Higher education – is a foreign degree worth it ?

Raising a child is not child’s play. Most middle class parents complain that they are spending 50% or more of their disposable income on education and extracurricular activities for children. According to a report by Assocham, parents spend Rs.65,000 per annum on education per child  at school level – this is an average school we are talking about – not a high flier school with the tags of “World School” or IB education” where the cost of education touches Rs 4-5 lacs per annum.

Note that this is just school education – for higher education, especially post graduate education, the costs are prohibitive. The Indian government has recently increased the cost of education in IITs by 80%. The fees for IITs, which are the cheapest (and best) of the engineering undergraduate courses in India, have been hiked from Rs 50,000 to Rs 90,000 per annum. If you decide to send your child abroad for higher education, the figure jumps several notches high. If we talk about an MBA degree in India, an MBA from a private college will cost between Rs 10-16 lacs per annum. In UK or USA the MBA will cost from Rs 40 -70  lacs per annum.

With a foreign degree costing many times that of an Indian one, the question is – is a foreign degree worth it ?

Is a foreign degree worth it  ? Yes, if you choose the right course

The selection of the course and college is of vital importance not just for the quality of the education but also for jobs and salary the institutes could fetch. If the student is taking a loan to fund his education, he should look mainly at the earning potential after course completion and check whether the EMI will be affordable or not. One should not go for colleges where the fees charged are high and the placement records don’t show high income potential.

 Some other intangible but equally important factors must be taken into account –

1. The network developed with classmates and alumnus – the importance of this network is tremendous and it reaps benefits throughout lifetime.
2. With a foreign degree, exposure to international business environment gives an edge to one’s career.
3. Many students use studying abroad as a stepping to immigration or at least a few years of working outside India.

Is a foreign degree worth it – check numbers below for an answer

Let’s take the example of two brothers Ram and Laxman – for lack of better names :-). Both have sons who have completed their graduation and will be doing their MBA. Ram’s son studies in India with the MBA costing Rs 10 lacs, whereas Laxman’s son does it in UK and his MBA degree costs him Rs 50 lacs. Ram decides to put away the difference amount of Rs40 lacs as savings for his son which earns him an interest of 8% p.a. With the power of compounding, Ram’s son savings are Rs 86,35,699 at the end of 10 years.

When the two boys graduated, both got excellent jobs and Ram’s son started with a salary of Rs 1 lac per month and Laxman’s son started double the salary and is earning Rs 2 lacs per month (firang degree does net a better salary). Each one’s salary increased at 10% per annum. Let’s make some fantastic assumptions here just to make the calculations easier to understand – both the youngsters did not spend a paisa and they did not invest the money either.

At the end of 10 years Ram’s son had the savings done by his father plus his salary and Laxman’s son had only his salary saved up. Most of us would think Ram acted prudently and it he who has made the highest saving. Unfortunately numbers do not lie. While one considers the immediate future, the lower cost of an Indian MBA looks attractive however looking at the long term i.e. 10 years it is Laxman’s son who has benefited more.

So at the end of 10 years Ram’s son has 86,35,699+210,37,400= Rs.296,73,099

Laxman‘s son has Rs. 420,74,801 – the difference between their earnings is eye popping at Rs.124,01,701 i.e. nearly one and quarter crore of rupees.

So though a foreign degree sounds expensive it is actually a good investment. This holds good for professional post graduate course which have a higher earning potential. For a basic undergraduate course, it makes more sense to complete the degree for India itself. I hope that clears some cobwebs on the question – is a foreign degree worth it for your child’s higher education?

And if you looking for a loan for studying, do remember these important tips :

• Indian banks lend very limited amounts. There are foreign loan agencies which lend and must be repaid in dollar subjecting one to a currency risk. HSBC Bank notable has a tie up with one such agency and lends larger amounts.
• Do not over borrow. Make sure you are covered for the first year and look around for financial aid in the college if studying abroad
• Look out for charges while taking a loan…guarantee charges, prepayment penalties, processing charges all add up to your cost.
• Choose colleges with wider acceptance as this will make your loan procedure easier. Many lenders have a list of approved institutions.

So, is a foreign degree worth it as far as higher education is concerned or should you send your child to study in India ? What would you prefer and why ?