Student Loans: Should You Take Up The MOE Tuition Loan From Banks Or Use Your Parents' CPF?

“Get a degree they say, your future will be brighter they say. Really?”

The mindset that everyone needs a degree to survive in the working world seems to be carved in stone for most Singaporeans. They view a degree as a necessity and do not mind the risk of going into a huge debt just to fund their education.

The future upon graduation may not be so “bright” for your wallet after all, which is why making the right decision on your education loan matters.

1. CPF Education Scheme (Parents’ CPF Account)

The Education Scheme is a loan scheme allows payment of children’s, spouses’ or own tuition fees through their Ordinary Account. There is a need for sufficient savings in the Ordinary Account savings and available withdrawal limit before the loan can take place.

Anyone who enrolled for a degree in these institutions can apply for this scheme:

• Singapore Management University (SMU),
• Nanyang Technological University (NTU)*,
• Singapore Institute of Technology (SIT)*,
• National University of Singapore (NUS),
• Singapore University of Technology and Design (SUTD),
• Singapore University of Social Sciences (SUSS),
• Nanyang Academy of Fine Arts (NAFA)*,
• LASALLE College of the Arts (LAS)*,
• Institutions under the Polytechnic-Foreign Specialised Institution (“Poly-FSI”) Framework.

Here are a few points to note for the CPF Education scheme:

• No guarantor is required
• Covers up to 100% of tuition fee
• Repayment of loan starts 1 year after the student graduates
• The student can pay for the amount withdrawn plus interest in cash either in one lump sum or via monthly installment over a maximum of 12 years.
• Interest in loans starts when the loan is withdrawn from the account.
• Interest is pegged to prevailing CPF Ordinary Account (OA) interest which a minimum of 2.5% per annum.

2. MOE Tuition Fee Loan (From Banks)

The MOE Tuition Fee Loan is a Government education loan from the banks to help students with their tuition fees.

Singapore citizens who enrolled for a degree in local institutions except Lasalle and NAFA can apply for this scheme.

Here are a few points to note for the MOE Tuition Fee Loan scheme:

• A guarantor is required
• Covers up to 90% of degree tuition fee
• Repayment starts no later than 2 years after student graduates
• The student can pay the amount plus interest in cash either in one lump sum or via monthly installment over a maximum of 20 years.
• Interest on loans is 0% when the student is studying and starts only when a student graduates.
• Interest is pegged to the prime rates of the banks, be it OCBC or DBS

Here’s How They Both Line Up! 

Which Should You Go For? CPF Education Loan Or MOE Tuition Loan?

To give a better illustration, we kick off this section with an example.

Assuming:

• A student on a 3-year University degree course
• The average cost of a University degree is at $21,000
• Interest rate of CPF Education Scheme at 2.5%
• OCBC has a prime rate of 5% while DBS at 4.25% currently. We assume an average interest rate of 4.75%.
• Since MOE Tuition Fee Loan only allows up to 90%, we assume a loan of $18,900.
  (Take Note: CPF Education Scheme can take up 100% of tuition fee)

Our Strategy – Determine The Number Of Years You Aim To Clear Your Student Loans And Pick The Scheme Accordingly. 

The above example demonstrates a typical example of how some students clear their education loan. If one is confident of clearing his loans before 4 years for the loan amount of $18,900, a bank loan makes sense. If you think that you need a longer period of time to clear your student loan, the CPF scheme will be a better choice due to the lower interest rates.

If you are not eligible for MOE Tuition Loan, another alternative would be taking up an Education Loan to further your studies.

The time taken will also be affected by your monthly repayment and the size of your loan. Below are some tools to help you out with your calculations.

Read also: 6 Steps To Repaying Your Student Loan

• CPF Education Loan Repayment Period Calculator to compute how long it will take to repay the loan.
• Monthly Instalment Rate Calculator to work out a suitable loan repayment plan.

If you have more questions, we have an open community for you to get your questions answered and to hear from different perspectives. Check out our blog for more unbiased opinions on your personal finance journey.

Share with us if you have any experience with these or even a better alternative by commenting below! Also, don’t forget to share it with your friends who might need this!