Getting an Education Loan in Singapore – Guide to Funding Your Tertiary Education
In Singapore, university is usually regarded as a stepping stone to a hopefully lucrative career. Whether you enrol in NUS, NTU, SMU, SIM, MDIS, PSB Academy or an overseas or foreign university, that piece of paper you graduate with at the end of your course is supposed to boost your earnings in some way.
But to earn money, you first need to spend money. University education, whether in Singapore or overseas, is not cheap.
Even for the cheapest option – studying at a local public university – you’re looking at a 5-figure sum for your entire degree at a bare minimum. Just check out this list of local public and private university fees. (Expect a 6-figure sum if you’re going abroad.)
Unless your parents are footing the entire bill, that usually means taking out an education loan of some sort. So, how do you go about it and how much does it cost?
- Do you qualify for the CPF Education Scheme?
- What about the MOE Tuition Loan?
- Getting an education loan from a bank instead
- Which education loan should you choose?
- A word on interest-only loans
- What if you cannot repay your loan?
First, check your eligibility for the CPF Education Scheme
If you’re planning to enrol in a local institutions and don’t have enough cash to pay, you don’t have to go to a bank for a loan just yet. Those studying for their first undergraduate degree at the following schools are eligible for the CPF Education Scheme:
- Institutions under the Polytechnic-Foreign Specialised Institution (“Poly-FSI”) Framework.
The CPF Education Scheme allows you to use your parents’ CPF to pay for up to 100% of your course fees. You will have to begin repaying the loan a year after you graduate or terminate your studies, whichever happens earlier.
The majority of local uni students opt for the CPF Education Scheme, and for good reason.
The interest rate is pegged to the CPF Ordinary Account interest rate, which at 2.5% currently, is lower than most education loans offered by banks. So, in most cases, the CPF Education Scheme is one of the cheapest financing options for university students in Singapore (other than the “Mum & Dad scholarship”, of course).
However, even if you are undertaking one of the courses approved for the CPF Education Scheme, you might still have to fork out some money out of pocket, such as if you are enrolled in any of these courses:
- You are studying in an art college, in which case you can only withdraw up to 50% of your course fees.
- You are studying at a polytechnic or getting a Technical – Engineer Diploma or Technical Diploma in Culinary Arts at ITE, in which case you can only withdraw up to 25% of your course fees.
- You are studying at a university or foreign specialised institution under the Polytechnic-Foreign Specialised Institution framework, in which case you can only withdraw up to 10% of your course fees.
- Your parent does not have enough savings in their CPF Ordinary Account, or has reached the Withdrawal Limit.
You are also not eligible for the CPF Education Scheme if you are doing a part-time diploma or degree course, or if you are not eligible for subsidised fees (such as if you are undertaking a second undergraduate degree when you have already studied for a prior subsidised undergrad degree, or you are not a Singapore citizen).
There’s also the MOE Tuition Fee Loan
Another option for local uni students to consider is the MOE Tuition Fee Loan, which lets you borrow up to 90% of your tuition fees. No interest is charged while you are still studying. This is open to local public uni students except those studying at NAFA and Lasalle.
In general, if you’re not using the CPF Education Scheme and the MOE Tuition Loan is available to you, it’s a good idea to take it up since you’re not charged interest while you’re studying (most education loans will charge you interest before you graduate). This makes MOE Tuition Fee Loans cheaper than regular education loans.
In some situations, the MOE Tuition Loan Fee can actually be even cheaper than the CPF Education Scheme, if you’re able to pay off your loan very very quickly after graduation. See this document from CPF for more information.
For students who don’t qualify for the CPF Education Scheme or the MOE Tuition Fee Loan (such as those undertaking private university degrees administered by, say, MDIS, PSB Academy or Kaplan, as well as those going overseas), they will have to turn to education loans offered by banks.
Best education loans in Singapore from banks (as of Jan 2019)
If both the CPF Education Scheme and MOE Tuition Fee Loan are out for you, your next option is to go to a bank for a loan. Here are the best education loans in Singapore right now.
All figures have been calculated based on a $20,000 loan over 5 years.
|Education loan in Singapore||Interest rate||Monthly instalment|
|OCBC Frank Education Loan||4.5% p.a.||$373|
|RHB Monthly Rest Education Loan||4.78% p.a.||$375|
|Maybank Monthly Rest Education Loan||4.78% p.a.||$375|
|POSB Further Study Assist Loan||4.38% p.a.*||$372|
|CIMB Monthly Rest Education Loan||5.39% p.a.||$423|
You need to be at least 21 years old to apply for a study loan on your own. If you’re under 21, you will need a guarantor, co-applicant or sponsor who is of age. Note that some banks also impose a maximum age on your guarantor/co-applicant/sponsor of, say, 60 or 65 years.
You or your guarantor/co-applicant/sponsor will also have to meet the bank’s minimum income requirement. This can range from $12,000 to $30,000. This person’s income can also have an impact on how much you are allowed to borrow.
Note that unless the bank specifically requires it, your guarantor/co-applicant/sponsor does not need to be a parent or immediate family member.
Does your guarantor/co-applicant/sponsor not have a high enough income? You can have two people play this role. So, for instance, both your parents can apply together as your guarantors.
Which education loan should you choose?
There are quite a few education loans in Singapore, and they differ in more ways than just interest rates. Here’s what to look out for when comparing loans.
Loan quantum: Check that the minimum and maximum amount of money that you can borrow enable you to take out the sum you need.
Interest rate while you’re studying vs after you graduate: Obviously, the lower the interest rate, the cheaper the loan is for you. You can compare education loan interest rates for free on MoneySmart. The interest rate charged by the bank while you’re still studying can differ from what you’re charged when you’ve graduated if you opt for an interest-only loan.
Tenure: The maximum loan tenure tends to be from 8 to 10 years, while the minimum tends to be 1 year.
Repayment schedule: One of the most important factors is when you need to repay your loan. Monthly rest loans (which are also the cheapest) will require you to begin making loan or at least interest repayments while you’re still studying. Interest-only loans (which are comparatively much more expensive) will only require you to pay back the loan when you’ve completed your course. Hence, monthly instalments you’ve got to make while you’re still enrolled might differ from those that must be made when you’ve graduated.
Prepayment penalty: If you manage to get a well-paying job, you’ll probably want to try to pay off your student loans as soon as possible. Most loans will impose a prepayment penalty if you pay off the loan early, so you’ll want to compare these.
Other fees: A processing fee of about 2% is usually charged. Doesn’t hurt to compare.
Before committing to an education loan, you’ll want to compare loans and pick the one that will cost you the least.
Try to pick monthly rest loans over interest-only loans (unless you have absolutely no way to pay back a few hundred dollars a month).
Monthly rest loans will require you to start paying back your loans with interest while you’re still at school, but will cost you much less in the long run than interest-only loans, which enable you to repay only interest while you’re at school and defer the bulk of your loan repayments till graduation.
What are interest-only education loans?
For those who are not using the CPF Education Scheme or MOE Tuition Fee Loan, the loans listed above are your cheapest options. However, some students still choose to go for interest-only education loans.
The main advantage of interest-only loans is that, while you’re still studying, you are only required to pay the interest on your loan rather than a full loan repayment of principal + interest. You only start repaying your principal sum when you’ve graduated.
The catch is that these loans are much more expensive in the long run. It also means your loan repayments are going to be very high when you graduate—you’re usually looking at a four figure sum. If you don’t secure a job soon after graduation, you could be in trouble.
Hence, it is wise to only opt for interest-only loans if you really have no way to repay your loans while you’re studying.
For instance, if you have zero income or savings with which you can repay your loans while studying, don’t intend to get a part time job, and your parents will not be helping out with your loan repayments, you may have no choice but to opt for an interest-only loan.
What if you cannot repay your education loan?
In a best case scenario, you’ll graduate from your course with excellent grades, have a cushy job waiting for you and start earning big bucks. You’ll thus have no problem paying off your monthly loan instalments.
But things don’t always go to plan, and in certain unfortunate circumstances, you might not be able to pay back the loan, such as if you drop out of your course or do not manage to secure a decent job for a long time after graduation.
Now, assuming you took out your loan for an undergraduate degree and have never worked before, the bank already knows you’re broke. But they also know your guarantor isn’t.
So if you cannot pay back your loan, the bank is likely to go after your guarantor and try to collect the money from them.
And if the loan repayments still don’t get made, the bank can take legal action against both you and your guarantor. As education loans are generally unsecured loans, so you will not lose any collateral to the bank.
Are you planning to take out an education loan? Share your concerns in the comments.