. The damage was perhaps mitigated by the Vande Bharat Mission back in 2020. The effect, though, might linger longer this time."

There are multiple factors for this jump ranging from the high inflation rate in the US making living costlier and the high cost of servicing a loan and increasing tuition fees due to the depreciating rupee. 

Ashwini Kumar, General Manager (India) & Vice President of MPOWER Financing has a different view, “We see this challenge all the time. Students 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. Students who relied on an India-based lender turned to MPOWER to provide US dollar-based funding for the remainder of their education. This is why we recommend that students borrow US dollar-denominated loans for the entirety of their foreign education. 

Kumar adds, “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 without any adverse changes in their original plan.”

Also read: Rupee hits 80 versus dollar: 5 ways you can control the cost of foreign education