I am 32 year old single female.I have around 11 lakhs invested in ppf, mutual funds. I want to do my masters in business administration and it may cost around 30-40 lakhs if I study abroad.I have to apply for education loan for future studies.How can I be able to manage it and should I keep my mother's house as a collateral while applying for the loan the worth of the house is around 50 lakhs.Also will I get ROI from studying abroad so I can pay the EMIs without any hassle or I should do my master's in india as it will be more affordable than studying abroad.
Ans: You are a 32-year-old single woman with Rs. 11 lakh invested in PPF and mutual funds. Your goal is to pursue a master's in business administration, which may cost Rs. 30-40 lakh if you study abroad. You plan to apply for an education loan and are considering using your mother's house, worth Rs. 50 lakh, as collateral. Additionally, you are weighing the ROI of studying abroad versus studying in India. Let's break down your situation and explore the best options for you.
Evaluating the Cost of Education
The cost of pursuing a master's degree abroad can be high. Let's consider two scenarios: studying abroad and studying in India.
Studying Abroad
Studying abroad offers exposure to international standards, networking opportunities, and possibly better job prospects. However, it comes with higher tuition fees and living expenses. The total cost might range between Rs. 30-40 lakh.
Studying in India
Pursuing a master's degree in India is more affordable. The cost could be significantly lower, between Rs. 10-20 lakh. Indian institutions also provide quality education and good job opportunities.
Financial Planning for Education
With Rs. 11 lakh already invested, you have a good start. However, you need to arrange the remaining funds for your education. Here are some steps to consider:
Education Loan
Education loans can cover tuition fees, living expenses, and other related costs. Loans are generally repaid after you complete your course and start earning. Let’s discuss some important aspects:
Loan Amount: The loan should cover the full cost of education.
Collateral: You can use your mother's house as collateral. However, this decision should be made carefully.
Interest Rate: Compare interest rates from different banks to get the best deal.
Repayment Terms: Understand the repayment schedule, including EMIs and tenure.
Moratorium Period: Most education loans have a moratorium period during which you don’t need to pay EMIs. This period typically covers your study duration plus a few months post-completion.
Collateral Considerations
Using your mother's house as collateral is a serious decision. Here are some points to consider:
Risk: If you default on the loan, you risk losing the house. Make sure you are confident in your ability to repay.
Interest Rates: Loans with collateral generally have lower interest rates.
Alternative Options: Explore unsecured loans, scholarships, and grants as alternatives.
Return on Investment (ROI) of Studying Abroad
The ROI of studying abroad depends on several factors, including the reputation of the institution, the country, and the job market. Consider these points:
Earning Potential: Graduates from reputed international institutions often have higher earning potential. Research average salaries for graduates from your target schools.
Job Market: Assess the job market in the country where you plan to study. Are there good job opportunities for graduates?
Networking: Studying abroad can provide a strong professional network, which can help in career growth.
Personal Growth: Exposure to different cultures and learning environments can enhance your personal and professional skills.
ROI of Studying in India
Studying in India is more affordable, reducing the financial burden. Here are some points to consider:
Cost: Lower tuition fees and living expenses mean less debt.
Job Market: Indian institutions have strong placement records, with good starting salaries for graduates.
Local Opportunities: Staying in India allows you to build a network within the local industry, which can be beneficial for your career.
Managing Education Loan Repayments
Repaying an education loan requires careful financial planning. Here’s how you can manage it:
Post-Study Income
Estimate your expected salary after completing your degree. This will help you determine if you can comfortably manage EMI payments.
Budgeting
Create a budget to manage your monthly expenses, including EMIs. Prioritize loan repayment to avoid defaulting.
Savings
Continue to save and invest even after starting your job. This builds a financial cushion for emergencies and future goals.
Income Growth
Consider ways to increase your income, such as freelance work, part-time jobs, or further certifications. Higher income will make it easier to manage loan repayments.
Tax Benefits
Education loans offer tax benefits under Section 80E of the Income Tax Act. The interest paid on the loan can be deducted from your taxable income, reducing your tax liability.
Exploring Scholarships and Grants
Scholarships and grants can significantly reduce the cost of education. Research available options and apply early. Here are some types of scholarships to consider:
Merit-Based Scholarships: Awarded based on academic performance.
Need-Based Scholarships: Given to students with financial need.
Institutional Scholarships: Offered by universities and colleges.
Government Scholarships: Provided by government bodies for higher education.
Alternatives to Collateral-Based Loans
If you’re hesitant to use your mother's house as collateral, explore unsecured loans. These loans don’t require collateral but might have higher interest rates. Compare options from different banks and financial institutions.
Investing Wisely for Education
Continue to invest your savings wisely. Here are some investment strategies to consider:
Diversification
Diversify your investments across different asset classes to reduce risk. This includes equities, mutual funds, and fixed-income instruments.
Regular Contributions
Keep contributing to your investments regularly. This builds a substantial corpus over time.
Professional Advice
Seek advice from a Certified Financial Planner (CFP) to optimize your investment strategy and align it with your education goals.
Risk Management
Understand the risks associated with your investments. Choose a mix of high-risk and low-risk investments based on your risk tolerance and financial goals.
Importance of Financial Planning
Financial planning is crucial for managing your education expenses and achieving long-term financial goals. Here are the steps to create a robust financial plan:
Goal Setting
Clearly define your financial goals, including your education, career, and personal objectives.
Budgeting
Create a budget to manage your income and expenses. Include a plan for loan repayments and savings.
Investment Strategy
Develop an investment strategy that aligns with your risk tolerance and financial goals. Diversify your investments to balance risk and return.
Regular Review
Regularly review and adjust your financial plan to stay on track with your goals. Monitor your investments and make necessary changes.
Professional Guidance
Consult a Certified Financial Planner (CFP) for expert advice. They can help you create a comprehensive financial plan and guide you through complex financial decisions.
Final Insights
You have a strong foundation with Rs. 11 lakh invested and a clear goal for further education. Whether you choose to study abroad or in India, careful financial planning is essential. Consider the ROI of both options and make an informed decision. Applying for an education loan is a viable option, but be cautious with using your mother’s house as collateral. Explore scholarships, grants, and unsecured loans as alternatives. With proper planning and professional guidance, you can achieve your education goals and manage loan repayments effectively. Best of luck with your future studies and career!
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
Question by Anonymous on Jan 19, 2023Hindi
