Education Loans: A 101 Course

Whether you are just finishing up secondary school or thinking of furthering your education after a few years in the workforce, you might be thinking, “Whew, how does anyone afford university study these days?!” No worries, even if your savings account generally runs drier than you’d like, there are specialised loans that cater to students’ life situations. These can help ease the pain of paying staggering tuition bills during your student years.

A good education can help you land a meaningful, productive and well-paying job. The downside, however, is the financial path to attaining that degree. Studies culminating in an undergraduate Bachelor’s in Singapore may cost you between SGD 10,000 and SGD 15,000. A lot of schools provide financial assistance programmes to help you pay some of these costs, including tuition fees, books and living expenses. Each school sets its own eligibility requirements for recipients of such assistance. If you are ineligible, you can still avail yourself of education loans or student loans in Singapore from banks and other financial institutions.

In comparison with other types of debts such as a personal loans and mortgages, an education loan generally has more flexible repayment options. This type of loan typically also has a much lower interest rate than non-education loans. If you are considering applying for an education loan, make sure to consider the following criteria:

  1. Age

Applicants for an education loan from most banks and financial institutions must be between 21 and 60 years old. Nevertheless, if you are under the age of 21 or over the age 60, you may still be able to take out an education loan.

If you are younger than 21, you’ll need a guarantor. As with any loan, banks want a guarantee that you will be able to pay them back. Assigning a guarantor is one way that the bank ensures this. If you, for example, do not pay back your loan as agreed, the bank has the right to go after your guarantor. Pick someone who will be willing and able to financially assist you if necessary. This might be your parents, guardians, siblings or spouse. An eligible guarantor must have a minimum annual income of between SGD 24,000 and SGD 30,000, depending on the terms of the loan.

On the other hand, if you over the age of 60, you’ll have to agree to a shorter loan repayment period to be eligible. Banks look at your income level to determine how able you are to repay your loan. If it looks like you might be retiring soon, the chance of your defaulting on the loan would increase.

  1. Income

It’s no secret that banks look at the income you are earning in order to assess your capacity to repay them. If you’re planning to enrol in a local part-time course, you’ll need to earn between SGD 18,000 and SGD 24,000 annually to qualify. If you are not yet earning that much money, you can consider appointing a guarantor.

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  1. Loan Principal

In general, local banks usually allow you to borrow money totalling 6 to 8 times your own monthly salary, or else the monthly salary of your guarantor. If you or your guarantor earns SGD 2,000 every month, you may be able to get a loan of up to SGD 16,000.

  1. Interest Rate

Before applying for an education loan, do your research and find out which bank offers the lowest interest rate. The lower the interest rate, the more attractive the loan could be for you. Take note, too, whether the interest is a flat-rate one or whether it reduces monthly over the life of the loan.

With a flat rate, the bank determines a fixed amount of interest from the very start, calculated on the basis of your loan amount and the interest rate. In this case, the interest charged every month will remain the same no matter how much the outstanding balance on your loan is.

With a monthly reducing or a monthly rest interest arrangement, interest is calculated based on how much the outstanding balance on your loan is. This means that if you pay off or pay down your loan quickly, then you will be paying less interest.

  1. Processing fee

A low interest rate is, of course, very attractive. However, banks and other financial institutions may advertise a low interest rate to lure in potential customers. You may find that they charge a high processing fee to compensate for a low interest rate. When doing your research, take note of each bank’s processing fee, and remember to include this fee in your calculations for the total cost of the education loan.

  1. Other fees and charges

Aside from the loan amount, interest rate and processing fee, take note of other charges. These might include disbursement fees, late payment fees and cancellation fees. Most of these are used by banks to protect themselves in the event that clients are not able to pay their installments on time. If you discipline yourself to pay the full installment on your education loan every month, you won’t have to worry about these fees. A so-called repayment fee, if applicable, should also be noted: it is used by banks to discourage making early repayments on education loans with a monthly reducing interest.

  1. Loan Repayment Period

The usual term for education loan repayment is between 1 and 10 years. The longer the term, the more interest you’ll be paying. Find out how much you can afford to pay for each monthly repayment installment and get the shortest repayment period that you can.

  1. Repayment Method

There are different repayment methods to choose from depending on your financial standing. One of the most common ones is paying monthly installments on the loan principal and the interest, even while you are still studying and not yet earning big bucks. This can be ideal for part-time students.

Another common option is to pay back your education loan only after you have completed your studies. Some banks like RHB allow for deferred repayment for local full-time student loans. This may be ideal if you don’t want to worry about paying anything while you’re still focussing on your education. However, you will have to pay a higher monthly installment after graduation.

You can learn more about education loans here and about other types of education funding here.

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C.E.O @ The New Savvy
Anna Haotanto is passionate about finance, education, women empowerment and children’s issues. Anna has been featured in CNBC, Forbes, The Straits Times, Business Insider, INC and The Peak Singapore. She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen). Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).