STUDY ABROAD IN THE TIME OF DEMONETIZATION

The Government of India announced the demonetization on November 8, 2016, and issued new, and more secure notes in exchange for the old ones. Pushing India towards a cashless economy, tackling black money, combating tax evasion and addressing the fake currency issue were some of the reasons cited behind this decision. The announcement was unexpected and the subsequent short-term cash shortage did create anxiety in a number of sectors and industries, including education. It also made room for sufficient discussion and debate among students are pursuing their study abroad ambitions and analyzing the financial implications. However, we believe the apprehension and impact for the majority of the students is short-term. Here's why Loans and interest rates: A number of students apply for loans to study abroad, pledging their family home as collateral to finance their tuition and living expenses. The demonetization campaign has led to banks lowering interest rates at the start of the New Year. A flood of cash into the banks as deposits means that the banks will have to cut their margins to get those deposits back out of the door again as loans.

The State Bank of India, the country's biggest lender by assets, cut its benchmark lending rate by 90 basis points across various maturities, after experiencing a surge in deposits. After the move, its overnight marginal cost of funds-based lending rate (MCLR) fell to 7.75 per cent from 8.65 per cent, while three-year loan rates will now be 8.15 per cent from 9.05 per cent previously. A lower interest rate on loans is a favorable situation for students and parents who are looking to secure a loan to fund their foreign education. The interest rate on a loan is the percentage of the principal, or overall loan amount that one will have to pay back to the lender on top of the principal. That's why even a slightly lower interest rate can save the borrower a lot of money in the long run, thus reducing some of the impact demonetization may have made on their funding strategy.

Direct bank transfers: The cost of studying at a top university abroad can range from US$30,000 to US$75,000 per year. As the financial costs are high, parents and students tend to not only start saving, but also investing for this journey a number of years prior to application through systematic savings plans etc. Which has usually saved from monthly salaries directly. The fee payable to the foreign university is required to be remitted by the student from an official bank account before the semester commences. For these reasons, the sizable amount and remittance procedures, students are likely to have their funds secured in other official financial assets and instruments rather than cash.

Admission cycle: A number of college applications require students to showcase how they are going to fund their education for the duration they are studying. Students need to submit supporting documents to assure the school they are financially capable, for example, via family funds, loans or scholarships. The demonetization announcement came when students, especially those applying to Europe and North America, were in the midst of admission preparation or already completing application forms. The typical admission cycle for students applying to colleges abroad starting Fall 2017 is - students submit their application from October 2016 to April 2017, apply for visas up to five months prior to start date, and start sometime from August to October 2017. Thus, funds they were going to utilize for their foreign education should already be in the financial system. For a small select group who were looking to utilize unaccounted cash for living expenses abroad, there may be a short-term impact. Announcement timing: The timing of the demonetization announcement provides students sufficient time to reevaluate their strategy should it be required. If funding is an issue, the application cycle is still ongoing, allowing students to broaden the range of schools they are applying to and include geographies and colleges that provide grants and scholarship. Students can seek financial aid or consider loans either from institutions or family members. (The writer is the Founder and Chief Education Officer, ReachIvy.com)

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