IntroductionMy ambition since young was to study tertiary studies abroad. There are multiple opportunities in many countries for students looking to study in overseas universities. Idecided that I wanted to study in Canada after learning about student life in the country and the benefits in terms of staying in Canada post graduation after going for a university talk last year. I think that studying in a university overseas will broaden my horizons in terms of understanding different cultures and working with people from different backgrounds. Also, I will be stepping out of my comfort zone as I will be an unfamiliar place and will have to be independent in balancing my studies and other aspects of my life.My problems did not stop after narrowing down where I wanted to study as I was now asking myself several questions, Which state do I want to study in? Which university do I want to study in? Will the course that I study be feasible for my future? After much consideration, I came to the conclusion that the best university for my tertiary studies is the University of British Columbia (UBC) in British Columbia considering the similarities between the IB curriculum and the University curriculum offered. I have gained an interest in Chemistry over the past few years and see it as a possible avenue in the future to explore in depth. Thus, I consider Chemical Engineering to be a potential course to undertake at a university level in the future. As I am from a middle-class family from Singapore, I will not be able to finance 4 years of attending university and the other costs that I will incur over this time period. Hence", I will possibly need to take a loan to cover these costs. But, which loan from the myriad of options available is the most suitable?Before looking at the loan options, I will need to determine the total costs that I will incur as a student for the 4 years of my undergraduation at UBC. Firstly, I will have to pay 44",462.951 for the tuition fees and student fees of $1226.791 which only applies for the first year. Also", an estimated $1320 will be spent on supplies like books. If I choose to stay in a shared 1 room at the Orchard Commons residence, it will cost about $10859.22 which also includes 2 a meal plan. I estimate that personal expenses like entertainment, hygiene and a mobile plan will cost about $1500. Moreover, I will need to have a health insurance plan which amounts to $450 (37.50 x 12) per year.Total costs in Canadian dollars (CAD) for 1st year = 44462.95+1226.79+1320+10859.22+1500+450= $59818.96Cost of attendance for 4 years = 59818.96 + ((59818.96 - 3(1226.79) )x 3)= $228234.73I will be enrolling in the year 2022 - 2023 after serving National Service for two years. Hence", I will have some savings of about $5000 from the allowance I will get over the two years assuming I get the minimum allowance of $560 per month. Also, I plan to work whilst studying either on or off campus and I will have to obtain the Social Insurance Number (SIN)in order to do so. However, due to limited availability of jobs on campus, I think that that working off campus would be more feasible as there would be more job opportunities available. Assuming that I earn the minimum wage of $12.65 in British Columbia and I work the maximum number of hours that I am allowed to work as an International student of 20 hours per week and 8 hours per day during break time as there are no restrictions on the number of hours I can work during this period:Total earnings per year during school (about 30 weeks) = (12.65 x 20) x 30= $7590Total earnings per year during breaks ( 8 hours, 5 days a week for 18 weeks) = (12.65 x 40) x 18= $9108Total earnings over 4 years = (7590 + 9108) x 4= $66792Working part time as an International student will mean that I will have to pay tax for the income that I earn which is 15% payed to the federal government. Although I can use this tax amount to claim tuition credit which is calculated by eligible tuition fees multiplied by the lowest federal tax rate for the year. However, as my tuition fees is higher than the amount of tax owed, I will not be able to get a refund but I will be able to eliminate my federal tax bill.Hence, the total cost of attending university for 4 years = 228234.73 - 66792 - 5000= $156442.73Some assumptions that I have made while determining the total amount that I will need to pay over the 4 years are that I will not receive any scholarships or financial aid from UBC, I will not have any emergencies or situations where I might have to use the funds I earn by working part-time and I also did not take into account the costs that I will incur before enrolling into UBC like visa and application fees. Also, I have assumed that I will not finish university earlier than 4 years by transferring my IB diploma points for college credits or taking up extra classes to complete my credits requirement earlier.As a student from Singapore, I will be looking at the loan options offered by Singaporean banks and hence, I will need to consider the currency exchange rate between the Canadian dollar and Singapore dollar (SGD) where 1 CAD = 1.04889 SGD , however, this rate is subject to change. I will also be setting aside 30% of the total cost as a downpayment.Thus, the total cost of attending university in SGD = 156442.73 x 1.04865= $164053.6688≈ $ 164053.67 (2 d.p)Principle amount for loan = 164053.67 - (30% x 164053.67)= 114837.569≈ SGD $114838 (nearest whole number)When I complete my bachelor’s degree at UBC I will be about 25 years old, I will want to finish paying my loan off before my middle age in order to be able to afford other luxuries like owning a house and be financially stable to retire at a feasible age. Thus, I aim to repay the loan in 8 years assuming that I earn an entry-level salary of about CAD$65000 per year about $5416 per month which is equivalent to about SGD$5680 per month. I have researched 3 banks and will be assessing which bank offers the most lucrative repayment deal. Lastly, I will start the repayment in the first month of my job. I searched online for an equation which was in relation to a fixed monthly installment and a compound interest loan and stumbled upon the equation for equated monthly instalment or EMI.In order to apply for the loan, the student will have to be aged 17 years and above and aSingapore citizen or a Singapore Permanent Resident (PR). Moreover, the guarantor’s total income must at least be $24000 per annum or the combined income of the applicant and guarantor must be a minimum $24000 per annum where both parties earn at least $12000 per annum. There are three repayment options provided by the bank. One of which isStandard whereby the monthly installments which include the principle and interest will be paid once the loan is paid out at an Effective Interest Rate (EIR) of 5.17% per annum although the interest rate is 4.5% per year. EIR is the actual interest rate paid due to the result of compounding over a given time period. Secondly, there is Graduated where the interest is paid whilst studying. The principle and the remaining loan amount is paid after graduation at an EIR of 5.06% per annum. Lastly, there is Graduated Plus in which the interest is paid whilst studying as well as one year after graduation at an EIR of 5.01% per annum. However, for the Graduated and Graduated Plus schemes, the loan tenure will include the 4 years that I will spend studying as an undergraduate.Thus, I think that Graduated repayment is the most feasible option as although it is only the second cheapest option, it puts the least amount of pressure on me while I am studying as I only have to pay for the interest during this period. The Graduated Plus repayment option includes the amount of years I study, hence, I will be spending half of my repayment period of 8 years trying to pay off the monthly installment. Due to the likelihood of not being able to pay these installments every month, the monthly installment will accumulate and I will have to spend more on paying off my debts in the last half of the 8 years. Also, I might receive bad credit for not paying off the monthly installments in time which might affect my chances of taking loans in the future. I would not choose Standard repayment as it is the most expensive out of all three choices.Maybank Education LoanThe applicant of the loan must be a Singapore citizen or PR between the ages of 18 to 65 and the guarantor must be between 21 and 65 years old. The applicant must have a minimum annual income of $18000 or the guarantor must have a minimum annual income of $24000. Maybank also offers 3 repayment options. Firstly, Standard Repayment where the payment of monthly installments which includes principle and interest starts at an EIR of 4.88% per annum when the loan is paid out. Next, Partial Repayment where partial instalments are paid for up to 3 years or till the end of the course, whichever is earlier.Standard monthly installments will continue after the time period stated above at the same EIR. Lastly, Interest Servicing whereby only the interest for up to 3 years, or till the end of Maybank Singapore. (n.d.).Thus, among the options offered by Maybank I think that the Standard repayment option is the most feasible as it offers the lowest monthly installment among all the options available. Standard repayment option offers monthly installment which is about $400 less each month compared to the other two options although I will have to pay over a longer period if I chooseStandard Repayment.CIMB Education Loan : Similar to the other two banks, the applicant must be a Singapore citizen or PR who is aged between 18 and 65 years old. The guarantor must be at least 21 years old and earning a minimum annual income of $24000 per annum. CIMB offers two repayment schemes, Standard and Interest Servicing Repayment. Under the Standard Repayment scheme, I will be paying my interest at an EIR of 5.93% per annum. This scheme is similar to the other 2 banks’ Standard Repayment schemes as the monthly installments which include the principle and the interest will have to be paid once I receive the loan amount from the bank. The Interest Servicing Repayment scheme requires the loan applicant to pay the interest during the course of the their university studies which is the “Interest Servicing period” and repay the principle and the remaining interest post graduation. “Interest Servicing period” should not exceed 4 years and it will be rounded up at the 6th month mark, for example, if my university course took 3 years and 8 months to complete, the Interest Servicing period will be counted as 4 years. The EIR for 8 years will be 6.21% per annum.There are various factors one will considered before deciding a loan option and the factors that are valued by one are subjective compared to others as one will want repay the loan as soon as he can while another person might want a cheaper monthly installment. There are pros and cons for each option, I think one has to seriously consider the various factors that go into taking a loan and make a realistic and sound decision. For me, my main aim is to repay the loan within 8 years at the lowest monthly installment possible as I value a monthly installment which does not put a lot of pressure on my finances as I do not want to be in debt especially when I plan to live by myself for the years following college. Thus, I would chooseMaybank Education LoanThe process of writing this IA has been insightful for me as I no longer have to be worried about financing my overseas studies which is seen as a treacherous and complicated process by many. Through the derivation of the EMI formula, I can apply it for different applications like taking a mortgage or a car loan in the future. Hence, I find this formula to be extremely useful and one that will aid me in the future.Effective Interest Rate (EIR)EIR, as seen from the banks’ loan options above, is a true reflection of what a person has to pay after taking into account of factors like additional charges. All the banks mentioned above share the EIR rate of taking a loan which shows transparency as the lender will not be deceived by hidden charges. However, many people worldwide do not know the difference between EIR and a flat interest rate and usually take out loans with the perception that their interest will only be calculated by the bank’s flat rate. EIR calculations involve the actuarial notation at i.ä = denotation of the present value of annuity n = no. of payment periods (in months)i = interest rate for every payment period (in months)The present value is the value of annuity at n = 0. It is essentially the value the borrower is expected to pay for a monthly instalment within a particular period given by the bank. Hence", timely payment of monthly instalments will keep the present value at 1, this is represented by u.To calculate the EIR of a loan, the value of the Effective Nominal Rate (ENR) will need to be known. Banks offer different payment periods like annuity-immediate and annuity-due as well as different loan options. The Present value factor (PVF) whereby the value of money depends on the time period will have to be considered. Time value of money is the concept whereby an amount received today is worth more than if the same amount was received at a future date.
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