How to manage currency fluctuations while studying abroad

Every fall in the rupee against foreign currencies like the dollar makes studying abroad more expensive.

With indications that the Indian currency is likely to slip below Rs 80 to a US dollar, everything from tuition fees, living expenses, insurance and air travel will become dearer. The rupee depreciated by 12 paise to 79.90 against the dollar at the open on September 6.

“Parents who never thought of budgeting costs towards the falling rupee against the US dollar are now forced to shell out more than Rs 2 lakh just for this term,” Amitabh Bhatnagar, head of trade, foreign exchange, diplomatic segment at RBL Bank, told Moneycontrol.

Bhatnagar gave an example: consider $40,000 as the amount for one year of student expenses abroad. In January 2022, the dollar was equivalent to Rs 74.5, which would make $40,000 equivalent to Rs 29.8 lakh. At the rate of Rs 80, the amount would be Rs 32 lakh, which works out to an increase of over Rs 2 lakh in expenses for education overseas.

Add to this the increase in airfares and education abroad becomes that much more expensive, requiring parents to shell out more or even topping up education loans.

Here’s a look at some ways to counter such uncontrolled situations:

Earn interest

Bhatnagar recommends setting aside the money meant for paying the fees so that it earns interest–either through fixed deposits or investments–to help offset losses arising out of currency rate fluctuations.

“Fixed interest income earned till the actual transfer is required will save on increased costs on account of exchange rate fluctuations,” he said.

An amount of Rs 32 lakh placed in a fixed deposit at 5 percent for five months will earn Rs 66,000 in interest, thereby helping to reduce additional costs on account of rupee depreciation.

Destination currency

According to Amit Singh, founder of education consultant UniCreds, the most practical way for parents to insulate themselves against currency fluctuations is by ensuring that student loans, investment portfolios, and other financial preparations are in the currency of the destination country.

“This allows the borrowing and the repayment of any dues to remain in the same currency, thus ‘sidestepping’ the problem of foreign exchange,” he said.

In the case of the US, Singh suggested that parents take a dollar loan so that when their child finishes college and starts earning in dollars, the loan can be repaid without worrying about forex.

“Such dollar loans are a relatively new offering in the Indian context, but despite their complexity, they are well worth the effort,” Singh added.

Hedging risk 

Individuals can book future USD/FX rates for university fees due in four-six  months, said Bhatnagar of RBL Bank. This takes care of the possible risks of rising forex rates.

“However, there is a premium attached to committing to future FX rates. Currently, the forward rates in January, for example, are around Rs 1+. This means if the dollar is at Rs 80 today, the January 2023 rate you book will be about Rs 81.

While this is an additional cost, Bhatnagar said the risk of a further increase in FX rates is negated.

Load the FX card

Another option is to buy a forex card, load it up at the current rate, and forget about volatility. However, the downside here is that FX cards do not offer interest.

Therefore, Bhatnagar said, you end up losing the interest you could have earned.