Costlier Loans, Weaker Rupee: Why Studying Abroad May Get Tougher

Indian parents planning to send their children abroad for higher education could face a double financial squeeze: a weak rupee is making foreign university fees more expensive, while higher interest rates could increase the cost of education loans.

Last week, the Reserve Bank of India (RBI) raised the repo rate from 5.25 per cent to 5.5 per cent and shifted its monetary policy stance from "neutral" to "calibrated tightening" amid inflation concerns. However, if borrowing costs rise further, families relying on education loans could find it harder to manage tuition fees and living expenses overseas.

The rupee remaining above the 95 mark against the US dollar adds to the burden. When the rupee weakens, parents need more Indian currency to pay the same dollar-denominated fee. The impact can be substantial when tuition, accommodation and other expenses run into tens of lakhs of rupees.

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For families already managing savings, loan repayments and other household expenses, even a small currency movement can upset the education budget.

How Much Can A Weak Rupee Cost Parents?

Pavan Kumar Kavad, Managing Director of Prithvi Exchange, told NDTV that the recent rebound in rupee was a positive development for families preparing to fund overseas education. However, he cautioned parents against assuming that the currency would continue to strengthen.

"The recent rupee rebound is certainly a positive development, particularly for families preparing to fund overseas education of their children," Kavad said. He advises parents to plan foreign exchange purchases around university fee deadlines and, where possible, spread transfers across semesters rather than wait for a stronger rupee.

The financial impact of currency fluctuations can be significant. According to Kavad, a family budgeting around Rs 50 lakh for overseas education would see a difference of approximately Rs 50,000 with a 1 per cent movement in the exchange rate. A 3 per cent movement could increase that difference to Rs 1.5 lakh.

Exchange rate movement	Approximate impact on a Rs 50 lakh budget
1 per cent	Rs 50,000
2 per cent	Rs 1 lakh
3 per cent	Rs 1.5 lakh

The actual amount will depend on the direction of the currency movement and the exchange rate at which the family makes its payments.

Will Education Loans Become More Expensive?

The RBI's rate decision also matters for families borrowing to finance overseas education. When policy rates rise, banks and other lenders may increase lending rates, depending on the loan's benchmark, reset terms and pricing.

That can push up interest costs for borrowers with floating-rate education loans. If rates rise further, their repayment burden could increase. The impact on new borrowers will depend on the interest rates and terms offered by individual lenders.

For parents, the challenge is that currency risk and borrowing costs can rise at the same time. A weaker rupee increases the amount needed to pay foreign university bills, while a costlier loan can make financing those bills more expensive over several years.

However, a further RBI rate hike is not guaranteed. The central bank's stance signals its approach to inflation and monetary policy, but future decisions will depend on incoming economic data and the inflation outlook.

Should Parents Pay Tuition Fees In Advance?

Kavad said families should focus on planning payments rather than trying to predict the rupee's next move.

"In my opinion, paying tuition fees upfront would be a right decision if the university offers a discount or if the family wants to secure a known exchange rate for the payment," he said.

Parents should weigh the benefits against the need to keep enough money available for living expenses, emergencies and other commitments. Paying early may not make sense if it means borrowing more or losing access to funds needed elsewhere.

For larger, predictable payments, families can also explore forward contracts through authorised dealers. These allow them to lock in an exchange rate for a future transaction, subject to the applicable costs and terms.

Kavad cautioned that the rupee's direction over the next six to 12 months would depend on factors such as crude oil prices, foreign investor flows and movements in the dollar in international markets. Therefore, parents should avoid building their budgets around the assumption that the rupee will appreciate.