Education Loan Basics Explained

Getting a tertiary education can be a big help in boosting your career prospects. Given a choice, most employers would prefer to recruit a well-qualified candidate instead of someone who has studied only up to the secondary school level. But an investment in a university education can be expensive. If you are already working, it means giving up your regular income and paying tens of thousands of dollars a year as fees and living expenses.

Many Singaporeans simply do not have the savings to pay for an expensive post-secondary education. Even those who have a substantial sum set aside for this purpose often need additional funds.

Fortunately, you need not give up your ambition of furthering your education just because you do not have the money. There are several sources of funds that you can access to pay your fees and, in some cases, even to cover your living costs. Here is a brief description of the various education loans that are available.

Ministry of Education’s Tuition Fee Loan Scheme

This scheme is administered through DBS Bank and OCBC Bank and is available for Singapore citizens, Permanent Residents, and international students as well. To be considered for this loan, an applicant, along with a guarantor, is required to personally approach any branch of one of the designated banks. The maximum loan amount is 90% of the applicable tuition fee payable by Singapore citizens.

There can be a wide variation between the fees payable by Singapore citizens, Permanent Residents and international students. Consequently, the percentage of the actual fees available as a loan for certain categories of students can be substantially less than 90%.

The interest payable is the average of the prime rate of DBS, OCBC, and UOB. Currently, it is a little less than 5% per year. The repayment period can stretch up to 20 years.

CPF education scheme

You can use this facility to pay for your education only if your parents or a relative agrees to loan you the money from their Central Provident Fund balance. Of course, you can also use the amount accumulated by you in your own CPF account.

There are various terms and conditions that are applicable for getting funds from the CPF. It is essentially a loan and repayments start one year after you graduate. The borrowed amount needs to be paid back over a maximum period of 12 years.

Some of the restrictions that the CPF education scheme imposes are: * Loans are available only for courses at certain approved institutions. * It is necessary that the course requires full-time study. * There is a limit on the amount that can be withdrawn from the CPF. Only the Ordinary Account can be accessed.

Interest is payable at the prevailing CPF OA rate.

Loans from banks

OCBC, CIMB Bank, and DBS Bank through POSB, offer education loans carrying reasonable rates of interest that can be repaid over extended periods. These loans will usually turn out to be more expensive than the funds that are available through government schemes.

If you cannot borrow from your own or a relative’s CPF or are ineligible under the Ministry of Education’s Tuition Fee Loan Scheme, a bank loan presents a good option. The amount available is fairly generous. POSB provides a maximum of S$80,000 while CIMB Bank’s upper limit is S$200,000. OCBC Bank’s maximum loan amount is pegged at S$150,000. Of course, you first need to meet the respective bank’s eligibility criteria. The amount that they will lend is usually calculated on the basis of your monthly income.

Be prepared to undergo a thorough credit scrutiny as the bank would want to be sure that they will get their money back within the agreed loan period. You will also need to pay a processing fee for your loan. This is usually charged as a percentage of the loan amount and can vary between 2% and 3%.

In most circumstances, you will also need to provide a guarantor to the bank. The person vouching for your repayment could be a parent, a sibling or even your spouse. But your guarantor would also need to meet certain minimum eligibility criteria, which would include a specified income and age requirement.

The interest rate charged by POSB and OCBC is comparable. Both lend at about 4.5%. CIMB Bank is a little more expensive.

Which is the best loan option?

As a general rule, it is advisable to borrow under one of the government schemes if you are eligible. The repayment period for the CPF education scheme is 12 years while for the Ministry of Education’s Tuition Fee Loan Scheme it is a full 20 years. Banks, on the other hand, have a maximum loan tenure of 10 years or less.

But if you do not meet the requirements laid down by the CPF Board or by the Ministry of Education, go ahead and take a bank loan. The terms that banks offer are almost as attractive and they are definitely more flexible in their approval process. To do so, you can check out our list of the best education loans available in Singapore.

Importance of an additional educational qualification

Don’t underestimate the advantage that a university degree or a specialised course of study can give you. Gaining a suitable qualification can open up new job opportunities and career prospects. Thankfully, there is a range of low-cost borrowing options to choose from for an educational loan and most Singaporeans will be able to find a lender that will be able to meet their specific requirements.

Duckju Kang

Duckju (DJ) is the founder and CEO of ValueChampion. He covers the financial services industry, consumer finance products, budgeting and investing. He previously worked at hedge funds such as Tiger Asia and Cadian Capital. He graduated from Yale University with a Bachelor of Arts degree in Economics with honors, Magna Cum Laude. His work has been featured on major international media such as CNBC, Bloomberg, CNN, the Straits Times, Today and more.

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