Further fall in rupee to hurt students taking loans to study abroad

While the Indian rupee has depreciated by around 5 per cent against the US dollar since the beginning of the year, experts reckon students who take out education loans to study abroad are cushioned from the currency volatility for the time being.  They, however, believe the students might feel the pinch if the rupee continues to depreciate further.

“With the rupee depreciating against the dollar, the costs for students going for education to the US is expected to go up. While sanctioning loans, there is usually headroom to take into account aspects like currency fluctuations and general rise in total cost of education over the study period and, consequently, the sanctioned limits are generally adequate meet such vagaries,” said Arijit Sanyal, managing director (MD) and chief executive officer (CEO) of HDFC Credila Financial Services.

According to Ankit Mehra, co-founder & CEO of Gyandhan, a digital-first company that has disbursed over Rs 1,000 crore in study abroad loans to more than 3,000 Indian students, while the devaluation is sudden, as a policy students are advised to budget for a 5 per cent depreciation in the currency.

“As long as you are taking this into your calculation, it will not be a problem. Even though the rupee has depreciated a great deal, it does not change the overall cost dynamics dramatically”.

An IDBI Bank executive said the loan is given in rupees and is converted into dollars at prevailing rates based on student requirements. Technically he/ she will get less dollars for when the rupee is weakening. Going by current assessment, the pr­esent trajectory of weakening rupee is within manageable limits, he said.

The rupee has been depreciating sharply ever since tensions broke out between Russia and Ukraine in February. The Reserve Bank of India (RBI) has been intervening in the foreign exchange markets aggressively, trying to slow the pace of the fall.  

The rupee has breached 78/$ levels this week. According to a poll conducted by Business Standard this week, the rupee is expected to trade sideways in the near term and is not seen sharply depreciating as the RBI is likely to continue its support by buying dollars. While the central bank may continue to intervene in the foreign exchange market, the ru­pee can be still under pressure becau­se weaker fundamentals and Brent crude hovering around $120 a barrel have heightened worries about a wid­ening trade deficit (to the tune of 3.5 per cent). The rupee has depreciated 4.8 per cent against the dollar in 2022.

“Oil prices rose as tight global sup­plies outweighed concerns that dem­and would be pressured by a rise in Covid-19 cases in Beijing and further interest rate hikes. All these factors are putting pressure on the rupee. This depreciation though is a boon for exporters, it’s creating pressure on Indians remitting USD abroad, be it for college/university fees or traveling abroad on leisure,” said Remitx, a cross-border remittance firm.

Mehra explained that the depreciation in rupee may pose a problem for students who have taken loans from Indian lenders. “If you have taken a $40,000 loan from an international lender, then the loan quantum does not change when rupee depreciates. But if you have taken a loan from the Indian lender and suddenly the currency depreciates, then the quantum of loan becomes smaller and you may have to garner more funds or apply for a top-up loan,” Mehra said.

When it comes to repayment, there are two scenarios: one, if one is staying back in the US and repaying the loan there and, two, if one comes back to India and repays the loan from here. In the first scenario, there will be no change even if the curren­cy depreciates. But if the person has come back to India and had taken a loan from the US lender, then the EMI amount will increase significan­tly when the currency depreciates.

Now, if the loan is from an Indian bank and one comes back to India, they will repay the loan like any other loan. But if they stay back in the US, a depreciation in rupee will in fact be favourable for them because suddenly the EMI will reduce.