When I started studying Engineering, I had no plans of doing a Masters degree abroad. But my engineering college was filled with students whose goal was to go to the U.S. So much so that students were studying for GRE & TOEFL right from their first year! This was the general atmosphere everywhere at that time – IITs, BITS, REC/NIT etc. I was caught up in the same excitement and decided to study abroad for my Masters. But the whole journey of getting there was not so straightforward- it had it’s own drama. College study abroad or in India is the biggest expense for young people entering the work force and second biggest expense after buying house for parents with kids. if not managed well it can derail your retirement plans like it did for my parents.
I read this on Subramoney the other day “How much should you spend on your children’s education? Suppose you have estimated that you need Rs. 6 crores for your RETIREMENT. You are now 53 years of age. You have about Rs. 2 crores and 6 years of working (and you also expect your Rs. 2 crores to double in this period), so you think you are comfortable. However, suddenly your kid tells you he/she has got admission in a European college – it costs Rs. 90L for the education. Your second kid is also watching.”
This hit home- because my Masters study abroad had derailed my parents’ retirement. In-fact such last-minute expectations from children can derail anyone’s retirement plans. In this blog post I will share my story and learnings so you can plan ahead.
This blog post is about a Masters Engineering degree in the U.S but it can also easily apply to MBA in India or other second degrees outside India.
To know our plans to fund our kids graduation read this blog post .
Study Abroad- a growing phenomenon in South Asian Countries
Going to study abroad is a phenomenon most unique to South-Asian countries. Because higher education in these countries is either extremely competitive or low-quality, quite a bit of students opt to study & then work abroad.
Dollar Salary is a big attraction for getting a foreign degree apart from the opportunity to get a high-quality education or do cutting-edge research. The dollar-rupee exchange rate today is Rs.70 to 1$.
As long as this exchange rate holds true in the future, your retirement will be derailed if you or your child wants to study abroad on your dime.
My PG Studies Abroad derailed my parents’ retirement plans
I was reminded of how I told my parents that I wanted to study abroad in the US to do my Masters immediately after I finished my B.E in India. My father had retired from his bank job a few years earlier. Their plan was that once I got a job in the city they would move back to their native place where they owned a house and costs were much lower.
After completing my B.E in India, I was sitting at home unemployed- there was no campus recruitment in my college because of the dot-com bust. Meanwhile along with some friends of mine I had applied for couple of Universities in USA .
Luckily I got admitted to a state university in the U.S for a Masters degree. The next hurdle was student visa, they were getting rejected left and right post-9/11 attacks. I got lucky again and got a visa.
The next question was how to pay for the fees in U.S dollars. Studying abroad is an expensive affair, my education fees was running into lakhs of rupees. Education loan came to the rescue! but with a catch. My parents had to put up their house as collateral for the loan.
Being the kind of middle-class parents, who would sacrifice a lot for their child’s education, they also chose to pay the interest while I was studying so the loan repayment would not be burdensome for me. So for the next 5 years they had reduced monthly income due to interest payments apart from their largest asset stuck as collateral with the bank.
It was all one big unplanned mess. But one that I am grateful for and forever indebted to my Parents. Thank you Amma & Appa.
But given a second chance to study abroad I would definitely try harder for scholarships.
Other Kids Had Scholarship or other ways to pay for college
Now when I got to the U.S, I saw that kids around me had been much smarter than me. They had gotten tuition scholarships & all-expenses-paid fellowships from India itself because they were better-prepared and well-informed.
Other peers of mine took a bet and worked under a professor for a year to prove their worth and later snagging a teaching/research assistantship .
Others managed to wing an internship that was a pathway to a job at the same company. So basically I was one of the few clueless middle-class Indian kids who had no idea how to snag a scholarship and was paying full tuition cost through an education loan! yikes!
My fortunes turned around towards the end of my course as a result of some lucky breaks. But my lack of initiative as a student is not something I am proud of. All the more because it delayed my parents’ retirement for about 5 years until the education loan was paid off.
88% Indian consider studying abroad for PG
My parents are not alone when it come to putting their kids education ahead of themselves. See the statistics below
- 88% consider post graduation degree a necessity and want to do PG in USA
- Only 1% students in India fund their education fully or a part of it.
- Whereas in USA over 60% of kids fund their education fully or a part of it.
Truth about Studying Abroad based on my experience
I’m listing down a bunch of truths about studying abroad.
Quality of education in US Universities
- Even an average U.S university has a better quality of education than even elite Indian universities. So the experience is worth it. Compared to the quality of teaching at my U.S university which was not Ivy League but a regular state school, I would say that my entire 4 years of engineering in India was a waste of time.
- The U.S curriculum is practical, professors collaborate with industry and the academic culture encourages asking questions. We were told during orientation by the professors that “There is no such thing as a dumb question”. This one statement encouraged all Indian students to ask all sorts of questions we had never asked while studying engineering in India even really basic ones. The American professors would be surprised by such basic questions but they would patiently answer it without putting us down.
- In India even premier institutions have an out-dated curriculum and asking questions is actively discouraged by professors who would take great pleasure in publicly humiliating the student asking the doubt. No wonder students in India tune out after a while.
Job Opportunities Abroad After PG
- There is no guarantee of student getting a job after graduating because of work-visa restrictions now in place in Western countries. How is the kid going to pay off this dollar loan if they can’t earn in dollars at-least for a couple of years after graduating?Most applicants are not going to get into Harvard, Stanford etc. given the simple math around number of seats available in each school. They will land in the Tier 2 universities that will accept them in return for full tuition fee. After investing so much time and effort into the application process, most applicants will choose whichever university accepted them.
- Coveted Companies like Google, Facebook, McKinsey, Deloitte, Goldman Sachs etc will not hire directly from Tier 2 colleges unlike how they actively hire from Stanford, Caltech, Harvard etc. No different from how IITs/IIMs are favoured in hiring in India. But if your kid has talent they can always get hired into at-least tech companies later on after some work experience.
- However, competition for seats & jobs is not mad-crazy & cut-throat like in India. You definitely get the feeling that there is plenty for everyone at-least in the U.S. I think this has to do with the dynamism of their economy & universities and not due to their lower population.
I worked in US for 10 years after my PG. You can read more about my experience.
Scholarships & other Aid
- If you & your child plan ahead, your child can study abroad for FREE using scholarships and teaching/research assistantships.
- Scholarships & assistantships can be figured out by kids who take initiative and who have clarity on what they want to do in life.
- Getting admitted to a U.S university is nothing special these days. U.S universities will give admission to any international student who can pay full tuition fee. That’s their business model these days. That’s how they pay for their operating expenses and scholarships for American kids since the U.S government has cut education & research funding. I suspect the same is the case with U.K & Australia as well. So getting admission without scholarship is like buying a product if you can afford to pay.
- So it should be clear by now that most western universities are banking on Indian and Chinese parents to pay full course fee by appealing to their nostalgic attraction for a western degree’s bragging rights: “My son/daughter is studying in ___ University in U.S/Canada/Australia/U.K”
- Snagging a scholarship or assistantship helps the child stand out while applying for jobs & internships. It is a valuable signal for potential employers. In most cases, professors with industry links will recommend their research assistant for employment at the company they are consulting. So it is not just a matter of saving money on tuition as it opens doors that are not available to students who study on an education loan or their parent’s dime.
Balance Early retirement and your kids college study abroad?
- Finish saving for your retirement very early by your 40s so you are not caught between saving for retirement and funding kid’s foreign education at the same time. Plus if your retirement corpus is doing better than expected you can fund your kid’s education partly.
- Teach kids to be pro-active and self-aware. Clueless kids will follow the herd and highly likely waste their parents’ money. Like I did.
- Encourage your kids to get at-least 2 years of work experience in a related field before going for a Masters degree abroad. This builds life skills like time management, professionalism, communication skills, independence, self-awareness, work experience, clarity, savings, maturity etc. My batchmates in the U.S with work experience had an easier time getting jobs & internships compared to students who went directly after college. They were simply better prepared in all aspects. Although an argument could be made that once a kid tastes salary money they won’t be interested in studying further, the corporate culture will ensure that your kid gets frustrated soon to look for escape routes like studying abroad.
- Talk to kids who studied abroad during their India visits – ask them relevant questions like job prospects for the course of study. It is your child’s responsibility while still in college to network with seniors who are headed abroad and figure out how to snag scholarships and assistantships while still in India by building up their academic profile to match what their target university is looking for.
- Encourage your child’s to publishing research papers, do original projects, interning at relevant companies, networking with professors at western universities, attending industry conferences, studying scientific journals etc. during the 4 years of college in India. As an analogy : would you fund your child’s admission to film school if they have not shown any interest in school dramas or college theatre or even neighbourhood plays? Communicate this fact to them in clear terms right from their first year of college. Such pro-active and self-aware kids are most likely to get full/partial financial aid on their own sparing you the expense.
- Encourage your kid to get at-least partial scholarship as a condition for standing collateral for the education loan. If that is not possible tell the kid to find a white-collar on-campus job to pay for their living expenses or to pay interest on the education loan. blue-collar on-campus jobs like at the school cafetaria or bookstore are a time sink & distraction from academics as they will physically tire out the child. I joined and then quit one such low-paying, physically-intensive job to focus on studies instead.
If Taking Loan is necessary
- Take education loan in US: I repaid a few extra lakhs in loan just because the exchange rate was not in my favour during repayment period. If you have a relative in the U.S who can stand guarantee then you can get a education loan in the U.S itself in dollars. This has much lower interest rate and protects your child from exchange rate fluctuations. You can enter into a separate legal agreement with your relative promising to pay them if your child were to default on the loan. More info here
- Avoid doling out cash from your retirement corpus. Instead stand guarantee for any education loan taken by the kid.
- One ideas is to take loan against your house as collateral as you can still live in it or rent it out while it is put up as collateral with the bank. It is a win-win way to leverage an illiquid asset. You can choose to pay interest on the loan while your kid is studying so the loan outstanding does not compound over the course of study.
- Take out accident insurance on your kid if you are standing collateral for an education loan.Why? I realised that if something had happened to me after 2 years of college on loan, the bank would have auctioned off my parents’ home to recover the loan. A bank auction does not try to get the best market value for the house instead their main goal is to recover the loan amount. Taking out accident insurance on your kid with yourself as the nominee for the amount of the loan ensures that you can pay back the education loan and get back your house in case tragedy strikes.
- Avoid Education consultants– who simply help you fill out college application forms & guide you through visa process are a waste of money as ultimately it is your child’s profile that determines admission. Admission with scholarship reflects positively during the visa interview as well.
Read our blog post on how to pay student loan in shortest time.
Graduation Studies Abroad?
A new trend I’m seeing is kids wanting to do their 4-year engineering degree itself abroad given the extreme competition and low-quality in India. In just one generation I can see kids’ expectations getting higher and higher as a result of being surrounded by aspirational peers. But this outcome is to be expected if as parents we’ve strived to send them to the “best” schools here in India.
I have no idea of how to plan for a 4-year college study abroad as it is more expensive, has fewer financial aid options and requires the kid to be more mature to handle the greater freedom in western countries. So I’ll leave it to the readers to throw light if they have experience in the matter
If you’ve studied abroad, please share your tips to get scholarships and other financial aid for Indian students.
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What would be a reasonable to Target to plan for Education Goal of the child in current terms?
Our elder daughter went to US for her undergrad. Younger one is ten years old right now and goes to grade VI in an IB school in Pune. Yes its a big strain on the finances. Two things we would like to share with you all that we sort of discovered. 1. Tax rebate on education loan is only applicable if loan is taken from an Indian Finance Coy. 2. Quality school education, in India is also becoming very expensive, compared to some ten years back and will have to planned in spending. Schooling will be almost, or if not equal to the household budget for buying a house.
Thank you Polly for sharing this information with us. The other day I was discussing with my cousin the fees for a CBSE school in a metro- it is onwards of 1.5 lacs/per annum. One of my nieces studied in IB school which cost a lot more compared to others. Depending on a school/day or boarding it can cost anywhere between 6- 15 lacs/per annum. In your opinion what are the advantages of IB over Cambridge?
Hi Naren, I am putting money in SSY ..which might grow upto 77L by the time she is 25 .. i am expecting her to work for sometime after graduation before going into PG directly .
Working before PG is a fantastic idea NG.
Hey Naren – nice summary. Who knows how things will be 18 years from now for my kid or 20+ for yours but my feeling is that we’ll move to a point where finishing education without a loan will be a rare privilege for the chosen few. Our kids will be paying off their loans into their 30s.
Personally I’ve budgeted for 50L in today’s money to be available for her graduation. Anything more, she’ll have to borrow and repay on her own
At times I feel that outlook towards education may change with the advent of technology and the availability of high-quality information for very cheap…. I can imagine the emphasis change to skill and knowledge instead of a degree from a premier college