Most of the students in India have dreams of Studying Abroad. The reason for this aspiration is that it allows them to explore different cultures, and they can access top-tier education and various career opportunities. However, financial considerations, in this context, often rule these dreams. For students, who are relying on international funding, exchange rate fluctuations can make budgeting unpredictable.
In this blog, we are going to explore the role that exchange rate fluctuations play in study abroad finances. We will also know about how students can navigate these challenges.
What is Exchange Rate Fluctuation, and how does it affect students studying abroad?
Here, the first and foremost thing you need to know is, what Exchange Rate is.
The exchange rate is the rate of one currency expressed in terms of the currency of another country. The term is the aggregation of two different words: Rate and Exchange. Rate refers to the price or value at which a transaction takes place. Exchange is a process of selling or buying currencies or commodities. The process of selling or buying postulates the price to be determined for the exchange of goods and services to necessitate the exchange or transaction.
And, the term ‘Exchange Rate Fluctuation’ is referred to the changes in the value of one currency compared to another. One thing that needs to be taken into consideration is that the prices of currencies do fluctuate like prices of any other commodity. Usually, the prices of commodities are determined in terms of the value of money, i.e., in quantitative form.
Let us try to comprehend these terms from a student’s perspective.
For aspirants who want to pursue their dream of studying abroad and considering taking an education loan, exchange fluctuation rates can deeply impact students’ overseas education plans. For instance, if a student is studying in the US and the Indian Rupee (INR) weakens against the US Dollar (USD), he/she will probably need more Indian money to cover his/her expenses in dollars. It translates to increased tuition fees and cost of living as a dollar would cost more in terms of rupee.
Students who are financing their study abroad education through student loans without cosigner or scholarships need to stay informed about exchange rate trends because there might be a possibility that Loans disbursed in their home currency fall short of covering their needs, which can leave them scrambling to bridge the gap. It is essential for maintaining financial stability while chasing your academic goals abroad.
How can exchange rate volatility affect tuition fees and living expenses?
It does not matter, if universities maintain consistent tuition fees in their local currency, fluctuations in exchange rates can lead to higher or lower costs when converted to home currency. As per recent reports, Indian Rupee has touched 84.50 against the US dollar. So, for a student whose one-semester fee is USD 40,000, would have to pay around INR 33,8000.
Similarly, living expenses such as rent, groceries, and transportation are paid in the local currency. A tumble in home currency can stretch the budget of a student, which can leave him with financial shortfalls.
For instance, a student who is relying on scholarships for studying abroad can find that his stipend does not go with the expected due to unfavourable exchange rates.
Are there financial tools to mitigate the risks of exchange rate changes?
Yes, there are several tools students can use to minimize the impact of exchange rate fluctuations:
- Currency Hedging: Currency hedging is a strategy designed to mitigate the impact of the currency or foreign exchange risk. By using an instrument called ‘Forward Contract, a student can protect the budget for study abroad.
- A Forward Contract is a deal that you make with your bank to lock in an exchange rate for future money transfers. Many Indian banks offer a Forward Rate Agreement (FRA) through which you guarantee the rate you agreed on today, no matter if the exchange rate in any currency goes up and down.
- For example, you make a deal with the bank, agreeing on a fixed exchange rate for converting INR to USD in six months at INR 84 = 1 USD. You pay a small amount to the bank as a premium to lock in the rate. For six months, regardless of the actual exchange rate, you exchange INR for USD at a pre-agreed rate via an FRA.
- Forex Cards: These forex cards are preloaded with foreign currency at a fixed rate, which can protect you from future currency fluctuations.
- Dual-Currency Accounts: Some major banks in India offer accounts that hold funds in both home and foreign currencies, allowing strategic transfers when rates are favourable.
- Funding Sources: Other sources such as student loans without cosigner, scholarships, and part-time work income can provide some financial stability against exchange rate fluctuation.
How do scholarships help in managing financial challenges from Exchange Rates?
Many scholarships provide financial help to students that reduce reliance on funds from home currency. Scholarships often cover tuition, accommodation, or living expenses in the host country’s currency, bypassing exchange rate concerns.
However, it is important to comprehend the terms of your scholarship. Will it cover all costs or not, or will you still need any additional funding?
You should apply for scholarships specific to your host country or institution. Many international scholarships, like “The University of Adelaide Global Citizens Scholarship”, and “Erasmus Mundus” or “DAAD” provide financial relief to students to a great extent.
Can students rely solely on Student Loans Without Cosigner for financial stability?
Yes, you can get a student loan without a cosigner, which can be an excellent option for you if you lack a guarantor or have limited financial backing. However, students need to account for exchange rate changes while planning repayment.
For instance, a strengthening of your home currency can make repayment cheaper, if you take out a loan in your Indian currency but earn in a foreign currency post-graduation. Contrarily, if your home currency weakens, repayments could become costlier. Thus, proactive planning is the key. Some lenders provide loans disbursed directly in the host country’s currency which significantly reduces exchange rate exposure. You should carefully research lenders to understand repayment options.
How do exchange rate fluctuations impact students returning home after their studies?
The exchange rate fluctuation affects students when they return home after completing their studies.
- Repayment of Loans: If a student has borrowed in a foreign currency and the home currency has depreciated, repayments can become more expensive which can lead to a financial burden.
- Savings and Investments: Any leftover funds in foreign currency may lose value when converted back home, which might affect your financial starting point.
In addition, those students who rely on jobs abroad to repay their loans should monitor currency trends, as unexpected shifts could derail financial plans.
What strategies can students use to budget effectively amid exchange rate fluctuations?
Here are some of the best strategies that students can adopt to build a robust financial plan, consider these strategies:
- Track Exchange Rates: Students should stay informed about the latest trends in currency exchange to predict potential impacts on their budget.
- Contingency Fund: Allocating a portion of your funds for unexpected fluctuations to avoid scrambling during emergencies is considered to be a wise decision.
- Part-Time Work Opportunities: Many countries allow overseas students to work part-time. Earning in the host currency can significantly offset exchange rate issues.
- Repayment Strategy: If you are using student loans without a cosigner, then, you should explore flexible repayment options tied to currency performance.
How can government policies influence exchange rates and international students?
Government policies such as monetary policies, fiscal policies, trade agreements, or geopolitical events can impact exchange rates greatly. For example, in the wake of global economic shifts, currencies like the Indian Rupee or Brazilian Real have experienced periods of volatility against major currencies like the USD or Euro. Considering this, students must be aware of ongoing macroeconomic trends, as they indirectly affect tuition fees, rent, and scholarships. They can look for resources or advisors who can provide guidance tailored to their host country and financial situation.
Is it worth considering alternatives to studying in expensive countries?
Countries like the United States and the United Kingdom are popular study destinations. However, they also have higher living costs and exchange rate risks. Therefore, Students can explore affordable alternatives such as Germany, Canada, Australia, and Newzealand where education quality is high, and living expenses are somewhat low. Additionally, some scholarships for study abroad are specific to these countries, offering students more financial relief.
How can financial aid programs address the risks of exchange rates?
Since, many universities and governments provide financial aid or emergency funds to international students, these programs can cover unforeseen expenses caused by currency shifts.
If you are applying for scholarships for studying abroad, inquire about additional financial aid options available in case of emergencies. Proactively seeking such opportunities can shield you from potential shortfalls.
What should students do before moving broadly to safeguard their finances?
- Consult a financial advisor: A student should seek expert advice to handle currency-related risks and optimise loan repayment plans.
- Evaluate loan providers: Assess and compare terms for student loans without a cosigner, focusing on currency-specific offerings.
- Research Scholarships: A student should secure as much funding as possible through scholarships to reduce reliance on personal or borrowed funds.
Studying abroad is a transformative journey. However, it comes with financial challenges. Therefore, it becomes critical to comprehend exchange rate fluctuations. By staying informed, leveraging scholarships, and choosing the right funding sources, you can manage these risks effectively. Thus, monitor exchange rates, maintain a diversified funding strategy, and explore some financial tools to mitigate currency risks. With careful planning, you can make your study abroad dream a reality, no matter the ups and downs of exchange rates.