Using your parents' OA to pay for your university or polytechnic fees

University and polytechnic fees in Singapore are not cheap. The good news is that if your parents are unable to fork out cash for your school fees, you have the option of using the savings in their CPF Ordinary Account to pay for your tertiary education.

Of course, this is not "free money", and you will have to pay the money back when you graduate. But using your parents' OA savings is better than taking out a loan from a bank for several reasons.

First, the interest rates are lower, which basically means that you end up having to pay less in total. Next, repaying CPF Education Scheme loans is generally more flexible than repaying bank loans.

Here's what you need to know.

WHAT IS THE CPF EDUCATION SCHEME? 

The CPF Education Scheme enables full-time diploma and degree students at local polytechnics and universities to pay for their studies using their own or their parents' CPF Ordinary Account savings.

Tertiary schools eligible for the CPF Education scheme:

• National University of Singapore
• Nanyang Technological University
• Singapore Management University
• Singapore Institute of Technology
• Singapore University of Technology and Design
• Singapore University of Social Sciences
• Nanyang Academy of Fine Arts
• LASALLE College of the Arts
• Nanyang Polytechnic
• Ngee Ann Polytechnic
• Republic Polytechnic
• Singapore Polytechnic
• Temasek Polytechnic

Full-time students paying subsidised fees for degree or diploma courses awarded by the above-mentioned schools are eligible for the CPF Education Scheme.How do you apply for the CPF Education Scheme?

Before you do anything, check when you can apply for your CPF Education Scheme loan. The application windows for each school are different, and listed here.

To apply, first log in with your SingPass and go to the "My Requests" section. Then, fill out the online application form and submit it.

Your parent will then receive a notification email, and must log into his or her SingPass account within 14 days to approve the application.

HOW DO I GET THE CPF EDUCATION SCHEME WAIVER FOR EDUCATION LOAN REPAYMENT? 

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Okay, what does that even mean?

Well, your parent (or yourself, if you are using your own CPF funds) can choose to waive the loan repayment requirement. That means that after graduation, you will not have to pay back the loan to you or your parents' CPF account.

You can only apply for a waiver if the person whose CPF funds are being used is at least 55 years old AND has already set aside the Full Retirement Sum in their CPF Retirement Account.

If you or your parent can satisfy the above requirements, he or she can apply to waive repayment of your education loan when you have either graduated from or dropped out of your course.

If you graduate when your parent is under the age of 55, you will have to wait until he or she turns 55 before applying for a repayment waiver. In the interim, you will have to continue to make monthly repayments.

For those using their own CPF funds rather than a parent's, this also means that unless you are a mature student in your mid-forties/fifties, you will probably not get to waive repayment of your loan, since you need to be at least 55 to do so.

WHY DO YOU HAVE TO PAY BACK TO YOUR PARENT'S CPF FOR THE EDUCATION LOAN? 

So, you might be wondering, if the CPF funds belong to you or your parent, why do you need to pay the money back when you graduate?

Well, one of the reasons the CPF Ordinary Account exists is to provide for the account holder when he or she retires. The government requires you to pay back any money used for education with interest in order to ensure that the cash can be saved for the account holder's retirement.

So, by using your parents' CPF OA money, you are actually dipping into their retirement funds.

Anyway, if the CPF Education Scheme didn't exist, you would have no choice but to borrow money from a bank, which you would have to pay back as well.

HOW TO PAY BACK YOUR CPF EDUCATION SCHEME LOAN

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Once you have graduated, you will receive a notification letter from the CPF Board informing you how much you need to pay. This letter will be sent to you about 3 months before your first repayment is due.

You can choose to repay the loan in monthly installments over a maximum of 12 years or pay a lump sum. So, if you have spare cash, you can repay more of the loan, or even the entire loan.

You pay as much as you like so long as you meet the minimum instalment amount. If you can afford to, consider paying a higher amount, as that will mean you will incur less interest and also be debt-free sooner.

Your notification will come with a GIRO form. It is highly recommended that you opt to repay your loan via GIRO, as it will mean less administrative bother for you, since the money will be automatically deducted from your account every month.

This article was first published in MoneySmart.