Is an Education Loan in Singapore Worth It?
Parents of college students in Singapore should expect to spend more on the education of their children in 2020. Singaporean universities have increased tuition fees by 38% since 2007, according to ValueChampion. The sudden impact of COVID-19 on the economy could be an indirect factor in why it might be more necessary to apply for an education loan.
Those who have set up a college fund may be forced to use the money to cover the emergency expenses brought by the coronavirus outbreak. As school fees increase and savings dry up, it becomes more prudent to consider a student loan.
What’s Your Purpose for Getting an Education Loan?
Before you look for the right kind of education loan, Singapore has certain requirements that you need to meet when applying for financing. You also need to think about the purpose of the loan. Are you planning to study here or overseas? Does your income fall within the low-income status set by banks and licensed money lenders? These are some of the questions that you need to answer when planning to secure a study loan.
Singapore’s money-lending requirements for students, however, tend to be clearer than applicants who wish to use the money for further studies or work-related education.
Choosing the Right Study Loan in Singapore
The Ministry of Education’s (MOE) tuition fee loan program is one of the most common ways to borrow money for education in Singapore. The ministry conducts the program through DBS Bank and OCBC Bank. Citizens, permanent residents and even international students can apply for the subsidy. You need to apply in person at any branch of either bank. The program allows you to receive up to 90% of the payable tuition fee as the maximum loan amount.
For example, the average cost of tertiary tuition in Singapore is approximately $30,000. If you gain approval for a study loan, Singapore will effectively shoulder up to $27,000 of the tuition expenses. Singaporean citizens pay a different amount than permanent residents and international students, although it’s safe to assume that the latter two only receive a smaller subsidy. While there are no minimum income and age requirements, applicants must have guarantors for their student loans.
The guarantor must be between 21 and 60 years old and have a clean financial record. Singaporeans must only have fellow Singaporeans as their guarantors, while permanent residents can either have a Singaporean or a permanent resident as guarantors. International students can have guarantors of any nationality. Interest rates are another thing to consider when choosing the right education loan.
The MOE’s tuition fee subsidy carries a payable interest of less than 5% per annum, which is based on the average prime rate of DBS and OCBC. Student borrowers can repay the principal and interest for up to 20 years. Only DBS administers student loans for students of the following major universities:
- Nanyang Technological University
- National University of Singapore
- Singapore Institute of Technology
- Singapore Management University
- Singapore University of Social Sciences
- Singapore University of Technology and Design
OCBC only administers loans for students of Nanyang Technological University and National University of Singapore. Take note that repaying the interest starts after you finish your studies. The minimum repayment amount costs $100 per month, which should begin not later than two years post-graduation. The following are also exempted from applying for an MOE tuition loan:
- Students who receive any kind of scholarships for tuition expenses
- Recipients of MENDAKI’s full tuition subsidy
- Applicants who use CPF savings to cover the full cost of subsidized tuition fees
If you don’t meet the listed requirements or prefer borrowing a bank, then you should take note that the terms will be different. A shorter loan tenure or repayment period will be among the discrepancies when borrowing from banks, but you could pay lower interest rates by doing so. The average interest rate per year for an MOE tuition loan is within 5.25% as of December 2019. By contrast, the average interest rate for a student loan from a bank is 5.10%.
Maybank
Maybank charges an interest rate of as low as 4.45% for student loans. Keep in mind that the bank advertises this rate as a promotional offer that runs for a limited time. The bank’s student loan promo normally has a processing fee of 2% for a maximum principal amount of $200,000, which is payable for up to eight years. Your guarantor must also have a minimum income of $30,000 per year.
Part-time students who need financing should consider Maybank’s loan for low-income applicants. The loan tenure and maximum principal amount are the same as the bank’s promotional offer, but the differences lie in the interest rate and processing fee. Maybank charges between 1.5% and 2% as the processing fee for the low-income student loan, while interest rates range from 4.5% and 4.78%.
OCBC
Those who plan to borrow money for local studies should consider the OCBC’s FRANK Education Loan. It’s one of the best offers given the 4.5% interest rate and 2.5% processing fee. The guarantor’s required income is also lower at $24,000. The bank may approve a loan amount of up to $150,000 or 10 times the guarantor’s monthly income. OCBC also happens to be one of the cheapest options for a student who plans to study overseas.
The bank is also among the best choices for an interest-only study loan. Borrowers only need to pay the interest over the course of their university education and focus on paying the principal after their graduation. Take note that this means a longer repayment in exchange for not worrying about hefty monthly payments during your studies.
As an example, a person who borrows $25,000 payable over six years can expect to pay almost $400 in monthly installments while attending school, while they will also pay the same amount post-graduation if they apply for a standard OCBC loan. The OCBC FRANK Graduated loan only requires a monthly payment of $94 for a $25,000 principal with a six-year term. The monthly payments after school will cost around $1,091.
RHB
If you’re keen on just focusing on your university education, then RHB’s Deferred Repayment loan is a good choice. Based on a principal loan amount of $25,000 over a six-year term, you don’t pay anything while you attend school. The monthly payments after you graduate, however, may cost almost $1,400 every month.
POSB
The bank’s Further Study Assist loan is a bit more affordable than OCBC. The average interest rate of POSB’s student loan is just 4.38% with a more common processing fee of 2%. Applicants can repay their loans from 12 months to 10 years, although it has a lower principal amount of up to $80,000. Your guarantor’s annual income should be at least $24,000. Consider this option if you want to avoid paying penalties on late payments or wish to pay before the monthly due date.
Don’t make it a habit of repaying your loan, though, even with POSB’s flexible terms. Your credit score will take a negative hit once you purposely pay beyond the due date. Payments that are one or two days may seem fine since that’s the feature of this loan, but you should remember that paying after several weeks can affect your cash flow since the payable amount would snowball into the next scheduled monthly payment.
On the other hand, POSB’s Further Study Assist loan is a good option for people who want to diminish their outstanding balance as soon as possible. The bank doesn’t charge a fee for early repayment, unlike other banks that require an additional 1% fee for each premature payment. Based on the information above, it seems that POSB has the cheapest cost of applying for an education loan in Singapore.
It may only cost roughly $3,980 to get a $25,000 loan over six years. Maybank’s promotional offer, if the bank still offers it, ranks next at a total cost of $4,032. OCBC’s standard loan costs almost $4,200, while RHB’s standard loan costs $4,306. On average, it costs $5,250 in Singapore to apply for education loans.
What Would Most Education Loans Cover?
The loan coverage depends on the type of financial instrument. If you get an MOE tuition subsidy, you will still have to pay for the remaining tuition amount since the subsidy only covers up to 90% of the cost. You will also need to cover miscellaneous expenses such as books and other recurring costs. Students who successfully borrow money from the bank may not have to pay for anything more, as the maximum loanable amount could be enough to cover all expenses.
In case you choose a CPF education scheme, your options for a university become narrow because CPF has a list of approved schools. Even if you find an accredited institution, you will still need to check if the course also falls under the CPF’s approved list. Banks seem like the best option at this point when it comes to loan coverage, but it can be challenging to gain approval because of a strict credit check. This begs the question of whether there is another option when you aren’t eligible for a student loan from the bank, CPF or MOE. The short answer is yes.
What Happens When You Can’t Find the Right Financing?
Personal loans are the better option for students of a short-term course, particularly professionals who only need the education to improve their skills. An example involves a marketing employee’s desire to learn web design for e-commerce. This type of course usually lasts for just 10 weeks at the most, so it doesn’t seem prudent to borrow money with a long repayment period even if it’s just for a year.
Imagine if you weren’t satisfied with the course; 10 weeks have passed and you’re still repaying the loan with interest! The minimum loanable amount is another problem when borrowing money from a bank. Most traditional lenders require applicants to borrow a certain figure. In other words, it can be difficult to borrow money from banks if you only need $1,000 for a vocational course. Personal loans from licensed money lenders are your best option, especially if you or your chosen course and school don’t qualify for an education loan from the government.
While licensed moneylenders are regulated by the Monetary Authority of Singapore, many unscrupulous individuals and companies keep on exploiting the desperation of many borrowers. Most of them have no other choice but to borrow from loan sharks due to a poor credit score. In reality, some licensed lenders can find a solution for clients who struggle with poor credit histories.
Aside from paying exorbitant fees and interest, the biggest risk of transacting with illegal money lenders is harassment because of not paying on time. It’s easy to know if you are dealing with a reputable money lender in Singapore. The Ministry of Law of Singapore keeps a record of around 160 licensed companies. You can check the list from time to time to see if your chosen company remains in compliance with industry- and government-mandated regulations. Another clear sign that you’re dealing with a trusted lender is the monthly interest rate.
Licensed money lenders in Singapore aren’t allowed to charge more than 4% per month on interest. Keep that in mind when applying for an education loan from an alternative source. Reputable companies will also require you to apply in person, instead of facilitating your applications over the phone or text.
Conclusion
The best way to choose an education in Singapore requires you to decide if you can afford a deferred payment scheme like the MOE tuition loan. Otherwise, a standard payment structure might be better. Each one will have its pros and cons, so it’s up to you to determine if a certain loan type’s advantages outweigh the drawbacks. Not eligible for a conventional student loan? Contact 365 Credit today to find out an alternative option.
