The primary purpose of the CPF scheme is to ensure Singaporeans have a good financial foundation for their retirement years. Over the years, the scheme has evolved to give Singaporeans more flexibility in utilising their CPF monies, such as to purchase a home and finance their tertiary studies.
The CPF Education Loan Scheme allows CPF members to use monies in their CPF Ordinary Account (OA) to pay for the tertiary tuition fees for themselves, their children or their spouse. Using it to help their sibling or other relatives is possible with justification on a case-by-case basis.
In order to ensure the primary mission of retirement adequacy is not compromised, especially with retirement sums expected to increase over the years, certain rules (like the repayment of accrued interest) have been put in place, which some Singaporeans have shown not to really understand.
Here’s what you need to know if you want to use your own (or your family members’ CPF) to pay for your tertiary studies in Singapore.
Eligibility For Using The CPF Education Loan Scheme
There are a few simple criteria for utilising your CPF OA funds under the CPF Education Loan Scheme:
– You have enough CPF OA savings that can be withdrawn.
– You are using your CPF monies to pay for the tuition fees of yourself/your children/your spouse. Paying for your sibling, relative, or parent is also possible, subject to approval.
– The course of study is a full-time diploma/degree course at one of the Approved Educational Institutions.
– The student is receiving government tuition grant for the course (i.e. subsidised).
More than one person can tap on their CPF monies to pay for the tuition fees of the same student, for example, both parents applying to use their CPF under the CPF Education Loan Scheme for the same child. In this case, deductions will be made in the order the applications are received –if the first parent does not have enough CPF monies to fully cover the tuition fee that is due, the second parent’s CPF will then be used.
After all available CPF OA monies have been deducted, if there is still a shortfall, the student will need to make up the shortfall in cash, take a loan under the MOE Tuition Fee Loan Scheme, or seek out financial aid.
Is There A Limit To How Much CPF Can You Use?
The maximum CPF OA monies you can use under the CPF Education Loan Scheme is limited by the Available Withdrawal Limit, which is your OA balance (obviously) or 40% of your cumulative OA savings, whichever is lower.
Your cumulative OA savings is your current OA balance plus OA monies you have previously withdrawn for education and investment. OA monies used for your property is not counted.
For those who are 55 years old or older, they will need to set aside at least the Full Retirement Sum – the FRS can be set aside fully with cash, or with cash (i.e. at least the Basic Retirement Sum) and property – before using the remaining OA monies up to the Available Withdrawal Limit.
If you’re paying for your own tuition fees, you can pay for the full amount due, subject to the Available Withdrawal Limit outlined above. But if you’re paying for a relative, there are additional limits placed on how much of the tuition fee you can pay with CPF.
If your relative is studying at an art college, you can use CPF for up to 50% of the tuition fees.
If your relative is studying at a polytechnic or pursuing a Technical Engineer Diploma (TED) or a Technical Diploma in Culinary Arts at Institute of Technical Education (ITE), you can use CPF for up to 25% of the tuition fees.
And if your relative is studying at an approved university, you can use CPF for up to 10% of the tuition fees.
Repayment of the amount drawn out, under the CPF Education Loan Scheme, plus interest, has to be made one year after graduation or upon premature termination of studies, whichever is earlier. CPF will send a letter to the student with repayment instructions at least 3 months before repayment is due to start.
Interest owed is pegged to the prevailing OA interest rate and will start to accrue from the time the OA savings are withdrawn until the education loan is fully paid. This interest is calculated on a monthly basis.
Repayment must be made in cash either in one lump sum or by monthly instalments over a maximum period of 12 years. You can use the CPF Education Loan Repayment Period Calculator and Monthly Instalment Rate Calculator to decide on a suitable loan repayment arrangement. You can increase the monthly repayment amounts or make a final lump sum settlement at any time.
As with all loans, paying down your loan as soon as you can is a good idea because it allows you to save on total amount of interest you pay (which reduces the cost of borrowing). In the case of CPF monies, early repayment allows the CPF member you borrowed from to use the returned CPF monies for investing, buying a property, drawing out for their retirement, or simply earning the risk-free interest from the CPF Board rather than from you.
Application for deferment of repayment is possible if the student is serving National Service, or if they have gone on to study another full-time course, or is unemployed. Due to the economic situation in recent years, individuals with financial difficulties may also submit a request to defer repayment or repay at a lower monthly installment rate for up to a year. You can apply to waive the loan repayment if you meet the waiver conditions.
Applying For The CPF Education Loan Scheme
Note the application period to use your CPF monies under the CPF Education Loan Scheme, since it differs depending on the academic schedule of each institution. To apply under CPF Education Loan Scheme, the student must file an application on the CPF website under My Requests. An e-mail notification will be sent to the CPF member, who then needs to login to the CPF website within 14 days to approve the use of their CPF savings.
The flexibility provided by the CPF Education Loan Scheme is great for members who would not be doing anything with the CPF OA savings. But for those who wish to transfer their OA monies to SA to enjoy higher interest, use it for buying a property or for investment purposes, tapping on their CPF to pay for tuition fees and earning the nominal OA interest rate represents a real opportunity cost.
For students, the OA interest rate is lower than other kinds of loans, and one would take comfort that they are paying the interest to their own/loved ones’ CPF. However, students should also know that if they drag out their repayments, the compounding effect of the loan can be substantial.
This article was first published on 26 October 2018 and updated with latest information.
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