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If you are or you have kids who will be entering university soon, you should take advantage of the interest free study loan and tuition fee loan and use the funds to invest. The returns that are generated can be used to offset the cost of a university education slightly.

Fresh undergraduates who will be entering into any of the 3 local universities which includes NUS, NTU and SMU are usually able to take a tuition fee loan of up to 90% of their course fee. Depending on the selection of course, it ranges from around $6500 for most courses such as Engineering or Science to slightly less than $19,000 for medicine. Subsequently, they may be eligible to take up a study loan that can pay for the remaining 10% of their course fee and a living allowance of $3,600. For most courses, this means that the recipient can receive up to a potential amount of at least $10,000. Throughout the entire course of study, interest will not be charged on the loan amount. As such, if you have enough funds to pay off the tuition fee, my suggestion is that you should not pay it off straightaway but keep it to generate some returns and try to get the study loan too.

Let us consider an example. An undergraduate will be entering into an Engineering course in NUS soon and he is able to secure both the tuition fee loan and study loan. The undergraduate has enough funds to pay off the tuition fee but he will be taking up the tuition fee loan and the study loan. Currently, the course fee for Engineering at NUS is $6,620. Taking into account of the study loan, he will be receiving a total of $6,620 + $3,600 = $10,220 at the start of each year for the entire course of study. Since the preservation of the tuition fee is of utmost importance, the funds that he has received will be invested in a principal guaranteed or risk-free investment such as SGS bonds, structured deposits or fixed deposits. For the sake of illustration, we assume that we are able to invest the funds yearly with a return of 1.0% per annum. Read more…