Should you take a personal loan for your education?

Should you take a personal loan to further your studies?

Thinking of going back to the classroom after stepping out many years ago? Good move. One of the most valuable investments you can make in life is continuing your education, whether it’s pursuing a master’s degree, or upgrading your skills because it can reap great dividends.

Not only does it potentially increase your earning capacity over the course of your career, but it also increases your depth and breadth as an individual, arming you with life skills such as discipline and critical thinking.

As a working adult, you may be wondering whether to take a break from your job and study full time, or hold your job and do a part-time course. And of course, the bigger question is, how are you going to fund your studies? 

 

Student studying
Furthering your studies is one of the best investments you can make in yourself for your future

 

One way to finance your studies is to look into an education loan, which is offered by two local banks in Singapore – POSB Further Study Assist and OCBC Frank Education Loan. The money from an education loan is strictly for paying school fees. 

Another way you could raise money for your studies is to apply for a personal loan, which is offered by most banks. Under this loan, you get cash which can be spent on anything you want, like paying for textbooks, buying a laptop or as a living allowance.

However, taking out a personal loan requires you to have a minimum income, so this will apply more to part-time students who are still holding a job or students who have an independent source of income such as rental income. 

(Note: There is also a Tuition Fee Loan, which is government-funded and administered by DBS Bank, and it applies only to students studying in local institutions like the polytechnics and universities like Nanyang Technological University, and National University of Singapore.) 

 

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Should I take a personal loan or education loan? 

Still not sure if you should take an education loan or personal loan? Here are some features of both to help you decide.

 

 

Education loan

Personal loan

What can you use it for?

You can use it to pay the fees for a course offered by an institution that is on the bank’s approved list.

You can use it for anything you want, whether it’s to pay fees, buy a laptop for coursework or pay for educational materials.

Do all banks offer it?

Two local banks offer education loans – POSB with its Further Study Assist and OCBC with its Frank Education Loan.

Yes. 

Who can apply for a loan?

You can be a full-time or part-time student. If you have no income, you can make a joint application with an eligible guarantor.

You require a minimum income to apply for a personal loan, so you would likely be a part-time student holding a job, or a student who has an independent source of income such as rental income.

Banks like POSB require a minimum income of $20,000 a year to qualify for a personal loan.

Interest rates

Interest rates range from 4.5% per annum to 5.88% per annum, depending on the bank.

Interest rates can start from as low as 3.88% per annum and can go to 11% per annum. The interest rate offered to you by the bank is based on your personal credit and income profile and may differ from the published rate and the rate offered to other borrowers. 

(Correct as of 13/8/19).

Minimum amount you can loan

OCBC’s Frank Education Loan requires a minimum loan of $1,000, while POSB’s Further Study Assist has a minimum loan amount of $2,000.

You can borrow as little as $500 from banks like POSB and DBS.

Maximum amount you can loan

Under POSB’s Further Study Assist, you can loan up to 6 or 10 times your monthly income or $80,000, whichever is lower, subject to terms and conditions.

With OCBC’s Frank Study Loan, you can loan up to 10 times your monthly income or $150,000, whichever is lower. 

If you earn more than $20,000 but less than $30,000 a year, you can borrow up to 2 times your monthly salary.

If you earn more than $30,000 but less than $120,000 a year, you can get a loan of up to 4 times your monthly salary.

If you earn $120,000 and above a year, you can borrow up to 8 or 10 times your monthly salary, or up to $200,000, from banks like POSB, DBS and HSBC.

 

How is interest calculated?

On a monthly rest basis. This means interest is calculated based on the outstanding balance of the loan. As you pay off your outstanding loan amount every month, the interest you pay will reduce over time.

 

 

On a flat rate basis.

With a flat rate, interest payments are calculated based on the original loan amount. The monthly interest stays the same throughout, even though your outstanding loan reduces over time.

 

 

Payment terms

POSB’s Further Study Assist offers a loan tenor of up to 10 years for its preferred institutions, while OCBC’s Frank Education Loan allows up to 8 years, with 3 repayment options, such as paying only the interest while studying.

Personal loan tenors can run from 1 to 5 years for most banks, and up to 7 years with HSBC.

Processing fees

POSB charges a fee of 2% to 3% while OCBC charges a fee of 2.5% subject to a minimum charge of $100.

Varies between banks, but can be as low as 1%. And banks do run promotions from time to time and waive their processing fees.

 

It can be seen that local banks are supportive of education, offering students loan conditions that are more relaxed. However, there are certain circumstances under which a student will nonetheless find that he or she needs to take a personal loan for studies. Here are some situations in which a personal loan may be required in addition to, or in place of, an education loan.

Note, however, that because a minimum income is required to apply for a personal loan, these situations apply more to part-time students who are still holding a job.

  

Does your course qualify for an education loan? 

Helen is good at baking and dreams of opening her own pastry shop. She wants to sign up for a series of masterclasses to take her skills to a professional level and she needs a loan because she has used up her SkillsFuture Credits.

Banks that offer education loans require the institution to be on their approved list. Unfortunately, the classes Helen intends to take are run by a small baking school that is not on the list, which means her application for an education loan may not be approved. 

While the banks’ approved list of institutions is extensive and covers many schools in Singapore and overseas, certain institutions are not covered, such as those offering short-term courses or technical classes. Although the banks will consider applications on a case-by-case basis, approval is not guaranteed.

If her application for an education loan is not approved, Helen might want to consider taking a personal loan to pay for her masterclasses. 


Do you need to pay for educational materials or a laptop?


Susan is a doing a part-time masters in psychology. She has taken out an education loan for her tuition fees, but she needs extra money to pay for course materials as well as replace her ageing laptop.

Course materials and a laptop are essential for her studies. However, she can’t use her education loan to pay for either because it is meant only for tuition fees. Banks disburse education loans through cashiers’ orders in the name of the institution to ensure the money is being used for its intended purpose.   

 

Studying materials such as books and laptop
Keen to hit the books again but not sure how you'll finance your education? A personal loan may be your answer

 

And while DBS bank offers a Computer Loan specifically for buying computers, it is open only to NUS undergraduates and full-time postgraduates and Ngee Ann Polytechnic students.

Susan can consider taking a personal loan instead because the money from a personal loan can be used for anything, whether it’s for living expenses or to buy textbooks.

 

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What if you only need a small sum of money?

Jeffery wants to take a short-term modular course on teaching English. He has saved almost the full amount needed for the fees and was expecting to receive a salary bonus from work to make up the shortfall. Unfortunately, the bonus failed to materialise and he is now short of a small sum of money to pay his fees.

OCBC’s Frank Education Loan requires a minimum loan of $1,000, while POSB’s Further Study Assist has a minimum loan amount of $2,000. On top of that, POSB charges a processing fee of 2% of the amount borrowed, while OCBC charges a processing fee of 2.5%, with a minimum fee of $100.

Jeffery should borrow only as much as he needs, because he shouldn’t be paying interest and processing fees on money he doesn’t need. So if he requires less than the $1,000 minimum required by OCBC’s Frank Education Loan, he could consider taking a personal loan instead. Banks like DBS and POSB offer personal loans with a minimum sum of $500. 

Also, sometimes, banks offer promotions on personal loans such as a waiver of processing fees or giving out cashback or supermarket vouchers. Under specific circumstances, it may work out better to take a personal loan. 

 

What if the course requires study trips that are to be paid separately?

David is doing a part-time course in tourism and hospitality, which includes an optional study trip to a hotel chain overseas. The expenses for the study trip are not covered in his course fees and he is unable to come up with the extra money to pay for the study trip.

While the study trip is optional, David feels he will lose out much by sitting out on it because the experience will be invaluable. A study trip cannot be covered under an education loan. David can consider taking out a personal loan for the trip because the money from a personal loan can be used for anything, no questions asked.

 

Student on a study trip


What if I can’t borrow enough under an education loan?

Janice wants to take up a part-time masters degree in business management, which costs a five-figure sum. She cuts back her working hours to make time for the course, so she is now earning a reduced monthly salary of a low four-figure sum.

She wants to take an education loan for her studies. While POSB is willing to loan up to a maximum of $80,000, and OCBC will loan up to $150,000, Janice is unlikely to get a loan big enough to cover her entire course fees because of her reduced income. 

In this case, she can think about first applying for an education loan to the maximum amount she can get, then applying for a personal loan to make up the shortfall. If she earns at least $20,000 a year, she qualifies for a personal loan from banks like POSB and DBS for a loan amount up to 2 times her monthly salary.    

However, she needs to be aware of the Total Debt Servicing Ratio (TDSR), under which, a person’s monthly loan repayments cannot exceed 60% of his or her monthly gross income. If she is already servicing an education loan, the amount she can borrow under a personal loan may be reduced. 

 

Where can I find the best personal loans?

Convinced you need a personal loan? 

To start your search, head on over to GoBear and enter the amount of money you wish to borrow under the Personal Loans tab. After that, enter the number of years you want to repay your loan, and your monthly income. 

You'll get a list of banks offering loans and also details such as the maximum amount you can borrow, the monthly repayment, the interest rate and the processing fee for your loan. 

You can also select several banks to compare the rates side by side.

Happy with what you see? Click on the “Apply via bank” green bar and you will be taken to the bank’s website to apply.

And there you go, a personal loan for your education. 

 

Compare Personal Loans On GoBear