- Parents shouldn’t jeopardize their retirement to fund their child’s education abroad
- Move savings into a liquid fund at least a year before the child is set to go abroad and also keep a buffer of 10-15%
The effects of covid-19 pandemic has disrupted admissions to foreign universities given that travelling is considered unsafe now and individual budgets of parents planning to send their children abroad have taken a hit.
Bengaluru-based Mahesh Madan Bhat, 46, is among the many parents who are in a quandary about sending their children abroad for education now.
Bhat’s daughter Akshata, 18, has received a confirmed offer from a Canadian university for a course in social sciences but the family has decided to request for a deferral of her admission to September 2021. “We’re trying for some Indian universities in the meanwhile,” said Bhat, a corporate attorney. Bhat has also opted for the wait-and-watch approach to analyze the job market. “Job prospects abroad will be impacted for non-citizens, as markets are already experiencing massive changes,” he said.
According to International Consultants for Education and Fairs (ICEF), India is the world’s second-largest source of international students and one of the fastest-growing markets in terms of sending students abroad.
But like Bhat’s family plans will need to change now. We tell you what the issues are.
Cash crunch
For those with secured jobs and cash flows, the pandemic may not come in the way. But given the market volatility, parents who planned to send their children abroad in the next few years may see some erosion in the education corpus. Bhat believes it may not be prudent to rely on the stock market for someone planning an education abroad in the next few years as markets will take some time to rebound.
If you didn’t save for your child’s education specifically and plan to send her abroad now, it’s imperative to analyze the impact of the pandemic on your finances before taking the plunge.
“It is important to look at all the financial goals in totality. Parents should consider their job security, number of years to retirement, goals relating to other children (if any), and provisioning for contingencies while making such decisions,” said Saurabh Bansal, founder, Finatwork Wealth Services, a Sebi-registered investment adviser.
In case the pandemic has disturbed your cash flows or has put you in a crunch, carrying on with the plan of sending your child abroad for studies may not be a good idea.
Jain said some parents are willing to even mortgage their home to send their children abroad but they’re putting themselves in danger by doing this. “During times like this, taking such risks is a big no because there is no certainty if the child will end up in a well-paying job. Parents shouldn’t get too emotional. While there may have been an opportunity for stretching your budget earlier, now isn’t the time given your own jobs could be in danger,” she said.
However, for students who planned going abroad in the next couple of months, the situation could be a blessing in disguise because most universities have provisioned for online classes for at least the first term of the programme. “In most cases, the money one would shell out for the first term would come down because living and accommodation expenses can be saved,” said Shweta Jain, chief executive officer and founder, Investography, a financial planning firm.
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Falling rupee
Owing to the economic growth concerns due to covid-19, between 1 January 2020 and 31 May 2020, the Indian rupee depreciated by about 6% against the US dollar. Though most students may have planned their foreign education well in advance, a sudden depreciation of the rupee could impact the education fund.
A drop in rupee means shelling out more rupees for every dollar. So, if you needed ₹35 lakh last year, for the same course you will now require over ₹37 lakh.
“Rupee depreciation does blow your budget quite a bit. Also, it’s not just the course fee that gets impacted. Living and other costs inflate too and, therefore, more the currency depreciates, higher the impact on your money,” said Jain.
For students who plan to fund their education through a loan, higher rupee depreciation would translate into higher EMIs or longer repayment term.
How much you end up spending will also depend on the country you wish to study in. Some countries such as the UK too have witnessed a fall in the currency value.
“The pound sterling has been depreciating which means the UK is comparatively a better destination in terms of value. The UK government also recently announced the return of the post-study work visa (to be introduced for international students graduating in summer 2021 or later), permitting two years of work in the UK after graduating in 2021, which can help one recoup their investment,” said James Pitman, managing director, Study Group, an international education service provider.
Mint take
If you’re unsure and don’t want to risk sending your child abroad this year, it’s best to wait it out and see if the university allows the deferral of admission.
“While, historically, deferrals are rare, especially for MBA programmes, there may be exceptions this year. There is no harm in asking,” said Kimberly Dixit, co-founder and CEO, The Red Pen, an overseas education consultancy.
If you are planning to fund your education through a loan, take into account the uncertainty around jobs and assess if things will stabilize by the time you graduate.
“At this point, taking a loan may not be a good idea. You could defer your plan by a year or so to know the fallout of the ongoing crisis. You will also have to keep the student visa protocols in mind. If you can’t defer your education, see if you can pick a university with a lower fee without compromising too much on the quality,” said Deepali Sen, founder partner, Srujan Financial Advisers, a financial planning firm.
Parents who are planning to send their children abroad in the next couple of years should ensure they have a plan B in case the prospects for higher education abroad look bleak.
Jain said parents should move savings into a liquid fund at least a year before the child is set to go abroad and provision for a buffer of 10-15%. Parents must also take rupee depreciation into account while budgeting.
Finally, parents must avoid compromising on other goals, especially their own retirement, just to fulfil the child’s education goal.
