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Need a study loan? Read on

Govt even provides tuition fee loans that are 'interest-free' during the course of study

Next to our home, forking out for our children's tertiary education is probably the biggest financial hit we will take, particularly if they study overseas, so it's vital that you do your homework.

There is plenty of research showing that while parents rank providing for a child's education a key concern above household and medical expenses, many tend to fall behind their saving targets and need help.

Says Mr Gregory Choy, OCBC Bank's head of wealth advisory and wealth management in Singapore: "Education, especially overseas or tertiary education, is a hefty investment that parents may have to be both emotionally and financially prepared for."

Some people may not be aware that the Government provides tuition fee loans that are "interest- free" during the course of study in local public universities and polytechnics. Students can secure loans of up to 90 per cent of the subsidised tuition fee payable by a Singaporean student.

Administered by DBS Bank and OCBC Bank, the loan is charged at the average prime rate of DBS, OCBC and UOB and levied only after graduation. Repayment must commence no later than two years after graduation.


Students in the self-study area of the National University of Singapore. Depending on which local institution your child is enrolling in, the CPF Board offers an Education Scheme which enables members to use CPF savings to pay for their children's, spouses' or their own tuition fees. ST PHOTO: ALPHONSUS CHERN

So such loans are effectively interest-free if you pay up in full before graduation and there is no early redemption penalty.


The Hive learning hub at Nanyang Technological University. The tuition fees of most tertiary courses are available publicly, so it is possible to get an estimate of how much it would cost by the time you need the funds after factoring in inflation. ST PHOTO: ONG WEE JIN

Recently, it was reported that private school PSB Academy will bear up to 2.2 per cent of interest levied on education loans taken from credit cooperative TCC for the student's course of study. PSB Academy will reimburse its students the amount in interest that it pledges to bear at the end of the study course.

And depending on which local institution your child is enrolling in, the Central Provident Fund (CPF) Board offers an Education Scheme which enables members to use CPF savings from their Ordinary Account to pay for their children's, spouses' or their own tuition fees.

The student has to repay the amount withdrawn plus interest in cash subsequently into the payer's Ordinary Account. Repayment commences one year after the student graduates or leaves the educational institution.

 


  • ''It's important to realise that having plans, and how much you can really afford, can be very different,'' says Mr Gregory Choy of OCBC Bank.

  • Understand your current financial position and know how much time you have before your child turns 18 or 21, says Mr Anthony Seow of DBS Bank.

  • According to Mr Desmond Tan of OCBC, the market size for study loans last year was $130 million, and OCBC accounted for about 20 per cent.

  • Mr Choong Wai Hong of Maybank says applicants must consider not just interest rates and repayment modes, but also financial needs and cash flow.

Only full-time subsidised courses at approved local educational institutions are included under this loan scheme.

A student can use his own, his spouse's and his parents' (including step-parents') CPF savings.

WHAT TO LOOK OUT FOR

For those considering an education at an overseas university, apart from the school fees, accommodation and living costs are also two key things that must be factored into the total cost. Depending on the country of study, this could work out to about one-third or more of the school fees.

'' MR CHOONG WAI HONG,head of community financial services at Maybank Singapore.


REMEMBER THIS

Choose a loan that comes with an auto-deduction of the monthly repayment to ensure you do not miss any payments.

'' MR ANTHONY SEOW, DBS Bank's head of cards and unsecured loans at its consumer banking group.


The CPF Board will consider the use of a sibling's or relative's CPF savings on a case-by-case basis.

With the new university term commencing soon, parents and students can find financial help in the study loan schemes offered by some banks.

The Sunday Times highlights the features of these schemes, which provide assistance for both local and overseas studies.

DBS BANK

Relaunched in June 2007, the POSB Further Study Assist Loan (POSB FSA) is an unsecured personal loan to help students of local and overseas institutions pay for tuition fees. Singaporeans and permanent residents (PRs) above 17 years old are eligible to apply.

If the overseas institution is not on the bank's approved list but is ranked among the world's top 500 universities, the bank will review applications on a case-by-case basis.

POSB FSA offers differential pricing, a higher loan amount and a longer repayment period for preferred institutions.

It is offering a promotional rate of 4.6 per cent a year for students enrolling at preferred universities. There is a 2 per cent processing fee and the total loan limit can go up to 10 times the combined monthly income of student and guarantor, capped at $80,000.

The loan tenure is 10 years compared with a five-year tenure for the standard loan, which has a 5.88 per cent annual interest rate, a 3 per cent processing fee and a maximum loan limit of $50,000.

Mr Anthony Seow, DBS Bank's head of cards and unsecured loans at its consumer banking group, says full-time students will need a guarantor who is at least 21 years old.

"Repayments (the monthly instalment plus interest) commence the following month after the loan is approved, and POSB FSA offers ease of repayment.

"Every month, repayment instalments are automatically deducted from the customer's/guarantor's chosen POSB/DBS bank account."

He notes that the POSB FSA has no early repayment charges if customers redeem the loan before the end of the tenure.

Other banks that offer study loans typically charge an early redemption fee of 1 per cent of the loan repaid if customers redeem the loan before maturity.

OCBC BANK

The OCBC Frank Education Loan has one standard rate of 4.5 per cent a year that applies to all loans regardless of local or overseas studies. Overseas universities are restricted to those in the United States, Britain, Australia and New Zealand.

The loan interest rates are fixed throughout the entire tenure and the scheme does not build in a board rate feature in its interest rates mechanics. Customers can borrow up to 10 times their income, capped at $150,000.

About three out of 10 study loans at OCBC are approved for overseas studies. The bank has plans to offer this group of students a comprehensive suite of product features.

These include allowing borrowing for non-course fee items such as hostel costs or study materials, up to 20 per cent of the total approved amount. Non-course fees have to be payable to the institution only.

Mr Desmond Tan, OCBC's head of group lifestyle financing, says the estimated market size for study loans last year was $130 million, with OCBC accounting for about 20 per cent. OCBC aims to double its market share to 40 per cent this year. The average loan amount is $20,000 to $25,000 for local studies, and $60,000 to $100,000 for overseas studies.

There are three repayment options available - standard repayment, interest servicing and Graduation Plus.

The standard repayment scheme, as its name suggests, requires both principal amount and interest to be paid once the loan is drawn.

In contrast, only interest is paid during the course of study under the interest servicing scheme. Instalments comprising principal and interest will be paid upon completion of studies.

Under the Graduated Plus, the interest servicing option is extended for one year after graduation, after which the instalments will comprise the principal amount and interest. There is an early full redemption penalty of 1 per cent of the prepaid loan.

CIMB BANK SINGAPORE

CIMB Bank Singapore's Education Loan is open to Singaporeans and PRs from age 16. Its tenure ranges from one to 10 years.

Foreign banks like CIMB typically offer higher loan quantums than local lenders. CIMB customers can borrow up to eight times their monthly income or $200,000, whichever is lower. There are two repayment options available: standard repayment scheme (principal amount and interest) and interest servicing scheme.

Under the interest servicing scheme, the principal and interest are paid upon completion of studies or from the fifth year of the loan, whichever is earlier. In the event that the loan is cancelled prematurely and repaid, a fee of 1 per cent applies on both the outstanding and undisbursed amounts.

The bank says that the CIMB Education Loan provides unlimited cashier's orders at no cost, which gives its customers greater ease when paying their tuition fees based on the payment schedule provided by the educational institution.


Factors to consider before taking study loan

"Being able to draw down a higher loan quantum paves the way for enrolment in professional courses and postgraduate degree programmes, which otherwise may remain an elusive dream for many," says a CIMB spokesman.

The average loan amounts taken up at CIMB are $22,000 for local and $57,000 for overseas education.

MAYBANK

Maybank's Education Loan is offered to Singaporeans and PRs from age 18. The interest rate is 4.78 per cent a year for local studies and 4.88 per cent for overseas studies.

The maximum loan is $200,000 or eight times the monthly income, and capped at the amount of the education course fees, whichever is the lowest.

Customers can choose to redeem the loan before maturity. However, in such situations, an early redemption fee of 1 per cent of the loan repaid may be chargeable.

Maybank offers three types of repayment: standard repayment (standard principal and interest monthly instalment), partial repayment (a smaller monthly instalment amount) and interest servicing.

CHECKLIST

What to look out for when considering study loans:

Loan amount: Have you considered the course of study and choice of local and overseas educational institutions? These decisions will have a direct impact on the required loan amount.

Types of study loans: Have you reviewed the available education loans in the market and their features as well as assessed your eligibility?

Affordability: Can you afford the instalment amount over the loan tenure?

Fees and charges: Do you understand all the fees and charges as well as the interest rates you are liable for?

Ease and flexibility of repayment. What are the repayment modes? Are they flexible? Does the bank impose loan redemption penalties?

Mr Choong Wai Hong, Maybank Singapore's head of community financial services, suggests that apart from looking at the interest rates and the repayment mode, the applicant should consider his financial needs and cash flow.

"For those considering an education at an overseas university, apart from the school fees, accommodation and living costs are also two key things that must be factored into the total cost. Depending on the country of study, this could work out to about one-third or more of the school fees," he says.

The tuition fees of most tertiary courses are available publicly so it is possible to get an estimate of how much it would cost by the time you need the funds after factoring in inflation. You can work out how much you potentially need to borrow after working out what cash you will have on hand.

Mr Choong adds that Maybank offers a loan in conjunction with its Education Loan to help defray study-related expenditure.

Mr Seow of DBS says: "Choose a loan that comes with an auto-deduction of the monthly repayment to ensure that you do not miss any payments and check if the bank is flexible about you making early repayment without additional charges or penalties."

CIMB adds: "Speak to the banks to find out more about the interest rates and maximum loan amount available, among other things. Last but not least, choose a suitable repayment option as it bodes well for good financial planning and management."

TIPS ON SAVING FOR CHILDREN'S EDUCATION

As the cost of education and study loans represent a significant financial commitment over a period of time, it is prudent to start planning early.

Starting early: Mr Seow's tip to parents is to start by understanding your current financial position and knowing how much time you have left until your child turns 18 or 21.

"You can determine estimated costs for living and tertiary education by basing it on today's tuition fees and factoring in inflation. Once you have the estimated cost and timeline, you should invest and/or save accordingly," says Mr Seow.

Procrastination: Many couples may feel that they can wait to start saving up, or that they don't have the means to get started. However, getting started on saving for the future, no matter how little, is critical.

"It is important to realise that having plans, and how much you can really afford, can be very different," says Mr Choy.

"Procrastination could mean that couples may realise too late the hefty costs involved when their children are about to gain entry to university, especially if they aspire to send their children overseas. This could be a huge financial strain when that time comes."

Investing in financial products: To complement your savings efforts, you can look at the various financial products available that have the potential to provide a higher return, advises Mr Choong.

Endowment insurance policies are a common funding option among parents. These are designed to pay a lump sum upon maturity or when there is a claim. The plans comprise both the savings and protection elements, such as death and disability protection.

One advantage of such policies is the option to add a "payer benefit rider".

This helps to waive the rest of the premiums should the person responsible for paying the premiums, for example the child's parent, become disabled or die before the child legally becomes an adult.

This way, the rider helps to further protect the amount required for the child's education.

If you do not fancy endowment plans due to the uncertainty of non-guaranteed benefits and the maturity amount, other financial products that might appeal include a diversified portfolio of unit trusts, stocks or exchange-traded funds, and alternative investments like commodity funds and hedge funds.

Underestimating the costs of education: University education takes at least three years, so if the children are very close in age, parents may find themselves in a situation where all the children are in the university at the same time. This will create a tremendous drain on resources if they had failed to plan ahead, says Mr Choy.

"They may have also failed to keep abreast of increasing university costs. A financial plan that had been established 20 years ago may no longer be able to keep up with the rising cost of university tuition fees," he adds.

Taking on too much risk: Couples who take on large amounts of debt, like a mortgage for example, may find it hard to manage the competing commitments on cash flow to actually save.

Mr Choy notes: "On top of that, they may assume that rental income or capital appreciation of their investment property can finance their children's education, or invest in higher-risk products in the hope of getting more returns.

"While these are probable scenarios, it is better to set aside savings or purchase lower-risk investments to grow investments and savings."

A version of this article appeared in the print edition of The Sunday Times on July 03, 2016, with the headline 'Need a study loan? Read on'. Print Edition | Subscribe