What Millennials Need to Know About Paying for their Own University Education
University can feel like a neverending party, but it’s over in the blink of an eye. And if it hasn’t been paid for by the time you get your degree, real life is going to hit you harder than the world’s biggest hangover.
Instead of blindly taking the first loan you can find, do a bit of advance planning and you could save yourself a whole lot of grief, as well as pay for your education in full a lot earlier. Here are a couple of things you must know no matter how clueless you are.
The cost of public vs private universities
Gone are the days when everyone just tried desperately to secure a place at NUS. These days, the tertiary education scene offers far more options, whether at public or private institutions.
The five public universities (NUS, NTU, SMU, SUTD and SIT) offer the cheapest fees to Singaporean citizens, ranging from $7,000+ to $12,000+ per year at the time of writing. SMU and SUTD tend to price their courses higher than similar courses at the other two public universities, while NTU tends to be the cheapest.
You can expect a three to four year degree at a public university in Singapore to cost you from $22,000 to $48,000, or even more, bearing in mind that the universities raise their tuition fees every year.
If you don’t want to go to a public university, you can enroll at SIM or other private schools offering external degrees such as MDIS.
These schools are usually significantly more expensive to attend than public universities. Singapore citizens eligible for tuition grants will stay end up paying $14,000+ to $49,000+ per year to enroll in a part-time degree programme at UniSIM (bear in mind that SIM’s external degrees might be priced differently).
Taking a foreign university-accredited course at MDIS will have you paying much higher fees, and you might also have to foot the cost of going overseas for a period of time (usually 3 to 6 months) to study at the overseas university.
Finally, you might opt to go overseas. University fees in Australia generally range from 15,000 AUD (16,100 SGD) to 35,000 AUD (37,700 SGD) a year. In the UK, annual costs are usually about 18,000 GBP (37,100 SGD), while in the US the average cost is about 28,500 USD (37,800 SGD) a year, although you’ll pay much more at more prestigious institutions. You’ll also have to factor in the cost of air tickets, rent and living expenses.
How do you pay for it?
If your parents aren’t paying for you, either through their savings or CPF funds, and you don’t have much money yourself, the cheapest way to pay for your education at NUS, NTU, SMU, SUTD or SIT is to take the MOE Tuition Fee Loan. Since 2013, UniSIM students have also been given the opportunity to take MOE Tuition Fee Loans.
Those who aren’t eligible for the MOE Tuition Fee Loan will then have to obtain an education loan from one of the various banks operating in Singapore.
We cannot stress further the importance of shopping around for the best loan, because banks offer different rates which fluctuate all the time. You can use MoneySmart’s education loan tool to find out which banks are offering the best rates at the moment.
How much can you borrow?
If you’re taking the MOE Tuition Fee Loan, you’ll be able to borrow up to 90% of the sum of your tuition fees. This does mean that there’s a portion you’ll have to pay on your own. Even if you take the cheapest possible course at $22,000 a year, you’ll still need to pay at least $2,200 out of pocket.
If you know your parents won’t be paying for you, it’s best to start saving as soon as possible. In the gap between JC/poly/NS and university, working your butt off can help you to raise that sum in a matter of months.
If you’re taking an education loan from a bank, things get a little more complicated. You see, how much the banks will lend you depends on how much you or your parents have to begin with.
Most banks will cap the amount you can borrow at say, 6 or 8 times your parents’ monthly salary. If the parent (or other person) applying with you earns $3,000 a month, a bank that says it will lend you 6 times their monthly salary will only let you have $18,000 altogether—not a lot, as you can see.
Hence, before you sign up for the most expensive course you can find, you’ll need to take a realistic look at your financial situation and what the banks are offering to see if you can even borrow enough money to pay for your school fees.
Tip: If you have a sibling or relative who earns more than your parent, using them as your co-applicant instead of your parent will get you a higher loan amount.
When do you have to pay back the loan?
There is no such thing as a loan with an unlimited repayment period. In any case, why would you want to be in debt forever?
As a general rule of thumb, the quicker you pay back your loan, the less it will cost you. This is because you pay interest on a yearly basis. Paying back the loan a year early can in theory save you a year’s worth of interest, assuming the bank doesn’t impose an early repayment penalty on you.
If you’re taking the MOE Tuition Fee Loan, you have up to 20 years to repay your loan, and your repayment sum can as low as $100 a month. However, if you can afford it and don’t have any other liabilities, it’s probably a good idea to pay off your loans as quickly as possible. Repayments have to start within 2 years from the day you graduate.
The MOE Tuition Fee Loan starts accruing interest immediately after you graduate, so the sooner after graduation you pay back the loan the less interest you have to pay. The MOE Tuition Fee Loan can even be repaid in a lump sum once you graduate, so if you’re super resourceful you can even raise the entire sum by working while you’re at university. You’ll have to pay a full repayment fee, which is likely to still be lower than the bank’s interest rate.
For bank loans, you’re usually given less time to repay your loan, typically from 5 to 10 years depending on the bank. You also end up paying a lot more interest than you would if you had taken out an MOE Tuition Fee Loan, as interest starts accruing once the money is disbursed to you.
Most banks will make you pay a prepayment fee if you repay the loan earlier. Since the main way they’re earning money from you is through interest, the earlier you repay the loan in full, the less interest they earn. A prepayment fee is their way of trying to claw back a bit of that money they would have lost. Still, the prepayment fee is likely to be significantly lower than the bank’s interest rate, so it’s still a good idea to pay back the loan as fast as you can.
Tips for keeping the cost of your education as low as possible
If more students realised they could actually reduce the cost of their education, the LAN shops and Downtown East would probably be a lot less crowded.
• Borrow as little as you can afford: Just because the bank is willing to lend you a ton of cash doesn’t mean you should take it. You pay interest on all the money that you borrow, which basically means that the larger the sum you borrow, the more expensive the loan is.
• Pay it back as quickly as you can: The longer you take to repay your loans, the more you pay in interest. It is thus cheaper to you to pay back the loan as quickly as you can. However, note that if you have other loans that you’re paying even higher interest on (like credit card debt), you should pay them off first.
• Get a part-time job: Part-time jobs aren’t that common amongst Singapore university students, but they should be. 3 or 4 years is a long time, and you can save a lot during that period. Unsurprisingly, giving tuition is probably the most common part-time job amongst local uni students.
• Part-time jobs overseas usually pay more, yay!: If you’re studying overseas, you have all the more reason to work part-time, due to the fact that you can probably earn several times more flipping burgers in Australia or the UK than you can here (possibly even more per hour than you will in an entry-level full time job in Singapore when you graduate).
This article was first published over at MoneySmart blog on 5 January 2015. It is reproduced with permission.
About The Author (Joanne Poh)
In my previous life, I was a property lawyer who spent most of my time struggling to get out of bed or stuck in peak hour traffic. These days, as a freelance commercial writer, I work in bed, on the beach, in parks and at cafes, all while being really frugal. I like helping other people save money so they can stop living lives they don't like.
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