5 Ways to Finance An Education

When funding an education, whether for yourself or your child, there are many options available.
You could use savings, borrow from your family or strive for a scholarship.
Taking a loan from a financial institution is usually the last resort mainly because they are rare. And when they are available, the interest tends to be high. For some people, this may be the only way to finance an education, so we take a look at all available products.

1. Study Loan
Previously commonly offered by financial institutions, study loans are now  harder to find. “This is likely due to non-repayment by borrowers,” says Thoo Mee Ling, secured lending head of OCBC Bank (M) Bhd.
“I suspect it (the dearth of loans) is because the funds (amount given out) are not controlled and unsecured. Also, many people borrowed money for studies abroad but they did not come back after finding a job there. This resulted in an increase in non-performing loans.”
But banks appear to be reintroducing study loans with a new underlying structure. Study loans can now be attached to housing loans, allowing financiers to leverage property as collateral while offering borrowers the option of using equity on their home to pay their education fees.
These loans may specify a lock-in period, levying a penalty charge on borrowers who settle their loans early.
For example, OCBC Bank (M) Bhd’s Secured Study Loan offers financing of up to 50% of the property’s value at BLR + 1.2% (excluding legal fees) and BLR + 1.5% (including legal fees). The maximum  tenure is 10 years and interest is calculated on a daily rest.
“Our study loan is essentially a term loan taken over and above a housing  loan. This way, borrowers can leverage on the equity in the house. If you happen to have a child who is studying, then you can leverage on the house and borrow. But if you don’t, you can take the loan first and put it on standby,” says Thoo.
“In a sense, this study loan is like refinancing a  house. If you refinance a house, the maximum loan you can get is 90%, but with the study loan, we give you more, so you can get up to 150% of the home’s price, or RM400,000, whichever is lower. There is an option to pay > interest for the first three years, and then pay the instalments from the  fourth year.”
2. Government Loan
A popular option is taking a loan from Perbadanan Tabungan Pendidikan Tinggi  Nasional (PTPTN). Those taking courses (from undergraduate to PhD) at local  institutions approved by the Public Service Department of Malaysia (JPA) can obtain financing of up to RM26,000 a year, which covers living costs as well. An interest rate of 1% is charged on the total amount.
“The PTPTN loan should be the first option,” says Adrian Ho, a chartered financial consultant. “Even with the administrative charges, the interest rate comes up to 2%, which is very low.”
A drawback of this loan is that it is mostly applicable to undergraduate  courses offered by local colleges and universities while Masters and PhD courses are limited to those offered by local public universities.
According to ptptn.gov.my, students need to maintain a minimum CPA average grade of 2.0 to continue receiving the financing. The maximum loan amount is unlikely to cover the total cost of the course, so borrowers will still need to look for other sources of financing.
3. Refinance Your Home
You can also refinance your home. Those with property that has appreciated in value can refinance with a bigger mortgage. With the BLR at 6.3%, rates  are currently considered competitive, with many housing loan packages offering BLR – 1.4% to BLR – 2.3%.
Ho advocates flexible mortgage products, especially for those who have paid up their housing loans.
“For those who are planning for their children’s education years in the future, go for the type of loans that allow you to pay down your loan and have a withdrawal facility that you can use when necessary.
“Then, try and settle your loan as soon as possible, but don’t close the account when you do. Technically, they will still deduct your instalment every month, but you avoid paying stamp duties and legal fees incurred when you take out a mortgage. Basically, this  approach works like an overdraft but charges a housing loan rate.”
Refinancing your home should only be done if the property’s value can cover your education fees. Most refinancing loans only give up to 90% of the property’s value.
4. Personal Loans
If you don’t have property to your name, then consider taking out a personal loan. Generally, personal loans offer financing of up to five times one’s salary without the need for a guarantor or any form of collateral.
The flipside, however, is that they also come with hefty interest rates of between 8% and 24%. Most personal loans in the market use a flat rate on the total loan, so the effective rate paid tends to be higher.
“The effective rate is usually almost double of what is stated. Hence, this should be a last resort for those who need to finance their studies,” says Ho.
The quantum given out is also a lot less compared with other loans, says Thoo. “Furthermore, approval rates are lower. For unsecured facilities such as personal loans, the underwriting is always stricter.”
5. Policy Loans
You may also consider taking a loan from your whole life participating  policy or endowment plan. No collateral is needed. “Use this option if your  insurance policy has not matured and there is substantial cash value. Rates are favourable, normally about 8%. This loan gives financing of up to 80% of the policy’s value. You can opt to repay the amount or wait until the policy matures and have the insurer offset the initial amount insured,” says Ho.
Source: The Edge Malaysia