How Does A Study Loan Work In Singapore?

Written by 1AP Credit on March 20, 2023

Education is the passport to a better life, but accessing quality education demands a lot of cash. The growing surge of student loans in Singapore testifies to the continued relevance of education while suggesting how common study loans have become over the years.

But there are several available loan options and choosing a good fit requires care and discretion. So, the question remains, “how does a study loan work in Singapore?”

In this article, we examine the meaning of student loans and the dynamics of the CPF Education Scheme, MOE Tuition Loan and education loans from banks and financial institutions in Singapore.

What Is A Study Loan?

A student loan is a form of personal loan that serves to offer monetary assistance to students.

From school fees, textbooks, hostel fees, transport fares and daily expenses, schooling can get pretty expensive, and you always need a student loan to help you navigate these costs and expedite your journey to a better life.

However, people often ask, “how does a study loan work in Singapore”? and the answer is pretty simple.

A study loan works in much the same way as a standard personal loan, where you borrow a sum of money, usually from a bank in Singapore, to be paid with interest, which may be in monthly instalments over months or years.

Student loans in Singapore may be through monetary assistance from government institutions such as the CPF Education Loan Scheme and MOE Tuition Fee Loan or education loans from banks and licensed money lenders.

What To Consider When Taking Out A Study Loan

If you’re still seeking an answer to the poser “how does a study loan work”, this section will offer more insight.

When taking out a study loan, the factors to look out for help determine which one is right for you. The difference in payment structure, interest rates, processing fees and loan limit demands that you make an informed decision.

1. Payment Structurev

A study loan may be attractive on first look, but repayment structure helps you determine if such a loan is a good match for your financial situation.

Education loans offered by Singapore banks feature various repayment plans broadly categorised as standard payment or deferred payment loan structures, which is the most common.

Under the deferred payment loan structure, students pay the interest rates on their study loan while in school, while the principal loan amount is paid after graduation when such students start working full-time. This makes deferred repayment loans typically expensive, but it offers a flexible alternative for students whose finances don’t match a standard payment structure.

On the other hand, standard payment works like a regular bank loan, where you pay your loan in monthly instalments. This repayment method may be an excellent option for students who enjoy some degree of financial support from their families or have significant income and savings. For this reason, the standard repayment method is deemed less costly.

For several Singapore students asking, “how does a study loan work?” understanding this difference will help them make a smart decision.

2. Interest Rates And Other Fees

Interest rate is the deal breaker in whether a study loan is right for you. In most cases, a low interest rate is always an attractive edge in study loans. However, you must consider other fees you may be less familiar with, such as the processing fee.

For example, the processing fee in most Singapore banks ranges from 1.50% to 2.50%, which could count heavily on your loan amount. A combination of these fees and your interest rates should determine your choices.

It would help to scout for promotional interest rates and processing fees and stay abreast of the latest loan updates by potential banks.

3. Loan Limits

Your choice of degree or university sometimes requires you to take out a loan of higher value. Likewise, high schooling expenses may demand opting for higher loans, and here’s where loan limits matter.

In any case, maximum loan guides your decision on which loan is right for you. So, for concerned students asking, “how does a loan work?” such loan limits offer an easy guide to your ideal loan arrangement.

For instance, Maybank Education Loan offers one of Singapore’s highest maximum loan limits, fixed at eight times the student’s guarantor’s monthly income or $200,000, making it an excellent option for students with high expenses.

On the other hand, POSB Further Assist has remarkably low interest rates, processing fees and penalty charges. However, its maximum loan amount of $80,000 may be quite limiting for many students.

Eligibility Criteria For CPF Education Scheme

The CPF Education Loan Scheme is a loan scheme that allows you to use your Ordinary Account (OA) savings for your own, your spouse’s, children’s, siblings or relatives’ subsidised tuition fees.

So, if you’ve been asking, “how does a study loan work in Singapore?” and wondering what options are available, CPF Education Scheme might offer a worthy answer.

Students taking their first undergraduate degrees at some specified schools are eligible for the CPF Education Scheme. These schools are:

Those studying for their first undergraduate degree at the following schools are eligible for the CPF Education Scheme:

NTU
NUS
NTU
SMU
SUTD
SIT
NAFA
SUSS
Lasalle
Institutions under the Polytechnic-Foreign Specialised Institution (“Poly-FSI”) Framework

You can use your parent’s CPF to pay up to 100% of your course fees, in which case you have to start repaying the loan a year after you graduate or terminate your studies. The interest rate is typically pegged to the CPF Ordinary Account Interest Rate, which stands at 25%, and is currently lower than most education loans offered by Singapore banks.

This makes the CPF Education Scheme one of the cheapest options to finance your studies.

However, specific courses under the CPF Education Scheme still require you to expend some money. Students schooling in an art college can withdraw only 50% of their course fees. Likewise, if you’re studying at a polytechnic or aspiring to a Technical Engineering Diploma or Diploma in Culinary Arts in ITE, you can withdraw about 25% of your course fees.

Studying at a university or foreign specialised institution under the Singapore Foreign-Foreign specialised institution framework entitles you to 10% of your course fees. Similarly, if your parents have reached their withdrawal limit or you need more savings in the CPF Ordinary Account, your chances of withdrawing may be slim.

Non-Singapore citizens and part-time diploma or degree students are also ineligible for the CPF Education loan.

How Does The CPF Education Loan Repayment Work?

Usually, you must start repaying the education loan a year after your graduation or termination of your studies, depending on what happens earlier.

But you will receive a notification from the CPF Scheme board with your loan repayment details three months earlier. If you intend to start the repayment earlier, you can contact the board through My Mailbox using Singpass.

You can make the repayment in one lump sum or through monthly instalments over a maximum of 12 years. The monthly instalment rate is calculated based on the loan amount and repayment period.

Keep in mind that you’re not permitted to use your CPF savings for your repayments to the CPF member’s CPF Account.

It is advisable to repay your full loan as early as possible to save interest to use these monies for future housing and retirement needs.

What Is The MOE Tuition Fee Loan?

A more pertinent question students ask apart from “how does a study loan work in Singapore?” is “What is the MOE Tuition Fee Loan?”.

MOE Tuition Fee Loan is a loan option that allows local and public university students to borrow up to 90% of their tuition fees, and no interest is charged while the student is still studying. Students at NAFA and Lasalle need to be qualified for this loan.

MOE Tuition Fee Loan is cheaper than CPF Education Scheme if you can pay off your loans immediately after graduation. Students not qualifying for either MOE Tuition Fee Loan or CPF Education Scheme may approach the banks for education loans.

Education Loans From Banks/ FIs

Education Loans from banks or FIs offered by more expensive than loans offered by the government. You need a guarantee to take these bank loans if you’re not up to 21, in which case the guarantor’s income affects the loan sum the bank will lend you.

When taking a loan from the bank, consider these factors:

1. The maximum loan limit offered by the bank.
2. The loan tenure. Note that the maximum loan tenure is ten years, and you may limit your chances by opting for anything less.
3. The interest rates.
4. The repayment schedules. This may be monthly rest loans that require repayment while studying or interest-only loans that require you to repay after graduation, deemed more expensive.

If you’re still wondering and asking, “how does a study loan work in Singapore?”, especially regarding the best study loan for you, it’s time to get in touch with 1AP Capital.