In the previous article, we have established that the most expensive degree, which is medicine, at the National University of Singapore (NUS) would cost about $207,000 in 10 years’ time.
In this article, we will dive deeper into the options to get this money to fund your child’s university education.
If you have the luxury of time to plan, save and even invest, the rest of the article would not be relevant to you. This article will focus on getting funding in the short term with the help of loans, which will be useful if your child is about to matriculate into the university.
We will discuss the various financing options:
- CPF Education Scheme
- Ministry of Education (MOE) Funded Bank Tuition Loans [DBS and OCBC Banks only]
- Other Commercial Bank Tuition Loans [9 options available]
We deliberately separate bank loans into those with MOE funding and those without MOE funding. This is because there are significant differences between these 2 types of bank loans. University loans are not so commonly known but they exist to cater to students who fall between the cracks.
CPF Education Scheme
You can use your CPF Ordinary Account (OA) savings to fund up to 100% of your child’s tuition fee with the following conditions:
- Only up to 40% of the OA can be used for the tuition loan, or the remaining balance after setting aside housing payments and other commitments, whichever is lower.
- If insufficient, you can consider to use your spouse’s CPF account to supplement the funding.
- Interest rates based on prevailing OA rates which is 2.5% at the time of writing.
- Start payment 1 year after graduation (or termination) of studies.
- Maximum of 12 years for repayment.
- Able to defer payment for National Service, during studies and unemployment. Interest will continue to accrue.
- Loan can be waived if you have sufficient money for retirement and medical expenses in your CPF.
More details can be found on the CPF’s website.
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The main advantage of using CPF savings to fund the tuition fee is the low interest rate of 2.5% at the time of writing.
MOE Funded Bank Loans
The concept is simple. The money for the education loan comes from the Singapore Government (through MOE) itself. However MOE does not have the expertise and network to distribute these loans. Therefore MOE delegated this work to DBS and OCBC banks. So these loans can only be used for tuition loan for local public university education.
There are similarities and differences between the loan from DBS and OCBC. I have listed them below for simple comparison. For both DBS and OCBC, they have the following common terms and conditions:
- Loan Features
- Up to 90% of the subsidized tuition fees payable by Singapore students (and able to use CPF to pay for the remaining 10%)
- Interest-free during course of study, charged at average prime rate of DBS, OCBC and UOB after graduation.
- Up to 20 years repayment period which starts after course completion.
- Minimum monthly repayment of $100
For non-Singaporeans, they have to commit to work 3 years for a Singapore based company after graduation. If they fail to do so, they will have to pay liquidated damages to the Singapore Government with interest.
There must be a guarantor for the loan with the following conditions:
- Guarantor’s age between 21 and 60
- Guarantor is not discharged as a bankrupt
- If the student is Singaporean, the guarantor must also be a Singaporean
There is no income requirement and age restriction. All students studying in any of the local universities are eligible for this loan if they do not fall into any category below:
- Students receiving any Government/Statutory Board/any school scholarships which cover tuition fees
- Students receiving full Tuition Fee Subsidy from MENDAKI
- Students using CPF savings for payment of 100% of the subsidized tuition fees
- Students on self-funded courses
- Foreign students who are paying full fees (not eligible for any Tuition Fee Grant)
This should be the first financing option to consider because of the advantages you enjoy. First, interest will not be charged during the period of study. Secondly, you have up to 20 years to repay your student loan. Thirdly, you will be paying prime rates (4.25% at the time of writing) which is normally reserved for the best customers.
Other Commercial Bank Loans
Your child might not always be eligible for DBS and OCBC Tuition Loan. She might be studying for a self funded graduate program, a common example is the NUS Master of Business Administration (MBA) program.
Another example would be that she has chosen to study for the SIM-Global Education or Kaplan courses. They are considered private universities and hence not eligible. These students will have to borrow through these banks.
The MoneySmart website does a comparison of these 5 banks but these are not the only 5 banks that are offering education loans, below is a screenshot:
There are other loan packages in the market such as:
- DBS MyEduPlan
- Standard Chartered Bank (SCB) Education Loan
- CitiBank Education Loan
- HSBC Education Loan
However the rule of thumb would be that local banks would generally have better interest rates than overseas bank for SGD loans. The reason is that they have a larger deposit base here and it allows for lower cost of funds.
But to be sure, and since you are dealing with a large amount of money, it would be a safer bet to call up the banks and get the information to compare.
The following template should help you get most of the information you need:
- Loan Quantum (Usually range from 6 to 10 times Guarantor’s money salary)
- Processing Fees (Usually range from 2-3% but might be waived on promotions)
- Penalty Fees (Look for early redemption charges and late fees)
- Flexible repayment options (when you have to start payment and can you stop payment without fees?)
- Loan Tenure (usually range from 5 – 10 years)
- Guarantor Requirements (based on earnings, ages and relationship to student)
- Other freebies (such as personal insurance coverage)
The advantage of these loans are that there are fewer restrictions. For example, a student who wants to pursue studies in a private school which does not qualify for the MOE scheme. The downside is the higher interest rates incurred from these loans.
In summary, refer to the table for the quick comparison among the financing options.
|CPF Education Scheme||MOE Funded Bank Loans||Other Commercial Bank Loans|
|Current Interest Rates||2.50%||4.25%||4.50%|
|Maximum no. of Years to Repay||12||20||10|
|Main Advantage||Lowest interest||Interest free during study period||Private schools eligible|
|Main Disadvantage||Less CPF savings for other needs||Stringent Eligibility||Highest interest Rate|
I would say the first option should be CPF and the next option of MOE loans is pretty good too. The rest of the commercial loans should be the last resort.