Planning to Study Abroad - Read This!
You might have seen successful people having vision and ambitions to have set example by growing big in life. Many among these dream big, in early stage of life even while they are in school and consider education as a path to achieve their dreams, for which they are very much ready to cross borders and seven seas to upgrade their skills.
Over the past decade, we have witnessed a change in trend of Indian individuals moving abroad. A large segment of this comprises of students who prefer to pursue their higher education abroad. Even many parents in India plan to send their children abroad to pursue higher education. And yes this is happening very much at a time when education in India is recognized across the globe and India has become a known destination for education; with MNCs and foreign companies hiring students with professional degree from campuses of recognized universities and institutes located in India.
Some of the preferred destinations for Indian students moving abroad for higher education are United States of America (USA), United Kingdom, Australia, New Zealand and Canada.
As per UNESCO Institute for Statistics (2012) the number of Indian students studying abroad has almost tripled from 51,000 in 1999 to over 153,000 in 2007 and stood at over 200,000 in 2010; making India the second nation after China among the world's largest sending countries for tertiary students. In 2010 around 51% of the Indian students abroad pursued education in USA, with around 19% in United Kingdom and around 10% in Australia. And not to forget, these numbers might have seen an increase since 2010.
So what importance can these students enjoy, apart from pursuing higher studies in a reputed university abroad; and how others can join this dream race?
Residential Status and Exchange available for students outside India is guided by FEMA
As per RBI, the students studying abroad should be treated as NRIs under FEMA (Foreign Exchange Management Act).
FEMA defines a person as a resident in India, if he is residing in India for more than 182 days during the course of the preceding financial year, but does not include a person who has gone abroad or who stays outside India, in either of the following case:
A student going abroad does not qualify under any of the above mentioned 3 exceptions and therefore, his residential status for FEMA has to be determined as follows:
- On account of taking employment outside India, or
- Carrying on a business or vocation outside India, or
- Any other purpose that would indicate his intention to stay outside India for an uncertain period
As and when such a student becomes an ROI as defined by FEMA, he can open and operate NRE and FCNR accounts and even credit his forex earnings therein after paying tax thereon, if any.
- A student going abroad for the first time will always be a resident in India, whether his stay during the year was more than 182 days or not, as in the preceding year he was in India for more than 182 days
- This makes him a resident individual in the first year
- However during the subsequent fiscal years, he will be a resident only if his stay in India during the previous year was more than 182 days
- While he will enjoy an ROI status if his stay in India during the previous year was 182 days or less
- However as per Income Tax Act, an individual becomes an NRI only if his stay in India for that financial year is less than 60 days and his stay in India in the preceding 4 years are less than 365 days.
Even as per RBI, the students studying abroad should be treated as NRIs under FEMA and accordingly be eligible for foreign investments and NRE/FCNR accounts. Students going abroad for studies are hence treated as NRIs and are eligible for all the facilities available to NRIs under FEMA. As NRIs they can receive sales proceeds and balances in their NRO account upto USD 1,000,000 per financial year. In addition, they can receive remittances upto USD 100,000 from close relatives in India on self-declaration. Such remittances can be used towards maintenance, which could include payments towards their studies. Apart from this the educational and other loans availed of by students as a resident in India can be allowed to continue. There is no dilution in the existing remittance facilities to students in regard to their academic pursuits.
Thus they are eligible for benefits available to them as Resident as well as Non Resident Individuals.
The high cost of education abroad
It is known that the costs of study in foreign countries are very high and require a lot of money. Though most countries provide subsidised education fees only for their citizens, international students get no such benefit and are required to pay full fees. Not everyone is lucky enough to qualify for a scholarship.
Though banks may be ready to provide education loans which will take care of the basic fees, but students need to themselves bear the expense of the high cost of living and other related expenses. Some belonging to rich families may though get financial support from their parents, but others will have to find a part time job opportunity to support their high cost of education and living. Gone are the days when foreign students could get unconditional work on Student Visas. In USA an individual with Student Visa is allowed to work on the university campus for a maximum of 20 hours per week, while full time work is permitted usually during vacations. There it is illegal for overseas students to work off campus without prior authorization. So you cannot really rely upon working while studying in all foreign nations and hence you need to be financially sound before moving a step forward towards your dream and applying for a Student Visa.
So what is a Student Visa?
Student Visa is a special authorization provided by the respective government to allow foreign students to attend universities/educational institutes in its nation and do not require the holder to obtain citizenship in the nation. Potential students seeking for higher education in another country need to obtain a Student Visa for that country.
Student Visas are usually issued for the period it takes the student to complete his/her course of study, educational programs or work assignments/training.
Steps to Acquire a Student Visa:
Financing your overseas education
Academic Test: You may have to take the requisite academic test for planned education and hence you need to figure out what kind of test you require to take and accordingly register for the test. You may very much have option to take this test and pass in India (your home country).
- Registration in recognized College/University: Once you have cleared the requisite test, you need to register yourself in a recognized College/University. For this you need to search for a suitable College/University which you can attend for your intended course and apply for admission. You need to accordingly fulfill all formalities of registration. Once you are successfully registered, the College/University will send you a certificate of eligibility which you will need while applying for the Student Visa.
- Apply for the Student Visa: On receipt of certificate of eligibility, you can apply for the Student Visa and go through a visa interview at the respective consulate/embassy in your home country (India). If you have your immediate family members shuttling with you on a Student Dependent Visa, then you need to apply for their visa at the same time. Student Visa is usually issued for the duration mentioned on your certificate of eligibility. If you are refused a visa, you can re-apply for it as there is no limit to the number of times you apply for a visa.
- Once you get your Student Visa stamped, you can then look forward for the essential information and key dates with your College/University.
Many commercial banks in India offer educational loans upto Rs 20 Lakhs for education abroad which usually covers education related expenses like tuition fees, food and accommodation, flight tickets etc.
Students can always apply for a loan from banks to finance their overseas education by meeting certain eligibility criteria and requirements, such as:
- You need to be an Indian resident
- Should have secured admission to a professional/technical course abroad
- Age is preferable between 16 - 35 years
- For loan of more than Rs. 750,000, Collateral is required (in the form of fixed deposits, NSC certificates, a property worth the loan amount, and a margin amount of 15%)
- In case of a full time course, co-applicant is also required. (Co-applicants can be Parents, Spouse, Siblings or else Father-in-Law, Mother-in-Law, Brother-in-Law, Paternal/Maternal Uncle / Aunt)
- You need to provide the copy of your academic certificates (SSC, HSC, Graduation etc); Admission Letter from Institute with Fee break-up
- Age, Identity and Residence Proof for KYC (Know Your Customer)
- Income Related Documents: Salary Slips, Copy of Bank Account Statements, ITR etc
High value overseas education loans usually come with a margin and hence the loan amount disbursed is around 15% lesser than the sanctioned amount. While any Scholarship/assistantship can be included in the margin, you may need to arrange for the rest of the money. For regular disbursement, you need to submit the following documents:
Subsequent disbursement request letter from applicant or co-applicant
- Fee demand letter from University
- Applicant's academic progress report of previous semester
In terms of repayment, the overseas education loan come with a holiday period of usually 6 months after getting the job or 12 months after completion of study (whichever is earlier). Banks provide option to either pay the interest component during the study period or you can opt to pay it along with the principal amount in the form of Equal Monthly Installments (EMIs), over a period of 5 to 7 years from the 12th month after completion of the study. You may need to repay the entire loan amount in a period of 5 to 7 years for which you have to provide repayment instructions to your bank in the form of Post Dated Cheques or ECS or Standing instruction along with some postdated cheques for security.
Rebate on Interest:
If you opt to service the interest component during the study period, your bank may offer you interest rebate upto 1.0%, while some banks even offer interest concession of upto 0.50% on all education loans provided to girl students. You can also avail for a tax deduction on the interest you pay on an education loan under Section 80E of the Income Tax Act 1961.
To maintain a standard across banks, the Reserve Bank of India (RBI) prescribes the specifics (amount, rate, repayment period) of education loans and the government provides a 2% subsidy on these loans to the banks.
Insurance for Students seeking education abroad
Foreign universities particularly from USA and UK are very much concerned about the safety and security of the international students in their premises. So they insist for a student medical insurance for all their international students. In some cases the insurance cover required is as much as USD 250,000 for which the average premium can be around USD 900 if bought abroad. Being far away from their home country, such insurance ensures that students are not left alone during any crisis that they may come across in a foreign nation where they are pursuing education.
In India, such insurance plans are specially designed to meet the requirements of mandatory insurance demanded by foreign universities in USA, Canada, Australia and New Zealand. Along with medical coverage, student insurance covers other risks such as sports injuries, mental or nervous disorder, cancer, pregnancy, child care benefits, drug abuse, alcoholism etc. Some student insurance also provides bail bond that protects students if arrested or detained by police for a bailable offence while being abroad.
The student medical insurance, if purchased in India offers a one-third price advantage over the scheme purchased overseas. Such insurance is available to students between 18 and 35 years, and it can be bought even for a term of 2 years.
Even dependents (spouse and/or child below 18 years) of enrolled students can apply for insurance coverage along with the student. For dependents, one has to apply within 31 days of birth, legal adoption, marriage or arrival in country of study. If the dependents are not eligible for student insurance coverage then they may apply for other plans designed for people outside home country.
Insurance offered by some Indian insurers are available in a choice of plans such as Gold, Silver, Bronze etc covering a combination of various risks. These insurance can even be purchased online and can be purchased using a credit card or a debit card or a cheque. The claims can be settled by applying to the Third Party Administrator who usually reimburses the amount in INR. In some cases insurance companies do settle claims in foreign currency, subject to approval from the RBI. To avail this benefit the policy holder needs to pay all his premiums in foreign currency.
As there are many insurance companies in India that offer student medical insurance policies, it is advisable that one should compare different student health insurance policies before buying one and choose the best plan that suits his specific student medical insurance requirements. Such insurance covers the expenses of NRI students on sports induced injuries, cancer screening tests, nervous breakdowns, alcoholism and drug abuse, pregnancy, and childcare benefits.
To deal with the costly health care and medical needs in foreign nation, students are recommended to purchase a good student medical insurance while going abroad even if the university does not mandate.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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