5 ways to finance an education / study
When it comes to funding an education, there are many options available. You could use your savings, borrow from your family and friends or apply for a scholarship.
Taking a loan from a financial institution is usually the last resort mainly because they are hard to find, and when they are available, the interest tends to be high.
Below are some products worth looking into when you want to finance your study:
1. Study loan
Study loans are hard to find. But they seem to be reintroduced by banks with a new underlying structure. Study loans can now be attached to housing loans, allowing you to use your property as collateral. The loan is essentially a term loan on top of the housing. It leverages on the equity of your home.
These loans usually require a lock-in period, and imposes a penalty charge on borrowers who settle their loans early.
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. An interest rate of 1% is charged on the total amount. However taking into account the administrative charges, the interest rates come up to 2%.
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, students need to have maintain a minimum CPA average grade of 2.0 otherwise the financing will be terminated. The maximum loan amount is unlikely to cover the total cost of the study, so you will still need to look for other sources of financing.
3. Refinance your home
Refinancing your home is another option. If you have a property that has appreciated in value significantly, you can refinance it with a bigger mortgage.
Opt for the type of loans that allow you to pay down your loan and have a withdrawal facility that you can use when necessary. Using this approach, you avoid paying stamp duties and legal fees incurred if you were to take out a mortgage. Basically it is like an overdraft but charges a housing loan rate.
When refinancing your home, make sure the property’s value can cover your education fees. And bear in mind that refinancing loans usually only give up to 90% of the property’s value.
4. Life insurance 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. This loan gives financing of up to 80% of the policy’s value and the rates are normally at about 8%. You can usually opt to repay the loan amount or wait until the policy matures and have the insurer offset the initial amount insured.
5. Personal loans
If you don’t have any property or life endowment life insurance policy, then consider taking out a personal loan. Generally, personal loans offer financing of up to five times your salary without the need for a guarantor or any form of collateral.
However, personal loans usually come with large 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 will be higher.
This method should be your last resort. Choose this option only if you run out all other avenues.