When considering studying abroad, most students (and their parents) consider that education loans will be the least risky way of paying for the tuition fees and living expenses. The hidden expense a lot of students fail to think about when taking out an education loan is the cost of forex (foreign exchange). Every time your education loan is converted from Indian Rupees (INR) to a foreign currency (USD, EUR, CAD), the banks and lenders charge you a forex conversion fee, transfer charges and margin rates. These might appear very small amounts to begin with but over the duration of your MBA, MS, or MBBS abroad, the costs can easily add up into thousands of rupees.
In this blog, we will discuss the forex charges associated with education loans, how they will impact your overall study abroad costs, and under what situations you will find yourself paying these charges (tuition fee payments, transfers for living expenses, loan repayments etc.). We will also provide some tips to help you counteract these forex costs to save money and plan for your education loan repayments.
What is Forex in Education Loans?
Forex applied to an education loan specifically refers to the foreign exchange (forex) process that occurs when your education loan gets disbursed or repaid in a currency other than your home currency.
For Indian students studying abroad, this may involve converting Indian Rupees (INR) into the foreign currency they will be using as their university’s currency to pay for their tuition and living expenses. After their studies are concluded, when they repay their education loan with their earnings/ income they earn abroad, they may also need to convert their earnings back to INR, or if the lender allows it, simply repay the loan in that foreign currency. Whenever a conversion takes place, the bank or lender will apply the following:
- Exchange rates (as they vary from day to day), and
- Additional forex costs such as currency conversion fees, transfer charges or margins.
This makes forex an implicit but substantial cost of an education loan. For example, a small difference in the exchange -rate or margin of 1-2% can cost many lakhs over the duration of an education loan repayment.
Types of Forex Charges in Education Loans
- Currency conversion & exchange-rate markup: Most Indian lenders convert INR to USD/EUR/GBP at a markup. Industry sources note typical margins of about 1–1.5% on the disbursed amount (e.g. Rs.45,000 on a Rs.30L loan). Some NBFCs claim “no forex conversion cost” – for example, Avanse Global Finance’s USD loans promise no markup. In practice, banks use RBI rates plus an undisclosed spread. HDFC Credila highlights that foreign‐currency loans carry higher fees (4%) than INR loans, reflecting extra currency risk. By contrast, international lenders fund directly in foreign currency: Prodigy Finance’s USD loans avoid rupee conversion (eliminating exchange-loss risk), and MPOWER’s rules include any FX fee in its 6.5% origination (it “includes a foreign exchange conversion fee” with “competitive” rates).
- SWIFT/remittance fees: Sending loan funds abroad via bank transfer incurs fixed charges. For example, HDFC Bank’s online “RemitNow” service charges Rs.500 per transfer up to USD 500, and Rs.1,000 above that (plus 18% GST). ICICI Bank similarly levies Rs.500 on most NRO-outward transfers (Rs.1,000 for USD to USA). Axis Bank’s published fees are Rs.1,000 (Savings/Prime customers) or Rs.500 (Priority) or Rs.100 (private), though those are currently waived for online transfers; borrowers still pay correspondent‐bank fees. Axis’s tariff shows “OUR” mode correspondent charges of USD 10–50 per transfer (e.g. USD 10 on a transfer ≤$500). Thus, each SWIFT disbursement typically costs Rs.500–Rs.1,000 plus any intermediary bank fees. (NBFCs disbursing abroad usually route through a bank and incur the same charges.) International lenders also use SWIFT: Prodigy charges a flat USD 500 processing fee and “no hidden fees”, while MPOWER’s 6.5% origination covers wire costs. Borrowers should note that beneficiary bank fees (often $10–30) may also apply.
- Disbursement (INR→foreign currency): Indian loans disbursed abroad involve converting INR into the foreign currency and paying the university. The student effectively pays the above conversion markup plus remittance fee each time. For instance, an INR loan whose funds are sent to a US university will incur the 1–1.5% currency margin and roughly Rs.500–Rs.1,000 per SWIFT transfer. Some banks use authorized “study abroad” channels (e.g. SBI’s Flywire) which may offer competitive rates, but typically the cost is passed to the borrower. In contrast, foreign-currency loans (Prodigy, MPOWER, Avanse Global) disburse directly in USD/EUR to the school, so no INR conversion or LRS remittance fees apply at disbursement.
- EMI repayment charges: If a loan is in a foreign currency, repaying EMIs from India effectively requires the borrower to buy that currency and remit it. This entails the same outward transfer fees as above (e.g. HDFC Rs.500/Rs.1,000, ICICI Rs.500/Rs.1,000) plus any exchange markup. (If repaying in USD from overseas income, the Australian or US salary would usually be wired to the lender; many Indian banks charge no fee on inward remittances – for example HDFC does not charge for receiving foreign funds.) Importantly, RBI’s Tax Collected at Source applies: remittances over Rs.7 lakh for education (if funded by a loan) incur 0.5% TCS (rising to 5% from April 2025). Thus, the borrower bears the forex risk and any transfer costs on EMIs.
- Other fees (taxes and hidden charges): Beyond the above, students face mandatory levies. LRS remittances for education loans attract TCS (0.5% above Rs.7L, 5% thereafter), which is effectively an extra borrowing cost. Banks add GST (18%) on all commissions and on the currency amount: e.g. HDFC charges 0.18%–0.018% GST on the INR equivalent exchanged. Correspondent (intermediary) banks’ charges are also deducted (e.g. Axis notes $10–50 per SWIFT). Some lenders require loan insurance (1–2% of amount) or other banking fees, but these are not forex-specific. In sum, aside from transfer fees, the student pays both GST and TCS on each foreign remittance.
- Transparency & cost impact: Policies vary by lender. Some NBFCs advertise upfront forex pricing – e.g. Avanse Global promises “no hidden forex conversion cost”, and Credila touts an “unambiguous” process with “no hidden charges”. Many banks publicly list their wire fees (Axis’s schedule, HDFC/ICICI rates), but do not explicitly disclose the exchange margin. International fintech lenders emphasize transparency: Prodigy caps fees at the flat processing charge, and MPOWER claims a “competitive exchange rate” with no extra charge. Overall, forex fees add appreciably to loan cost: for a Rs.30L disbursement, a 1.5% currency margin is Rs.45K plus Rs.1K transfer fee and Rs.3K TCS. Currency swings can dwarf these fees – e.g. Prodigy illustrates a $50K loan costing Rs.2.5 lakh more if the rupee weakens (from Rs.80 to Rs.85 per dollar). In practice, most banks pass all these costs to students (few absorb them), so forex charges materially increase the effective interest and total repayment amount.
When Do Students Face Forex Costs?
If you plan to use an education loan to pay for your studies abroad, you will incur foreign exchange costs; foreign exchange costs are not avoidable. You will incur foreign exchange fees and/or conversion costs or costs related to the exchange of your education loan, from when the lender disburses the funds, to when you convert the rupee, or to when you repay the loan overseas. If you are informed of when you may incur these costs, you will be able to strategically budget for your overall cost of your education and minimize the surprise costs.
1. During Loan Disbursement to Your University
When your Indian bank or NBFC converts INR into USD/EUR/GBP and sends it to your university, you’ll be charged an exchange-rate markup (usually 1%–1.5%) plus SWIFT/wire transfer fees (Rs.500–Rs.1,000 per transaction, sometimes more if an intermediary bank deducts charges).
If you take a foreign currency loan from international lenders like Prodigy Finance or MPOWER, this conversion cost is avoided because the lender directly disburses in USD or EUR.
2. When Paying Living Expenses Abroad
If your lender disburses part of your loan into your own account (for rent, food, etc.), that money often needs to be converted into the local currency of your study destination.
Again, this involves conversion charges and possibly international remittance fees if funds are transferred via SWIFT.
3. When Repaying EMIs from India
For INR loans, your EMI is paid in rupees, so there’s no extra conversion.
But if you’ve borrowed in USD/EUR (foreign currency loans), you’ll need to buy the foreign currency each month to send repayments abroad. This means paying exchange markups and remittance charges every EMI cycle.
RBI’s Tax Collected at Source (TCS) also applies if you remit more than Rs.7 lakh in a year (0.5% with loan, 5% without).
4. On Currency Fluctuations
Even if the lender doesn’t charge additional fees, the student may still be exposed to foreign exchange charges and increased cost related to paying the loan back. For example, currency exchange related to the Indian rupee can increase your effective loan repayment amount significantly. If the rupee depreciates form Rs.80 to Rs.85 per USD, you may incur at least several lakhs over the life of the loan.
Impact of Forex on Total Education Loan Cost
When students calculate their education loan amount, most of them focus on tuition fees, living costs, and interest rates. But what many miss is the hidden impact of forex charges and currency fluctuations. These factors can add a significant amount to your total repayment, sometimes running into lakhs of rupees.
1. Higher Loan Disbursement Costs
Banks and NBFCs in India disburse your loan in INR, which then needs to be converted into USD/EUR/GBP depending on your university’s requirement. Every conversion comes with:
- Forex markup (1%–1.5%) on the exchange rate.
- SWIFT transfer charges (Rs.500–Rs.1,000 per transfer, sometimes deducted again by intermediary banks).
For example, if your tuition fee is €20,000, the extra forex and transfer costs may add Rs.25,000–Rs.40,000 on top of it.
2. Living Expenses Abroad Become Costlier
If part of your loan is sent to your account abroad for rent, food, or travel, you will again face conversion charges each time.
Over 2–3 years, these small deductions add up to tens of thousands of rupees.
3. Repayments Hit by Forex Fluctuations
If your loan is in foreign currency (e.g., with international lenders like Prodigy Finance or MPOWER), you’ll have to repay in USD/EUR. A falling rupee results in larger repayments.
- Example: A $50,000 loan at Rs.80/USD = Rs.40 lakh.
- If INR declines to Rs.85/USD, the same $50,000 increases to Rs.42.5 lakh.
- That’s an increase of Rs.2.5 lakh just because of where the exchange rate is currently.
4. Tax collected at source on remittances
- Under RBI regulations, sending more than Rs.7 lakh in a financial year attracts 0.5% TCS (with education loan) or 5% TCS (without loan)1.
- While this can be adjusted against your income tax later, it does block a cash flow during repayment.
5. Overall effect
- Forex related costs can add to your overall loan burden 3 -5%, depending on the lender, country you are sending money to, and currency movements.
- An increase of Rs.1.2 – Rs.2 lakh in value can be directly attributed to forex, in the case of the example loan Rs.40 lakh.
Tips to Reduce Forex Costs in Education Loans
Going abroad to study already presents significant costs, while the foreign exchange fees may add a substantial cost to the total cost of your education loan without being noticed. The good news is that you can cut these hidden costs – which could save thousands (in some cases hundreds of thousands) of rupees – with a little planning during your studies.
1. Choose the Right Loan Provider
- Indian Banks and NBFCs: Since these loans are disbursed in Indian Rupees, any payment towards your tuition, or living expenses will require conversion and markup on the currency for each transaction. It is prudent to compare banks before choosing a lender based on their forex markup rates (0.5–2% is typical).
- International Sponsor (Profdigy Finance, MPOWER): Loans with these lenders will be disbursed in either USD or EUR; therefore, there will not be conversion at disbursement. This will save costs related to forex fees; however, the loan cost will be higher due to the typical higher interest rates.
2. Use a Forex Card or International Bank Accounts
- Instead of transferring small amounts of money to micro-manage your accounts multiple times (and paying multiple SWIFT fees), load the money onto a forex card or do one larger transfer to a student account in the country.
- Eliminate multiple small transfers to save on potential transaction costs on multiple conversions.
3. Plan Bulk Disbursements Instead of Multiple Transfers
- Every transfer attracts SWIFT and intermediary bank charges.
- Ask your lender to disburse tuition fees directly to the university in bulk instead of sending smaller periodic amounts.
- For living expenses, plan fewer but larger transfers.
4. Be Strategic When Exchanging Currency
- Exchange rates change on a daily basis. Even a difference of Rs.1 between the USD/EUR can amount to thousands of rupees on a single transaction.
- You can set forex alerts or use rates locked in by some banks/NBFCs.
5. Be Aware of TCS (Tax Collected at Source) Rules
- If you are using RBI’s Liberalised Remittance Scheme (LRS) to send more than Rs.7 lakh outside India, you will have TCS applied.
- Fortunately, for education loans, TCS is reduced to 0.5% from 5%, saving you thousands.
- Always remit for your loan repayment from your dedicated loan account to take advantage of a lower TCS.
6. Consider a Combination of INR & Foreign Currency Loans
- Some students take a loan partially in INR (Indian bank) and partially in USD/EUR (international lender) to hedge your risk if the rupee depreciates, at least some of it will be fixed.
7. Open an NRE/NRO Account Abroad
- Once earning (e.g., internships, part-time work, or post-graduation), repaying your loan from your NRE/NRO account in the host country can mitigate some of the exchange costs.
FAQs: Role of Forex in Education Loan
Q. What is forex in education loans?
Q. What is forex in education loans?
A. Forex refers to currency exchange when an Indian lender gives the loan amount in Indian Rupees (INR) but the university abroad requires payment in a foreign currency like USD, EUR, CAD, or GBP. In such cases, additional charges like forex markup and transfer charges may apply.
Q. When do students face forex costs while studying abroad?
A. Students incur forex costs at many points in the process, including when they pay tuition fees to foreign universities, transfer living expenses to their bank accounts overseas, use a forex card abroad for everyday purchases, and repay the education loan where income is in a different currency.
Q. Why are forex costs considered hidden charges in education loans?
A. Forex costs represent hidden charges because most students tend to only relate to interest rates and processing fees, and lenders typically have not called attention to the currency conversion markup, SWIT charge, and fees from their bank. In many cases, these hidden fees can accrue a lot more than the interest rate and processing fees.
Q. Do all lenders charge forex fees on education loans?
A. Not all lenders charge forex fees. Indian banks and NBFCs almost always charge forex fees because they are disbursing the loan in INR and then converting to foreign currency. International lenders like Prodigy Finance and MPOWER will disburse the loan directly to USD or EUR which allows the student to not incur the forex fees during disbursement. However, repayments may incur forex fees if the student doesn’t earn in INR.
Q. How much forex markup do banks usually charge?
A. Indian banks usually charge this markup at 0.5% to 2% above interbank rate. You may also pay a SWIFT transfer fee of INR 500 to INR 1500 depending on transaction size and depending on the bank, you might also pay an intermediary bank fee.
Q. Can forex rates impact my total loan repayment amount?
A. Forex rates do and can have a considerable effect on the total repayment amount owed. If at the time of loan disbursement, the Indian Rupee is INR 80 for 1 USD or Euro, but through repayments, if the Indian Rupee is stronger and values 1 USD or Euro at INR 85, then the monthly payment amounts in Indian Rupees would have gone up.
Q. What are some tips to reduce forex costs in education loans?
A. Students can reduce forex costs by choosing lenders that disburse loans in foreign currency, opting for bulk disbursements instead of multiple small transfers, using overseas bank accounts or forex cards, locking exchange rates in advance if possible, and routing all payments through the loan account to benefit from a lower TCS (Tax Collected at Source) of 0.5% instead of 5%.
Q. How can I calculate the total impact of forex costs on my education loan?
A. You can calculate the impact by checking the forex markup your bank charges, estimating possible currency fluctuations based on past INR to USD or EUR trends, and calculating the number of transfers required during your course. Adding these costs to the interest rate and processing fees will give you a more accurate idea of the total cost of your education loan.