Last minute financial tips for students going abroad

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Rajesh Subramanian is flying out of India on September 5th to pursue his Masters in Information Management at the University of Washington, Seattle. It's an exciting time in his life and he wants to make sure he's in control of everything. A few things concern him though, especially with respect to his money matters. "Right now, questions like how to remit fees and living expenses, how much travel insurance to take, how much foreign exchange to carry etc. are on the top of my mind," he says.

Rajesh's concerns are justified given the number of regulations and processes involved in foreign exchange transactions. In this article, we try and find answers to all his questions.

1. Best way to remit fees
The total fee for Rajesh's course adds up to $42,000. His fee for the first semester, $8,000, needs to be paid by the 1st of October.

What the regulation says: Vinay Doggalli, Founder & Managing Partner of Global Education Consultancy Services explains, "The Reserve Bank of India allows students to remit the higher of: (i) total study fees plus expenses or (ii) $100,000 per academic year through designated banks."
(See all regulations here )

Best option: There could be a number of scenarios in remitting fees.

Scenario 1: Bank loan
If you have taken a bank loan, the bank remits the fees directly to the university as per documents submitted by you.

Scenario 2: Wire transfer from India
If you are paying the fees out of your own sources, you can wire the funds while you are in India. That would be the fastest and most cost effective.
Cost: A wire transfer of over $500 to the US would cost about Rs 1,000.

Scenario 3: Demand draft
If you have not wired the fees from India, you can carry a demand draft in the name of the university while you travel.

P Srieedharan, managing director of Mancomp Professional Services, a firm that specializes in education consultancy, explains, "For the purpose of fees, if you have not already wired the funds from India, it would be better to carry a demand draft in the name of the university. Carrying traveller's cheques would mean that you would first have to deposit the traveller's cheque in your account and then make a payment to the university."

Cost: A demand draft of up to $5000 would cost around Rs 300. However, do remember that a draft may take around a week to clear.

Lump sum or installments: Rajesh also asks if it would be a good idea to remit all the fees at once or have someone wire the proceeds in installments. There are few points to consider here: the university fee structure, the confidence of the student in carrying high value instruments and exchange rate.

"Some universities offer a substantial discount if you pay in lump sum. A student can weigh the cost-benefit and then take a call," says Srieedharan.

For Rajesh, from a rupee-dollar exchange rate point of view, in the current scenario, it might perhaps be a good idea to have someone remit funds periodically. The general consensus among economists is that over the next 2 years, the rupee is likely to appreciate against the US dollar. So $5,000 that is worth Rs 2.25 lakh at today's exchange rate of Rs 45 will be worth Rs 2 lakh if the rupee appreciates to Rs 40.

2. Best way to remit regular living expenses
In addition to his fees, Rajesh will need money sent to him from India for his regular living expenses.

What the regulation says: As we saw in point 1 above, the higher of $100,000 or total study fees plus expenses is allowed to be remitted each academic year.

A student may also carry with him while travelling, an amount of $10,000 for incidental expenses (that is, expenses other than fees) out of which $3,000 may be carried in the form of foreign currency.

Best option: According to Doggalli, "The best way would be to open an account after the student lands in the country and get the money transferred to that account from India. Alternately, if the student is confident to take responsibility of high value cheques, he can carry traveller's cheques."

Like we pointed out earlier, remitting funds periodically maybe more beneficial (as compared to remitting lump sum) from an exchange rate perspective, in the current scenario.

How much cash/ traveller's cheques to carry: Experts suggest carrying $500-1,000 in cash for immediate expenses. As for traveller's cheques, Srieedharan recommends, "This may vary from country to country, for instance, in case of Australia, we recommend students to carry $2,500 in traveller's cheques. As a broad thumb rule, students can carry $5,000 in traveller's cheques (in addition to fees). That should keep them in a comfortable position."

Cost: A bank would charge you 1% of the rupee equivalent of your traveller's cheque as charges.

3. Best way to pay education loan installments
While banks allow the option to start repayment after you complete your course, here is a tip that can help you keep interest costs low. "We usually recommend students to keep paying the interest portion of the loan so that it does not compound into a large interest outflow." says Srieedharan.

For instance, let us say you have taken a loan of Rs 15 lakh at an interest rate of 12% per annum. Let us assume that you will start repaying the loan after 2 years. During these two years, the bank will calculate interest on simple interest basis and add it to your loan outstanding. So your interest amount for these two years in this example would work out to Rs 3.6 lakh. That pushes up your loan outstanding to Rs 18.6 lakh on which the EMI when you start repaying would work out to Rs 32,834 over a period of 7 years.

Now instead of letting the interest pile up in the two years, you can repay Rs 15,000 per month (Rs 3.6 lakh divided by 24) for two years. Your EMI would then be calculated on Rs 15 lakh only, that is Rs 26,479; a difference of Rs 6,355 per month.

Doggalli suggests that the best way to schedule EMI payments would be to give a standing instruction to the bank.

4. To take travel insurance or not
Most universities provide a medical insurance cover for students. Rajesh too will have this, but the coverage starts only from 25th of September. Srieedharan says it is advisable for Rajesh to take travel insurance which covers any incidences that may occur at the time of travel (such as loss of passport, loss of luggage etc) as well as hospitalisation expenses in the foreign country up till 25th September. Remember that medical expenses are high in countries like the US and Canada and it would be better to have this coverage even if it comes at a little cost.

Cost: For the US, a coverage of $50,000 would cost around Rs 1,500-2,000 for a 30 day term. This would be slightly lower for other countries.

In case the college does not have a medical insurance cover, Doggalli suggests that it may make more sense to buy medical insurance from the country where the student is going as he will get better deals and options.

5. Opening a bank account abroad
The first thing you would need to do when you get to the country of your college would be to open a bank account. You would need to submit certain documents such as your passport, visa as well as proof of your admission to the college.

Try to do this as soon as possible, especially if you are carrying high value drafts and traveller's cheques. You don't want to worry about safe-keeping for long.

6. Remitting money back to India
You can remit money back to India at any point of time. You can either wire the proceeds to your bank account or parents' bank account in India or you can carry foreign exchange with you when you travel to India. While there is no limit on the amount you can carry with you, if the aggregate value (of cash, cheques, traveller's cheques) exceeds $10,000 and/or the value of foreign currency alone exceeds $5,000, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.

We hope this guide was useful and wish you luck for your big step.



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