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March 2018

student education loan

Student Education Loan Options and the Right Lender

Now that you have secured admission into the university of your choice, you need to plan your finances to cover your tuition and living costs. While your parents may have saved up for your higher education, taking a student education loan to fund your higher education would be beneficial in several aspects. The primary reason why students prefer taking a loan is to reduce financial dependency on their parents. The reason to opt for loan could also be due to a genuine requirement as the high fees of some universities creates a shortfall despite the savings. Another very popular reason for taking an student education loan is that in case of any unforeseen eventuality in your parent’s financial affairs, the loan amount becomes a backup option, thereby allowing the student to continue studies without a break.

 

Having taken a decision to go in for an student education loan, it then becomes important to consider the various types of lenders in the market and decide on which option works best for you. Students are often plagued by questions like should they opt for a loan even if they have enough money to fund their education? Whom should they take a loan from? What is the Rate of Interest (ROI)? What are the tax benefits accrued by taking a loan? We hope to bring clarity by discussing these aspects on loans, and allow you to decide on which option suits your requirements best.

 

Let us first discuss about why taking a loan is a good option even if you have the required amount for your studies abroad and also when you do not require to take one. If your money is invested in your business and investments that are yielding in excess of the loan rate, i.e., 11.5% or above, then taking a loan may be an economical option for you. Likewise, if your parents’ income is very high (in the 30% tax bracket), then a loan could get you additional tax benefits. On the contrary, if the money is in savings/fixed deposits, then it is better to use that as you will be borrowing at a higher rate and earning a lower rate of interest.

 

Lender options available to students for a student education loan

There are several options available in the market and you can weigh the pros and cons of each option and decide on which one suits your requirements the best.

 

Lender Option Pros Cons
Government /Nationalised/Private Banks
  1. Lower rate of interest as they have access to funds through their CASA (Current Accounts and Savings Accounts) and fixed deposits.
  1. Security or collateral will be required if you need a loan greater than 10 lakhs (which usually is the case for education abroad)
  2. More processing time. For USA, they do not provide a sanction letter before you get the i-20 (and the university demands a sanctioned letter to provide an i-20, which is a catch 22 situation)
  3. There is a limit on the amount they can lend you.
  4. They only cover tuition fees and not living expenses.
  5. You need to visit the bank to complete documentation/formalities.
Non-banking Financial Companies (NBFCs)

Major players – Avanse, Credila, Incred, Auxilio

  1. Student Education loan is their primary business, unlike banks where it may be just one component of the business. Hence, they are more focussed and can provide a lot of extra features /benefits by providing customised solutions. 
  2. Low processing time – from 1 to 4 days if documentation is in place.
  3. Along with tuition fees, they also cover living expenses.
  4. They provide UNSECURED LOANS upto 40 lakhs or even more in some cases (again depending on various parameters). No need to mortgage your property or other assets.
  5. Service at your doorstep – They visit you at home to complete documentation.
  6. Flexibility in customising repayment during the moratorium period – you decide when you want to start paying the EMIs –  immediately/after  graduation/6 months after graduation etc. Till then, you just pay simple interest or partial interest during the moratorium period (some banks also provide this facility)

 

  1. Higher rate of interest
  2. Not all have the 80E certificate that provides tax benefits. (not a huge concern, more on this below)
Non-Indian Lenders

Major players – Prodigy Finance, Mpower etc.

  1. Online processing of documentation.
  2. No collateral required
  3. Low rate of interest (a myth)
  1. No full funding, you may have to pay 15% of the fees and even your living expenses.
  2. Since the company is not based in India, you do not get tax benefits (not a major concern)
  3. The actual amount you repay will be high if INR depreciates (will explain below with example)
  4. Only limited universities are covered 

 

 

Now that you are clear about the pros and cons of each type of lender, we need to focus on the financial advantage/ disadvantage of choosing a particular lender. The difference in the ROI is a primary concern. Secondly, there is also a dilemma of whether to take a loan from an Indian lender or a non-Indian lender, especially since the latter levies an interest of 8% as against the 11.5% from a NBFC. We can lend clarity to the arguments with the below examples:

 

[A] Bank A lends me 40 Lakhs at 9% ROI with collateral and an NBFC provides 40L at 11.5% ROI without collateral. Is the savings enough to justify mortgaging an asset that may be of a greater value?

 

Let us assume you get a disbursal of Rs.10 lakhs in the 1st semester (in August) and Rs.10 lakhs in 2nd semester (in January).

The outstanding amount now is Rs.10 lakhs for 5 months (August to December) and Rs.20 lakhs for 7 months (January to July). The interest is calculated on the average of this amount, which is Rs.16 lakhs (rounded off) for the entire year. 

The difference in the interest rates of the two lenders (11.5% – 9%) is 2.5% annually. 

2.5% on Rs.16 lakhs = Rs.40,000 a year less the tax benefit on the excess interest paid (40,000 * 30% = 12,000) resulting in a net cost of 28,000 or Rs. 2,333 per month.

 

So in a nutshell, by choosing an NBFC like Avanse or Credila, you would pay Rs.28,000 or Rs. 2,333 per month more for the first year and in the bargain, you would not have to mortgage your house/assets.

You can do calculations similarly for the next year, so on and so forth.  Generally, students do not take the last tranche as they secure a scholarship in terms of Research Assistantship/Teaching Assistantship/Graduate Assistantship etc. or an internship. They also save through on-campus jobs etc. Hence the advantage of taking a loan from an NBFC far outweighs that of securing a loan from a bank. 

 

The main deciding factor is whether you would be willing to give your property papers (the value of which maybe in crores) just to save Rs.28,000 a year. Even if you consider the long term impact, over a period of 6-8 years, the max difference would be about Rs.2 lakhs (on the conservative side and approximation based on various scenarios).

 

[B] A foreign lender is giving me a loan at 8% but in USD terms. Will it actually be cheaper?

 

Let us say you borrowed money from a foreign lender at 8% interest versus an Indian Company at 11.5% (both without collateral). 

Loan amount = Rs.40 Lakhs 

Let us assume in Aug 2018 the rate of USD / INR = 65 

The lender disburses a loan amount of Rs. 20 lakhs, which will be equivalent to $30,769.

You graduate in May 2020 and start earning and decide to repay the loans.

Let us ignore the interest amount and focus only on the principal loan amount of Rs. 20 lakhs that you need to repay.


Also, empirically, the rupee usually depreciates against the dollar over the long term and it definitely will in the near future considering the CAD India has now (more for economists to ponder upon).

 

Let us assume USD / INR = 70 in Aug 2020 when the students starts repaying (after 2 years of the disbursal)


Case a – Indian student education loan provider

You need to repay 20 lakhs 

in USD, you need to repay 20,00,000 / 70 = $ 28,571

 

Case b – For Foreign Lender

You need to repay $30,769

If you compare the 2 cases above, you are paying 7.6% more (the amount by which INR depreciated compared to the USD), and this is just on the principal amount of first disbursement. We have not considered the subsequent disbursements or interest tax benefits.

 

You may rightly argue that what if INR appreciates against the USD$, well, the chances for that happening are pretty slim considering the economic scenarios and if you wish to bet on it, then you can definitely go ahead with the foreign loan provider.

 

Some Caveats while taking an unsecured loan

If you are taking an unsecured loan, life insurance is usually mandatory and this actually makes sense. Since the whole idea is not to be dependent on anyone, in the case of any unfortunate eventuality, the insurance repays the loan without any burden on the parents. The lender also needs to mitigate the risk involved as there is no collateral to recover dues if any.

 

The 80E tax benefit on Interest

A sponsor can claim tax exemptions on the interest amount he has paid on the student education loan. These savings become substantial only if the parent is in the 20% or 30% tax bracket and has an annual income of more than Rs.8-10 Lakhs. Secondly, if students repay the loan, then the tax benefit is not available to the parents. To overcome this lacuna, students should transfer the money to parents as a gift, and let the parents use that money to pay off the loan. This would help them avail tax benefits. However, it is seen that most students repay the loan within 2-3 years, and therefore the savings accrued from 80E tax benefit are not substantial.

 

Taking a loan and its impact on getting your visa

Taking a student loan does not affect your chances of getting your visa. You need to explain about your funding to the visa officer and your repayment plan. Taking a loan or not by itself has never been a deciding factor for securing your visa.

 

Note:

The above facts are based on the prevalent rules, regulations and rates at the time of writing the article.  Moreover, every lender may have its own policies and features, and may also deviate from the generic assumptions made in the article for the sake of clarity. It is advisable that you check on the rules, rate of interest, foreign exchange rates etc., and take a call regarding the best student education loan option tailor-made to suit your requirements.

 

Close on the heels of the US Citizenship and Immigration Services’ (UCIS) policy memorandum issued on February 22, 2018 that said its visa officers could seek detailed documentation and more evidence from firms to establish that they have specific assignments in a specialty field for the H-1B beneficiary, the Donald Trump Administration has made their second move towards protecting local jobs in the US and preventing them from moving off-shore. The Base Erosion and Anti-Abuse Tax (BEAT) will be levied on companies with gross revenue of $500 million that outsource their work offshore to captive units. Effective January 2018, the rate of tax will be 5%, which will double to 10% in 2019. In parallel, the US has also considerably reduced the corporate tax rate from 35% to 21%, thereby incentivising companies to hire more people in the US.

The impact of these issues is being felt by US firms and they are reviewing their plans to establish or expand their R&D centres and businesses in India and other countries. Similarly, Indian companies are finding it difficult to deploy skilled professionals through the H-1B route. While it is a known fact that there is a demand supply mismatch in the STEM fields, these policy reforms will result in a larger void that cannot be fulfilled by the local American work force. Hence, Trump’s three-pronged strategy to protect local jobs has come as a fresh wave of hope to thousands of Indian students, who are considering pursuing higher education in USA. With these developments, plum job opportunities have opened up for STEM OPT (Optional Practical Training) aspirants. Therefore, pursuing higher studies in US universities has once again become a prime proposition for aspiring Indian students and professionals.

Given President Trump’s H-1B and visa policies, universities have experienced a lower enrolment from non-funded international students as evidenced by the steady drop in the number of F1 student visas issued. In 2017, the United States has seen a massive decline of 28% in the number of F1 student visas from India, which has led university admission officials to take proactive measures, including visiting India and evaluating students on ground as well as providing spot admissions. With Trump’s policy reforms, this could be a be a win-win situation for students as the competition to highly selective universities has reduced to some extent, thereby providing a greater opportunity to get into a better university, offering more job opportunities.

Considering that the USA is home to leading companies and innovations in the STEM field, a vibrant start-up culture, and enormous research opportunities at universities, getting an American degree far outweighs the education and research opportunities offered by institutions in other countries. Choosing to secure an American university degree will naturally bring in the best job opportunities globally. The state-of-the-art research facilities along with distinguished faculty, flexible course structure and excellent work opportunities through the STEM OPT, all make for a great learning experience. This is why American universities continue to draw Indian students to apply in large numbers. So if you desire to pursue top quality education, and be hand-picked by the best global organisations, then the USA will provide you with the best of these opportunities.

Meet our counsellors today who will clarify any doubts about the new policy reforms and guide you on how you could come up a winner in every way with an American degree and work-experience.

H-1B Visa

Strict H-1B Visa Norms – A boon for F1 Visa Students

Indians and IT companies, the largest users of the H-1B Visas, are feeling the impact as the Donald Trump administration is making it more challenging for them to get H-1B work visas. On February 22, 2018, the US Citizenship and Immigration Services (UCIS) issued a policy memorandum that said that its visa officers could seek detailed documentation and more evidence from firms to establish that they have specific assignments in a specialty field for the H-1B beneficiary. Secondly, these assignments would require them to stay for the entire duration requested on the petition. If the company can suitably demonstrate that the beneficiary can work on the assignment or project and complete it within three years, then the visa would be granted for the required period only. This has made the H-1B route more tedious and complicated for Indian companies.

So, the Visa officials would carry out a detailed analysis about the beneficiary’s qualifications and the nature of the work involved. If these details match, then the H-1B visa would be approved. But the complexity of this new development is that there is no fixed rule about the basis of rejection. So it would bode well for the H-1B visa beneficiary to prepare well for any such eventuality. The first and foremost strategy would be that one cannot base one’s preparation on assumptions. You need to know your facts well and stay updated on the latest developments. The rules have become way too stringent and the grounds for rejection are sometimes erratic. To avoid such contingency situations, a company lawyer or an external lawyer could help you ensure compliance and guide you in meeting all requirements.

Though this development does not bode well for native Indian companies, who send their employees on H-1B visa, there is a wave of optimism that this stringent approach would lead to a shortage of skilled professionals in the field as the native American work force cannot fulfil the needs of an ever-growing industry. So there is every possibility of the policy being revoked. Until then, being well-prepared and achieving the required compliance is the only way to resolve the Request for Evidence clause of the H-1B visa policy. The good news, however, is that students on the F1 visa would be benefitted by this policy as American companies would prefer hiring the talent available within the country. The STEM OPT option allows F1 students to make the most of this opportunity, thereby helping them get good placements.

Even with the framing of such stringent policies, one needs to understand that getting an American degree far outweighs the education and research opportunities offered by other countries. It is a known fact that American universities offer the best education and state-of-the-art research facilities along with distinguished faculty, flexible course-work and excellent work opportunities through the STEM OPT. It continues to draw students to apply in large numbers.  So if you are on the lookout for top quality education coupled with working in the best global organisations, then the USA will provide you with the best of these opportunities. Studying this policy in depth and understanding its repercussions would help you weigh your options and take the right decision.

Meet our counsellors today to help you understand more about the new policy norms and how you could make the best of this opportunity.

 

As computers revolutionise the world around us, spilling into every aspect of our lives, right from banking, financial markets, e-commerce, manufacturing, healthcare and many more sectors, the demand for computer technologists is on the rise. Similarly, several fields that intersect with Computer Science have surfaced, which require a combination of skill sets for successful execution. With students being absorbed in various roles in companies like Google, Microsoft and Facebook as well as at start-ups and small and medium enterprises, these graduates having diverse backgrounds are very much in demand. The combination of skills has helped them take up prime positions in industries like bioinformatics, medicine, finance, telecommunications, media and many others.

As young aspirants contemplate switching over to Computer Science or allied fields like Data Science, Computer Engineering, MIS or Business Analytics, they are wracked by apprehension, self-doubt and a feeling of moving out of safe territory. This has dissuaded many from changing their fields after graduating, and they continue to work in an environment that does not provide job satisfaction. Well, the good news is that one can make a smooth transition with a little timely planning and effort towards imbibing the requisite skills. Pursuing a Master’s level program in Computer Science related field that suits your interests, could very well allow you to change to the Computer Science field.

With more universities recognising this need and filling this gap by offering programs that are flexible regarding program pre-requisites, aspiring students can now take up this opportunity to pursue such a program and give wings to a career in fields allied to Computer Science like Data Science, MIS, Computer Engineering, Business Analytics. However, you will need to build your profile appropriately to be able to pursue a program in the Computer Science allied field. The work experience and training you currently have can help you, but you may need to do more to transition to the Computer Science or allied field. Focussing on the following aspects and systematically planning each step would indeed help your transition become a smooth and stress-free process: 

  1. Chalking out your career goals and working backwards towards choosing a suitable program will help you identify your interests and pursue a program that would be extremely beneficial as you launch yourself in a new field.
  2. Check out your eligibility to apply to this program. Depending on the prerequisites, you need to build your profile in such a way that you meet the requirements of the program. Courses in Mathematics, Operating Systems, Data Structures, etc. that you may have covered during your college studies may help you meet some of these prerequisites. You then need to show the test result of that course. Sometimes universities ask you to take these prerequisite courses before the commencement of the graduate program.
  3. Gaining professional experience in the form of internship or a job role that is relevant to the program of your choice would increase your eligibility for the program. It highlights your capabilities in the particular domain and proves your readiness to take up the relevant Master’s program in a CS allied field.
  4. A strong Statement of Purpose (SOP) that shows your passion and interest in CS allied fields like Computer Engineering, Business Analytics, MIS or Data Science would work in your favour. If your reason is valid and acceptable enough, then Universities would definitely give you admission to the said program. Moreover, all the application essays need to be well-thought out and well-written.

Given below is information that would be beneficial in preparing for a career in a CS allied field:

Computer and Information Technology (MCIT)

Master’s of Computer and Information Technology (MCIT) Designed for students and professionals with minimal or no prior computing experience or formal education in Computer Science.
Benefit Students and professionals who desire to establish or advance a career in information technology or even prepare for doctoral studies in Computer Science
On Graduation Emerge as well-informed and competent professionals in a prime position in the job market. Excellent placements. Summer internships also lead to full-time employment opportunities.

Prerequisites

Basics in Software Development, Computer Systems, Mathematical fundamentals of Computer Science, Data Structures, Software Design, Computer Systems Programming, Algorithms and Computation.

Data Science

Data Science Prepares students for a wide range of data-centric careers, whether in technology and engineering, policy-making, consulting or science. 

 

Benefits Students and professionals who desire to establish or advance a career in Data Science or even prepare for doctoral studies in Data Science.
On Graduation Apply artificial intelligence techniques to a problem, build a computational model of real-world phenomena, statistically test a hypothesis, or analyze structured, textual or image data, apply data science and data analysis techniques to arrive at decisions.
Prerequisites

o   Undergraduate degree in economics, mathematics, engineering, business, computer science, statistics, or related field is preferred, but not required.

o   Demonstrated proficiency in computer programming in at least one of the following computer programming languages is required: Python, R, C, C++, C#, VB, Java, Pascal, or Fortran. Academic transcripts, certificates from online courses, or work experience may be cited to meet this requirement. 

o   At least one semester college level calculus course with a grade “C” or better required.

 

Relevant Work Experience Not required, but strongly preferred.

MIS

MIS Prepares students for challenging careers in the application of IT to analyze, design, implement, and manage IT applications and strategies to help solve business problems. MIS professionals are the “communication bridges” between IT and the business community. They first learn business processes and then analyze how to improve the processes using IT.
Benefits They can work in risk management, technology strategy, information management or project management
On Graduation They can work as a technology analyst, business analyst, project manager, or enterprise architect.
Prerequisites
  • A course in programming (Java, C#, VB, etc.)
  • A database course
  • A course in systems analysis and design
  • A course in business data communications

 

Relevant Work Experience Strongly preferred.

Business Analytics

Business Analytics A comprehensive program for aspirants with an analytical bent of mind and a keen interest in business. Applicants should be prepared for intense course work, a proclivity for mathematics and programming, as well as basic understanding of business fundamentals.
Benefits They can work at the intersection of business management and technology analysis to enhance smooth operation.
On Graduation Gain expertise to turn data into useable information for all levels of an organization.
Prerequisites Undergraduate degree in economics, mathematics, engineering, business, computer science, statistics, or related field is preferred, but not required.

Demonstrated proficiency in computer programming in at least one of the following computer programming languages is required: Python, R, C, C++, C#, VB, Java, Pascal, or Fortran. Academic transcripts, certificates from online courses, or work experience may be cited to meet this requirement. 

At least one-semester college level calculus course with a grade “C” or better required.

Work Experience Not required, but strongly preferred.

While the above information will lend clarity about profile building and enhance your chances of securing admission in the right college/university, you need to keep in mind that the competition will be tough for non-Computer Science students aiming to gain entry into the graduate CS allied programs. With proper planning and the right profile building activity completed in advance, you can achieve your goal of getting admission in the CS program and pursuing a career as a competent Computer Science professional.

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