Financing Your MBA – Part 1: Education Loans

If you have secured admission to a good B-school, paying your way through B-school should not be as huge a challenge as it is sometimes made out to be. Scholarships aside, there are several banks that offer loans to fund your MBA education.

 

Financing Your MBA - Part 1: Education Loans

 

If you are a deserving candidate and have secured admission to a good school on the basis of merit, paying your way through B-school may not be as huge a challenge as it is sometimes made out to be. Scholarships aside, there are several banks that offer loans to fund your MBA education.

It is a fact that an MBA degree from a reputed management institute provides the best returns on investment in the form of high salaries. Over the years, all the top management institutes, including the IIMs, have been raising their fees for their MBA programmes consistently and significantly, and this investment is certainly not a meagre one. Let us take a look at the economic costs of an MBA and at some of the important things that should guide your decision in this respect.

 

Tuition and living costs

Tuition costs make up a massive part of all MBA expenses. The fees are different for different universities and vary widely with courses. Once a student decides his budget and passes the necessary tests, he is free to decide the institute of his choice. Tuition fees differ as indicated; some include living costs in their fees, some include the costs of reading material; a few are inclusive of all expenses. Fees vary from Rs. 17.7 lakh at IIM Ahmedabad for the batch of 2015-17 (other expenses not included) to Rs. 13.75 lakh at IIM Kozhikode (boarding fees extra) to XLRI's Rs. 16.8 lakh. At the same time, you also have IIT Delhi's Department of Management Studies charging approximately Rs. 4 lakh for the four semesters as tuition fees. The annual fee at FMS, University of Delhi is Rs 10,500 approximately and is definitely the lowest in the world among truly high-quality MBA programmes.

Living expenses in India are not as high and the cost of living in college hostels is strictly dependent on the college or universities. In government run institutes the costs are nominal; it can start from as low as Rs. 6,000 per year but go up to Rs. 60,000 per year. The cost of private hostels, too, varies according to the city and the available facilities.

So, financing one's management education is no longer a cakewalk for all. There have been serious debates in all circles on whether achieving an MBA dream will eventually be restricted to the moneyed lot. Fortunately, however, finances are less than likely to pose a constraint for the truly meritorious, given the options of bank loans.

 

Bank loans

There was a time when loans for education were not something that the Indian psyche accepted very readily and the general tendency as a student was to shy away from any arrangement that would impose any financial debts. Over the years, this mindset has changed, given the rising costs of professional education, the simultaneously rising returns on an investment therein, and the emergence of a generally bolder and economically more robust generation.

Several banks have come forward to help students finance their chosen programmes in higher education in the country and abroad through education loans at really reasonable interest rates these days. An education loan will allow a student to pay for education, living and personal expenses incurred during the course of the programme.

 

What is an education loan?

Essentially, an education loan provides financial assistance to pursue a college or vocational course in India or abroad. The loan amount will cover the tuition fee, exam fee, living expenses (hostel charges), equipment fee (laptops, study material, etc), travel expenses for passage abroad, etc. A few additional costs may be covered depending on the scheme and the bank that is sought out. Banks usually don't have conditions such as minimum qualifying marks in the last examination, or margins and securities for loans up to Rs. 4 lakh.

Apart from freshers, there are schemes for working executives as well. There are quite a few public and private sector banks that provide loans to working executives who join a course in the middle of their career. These are called "Career Development Schemes" by a few. For instance, the Bank of Baroda (http://www.bankofbaroda.co.in/pfs/eduloans.asp) has a scheme called Baroda Gyan (http://www.bankofbaroda.co.in/pfs/gyan.asp), aimed at already employed persons who intend to pursue higher education, vocational courses, trainings, skill upgradation, diploma or degree courses, etc in India and abroad. This is certainly a leg up for future management leaders who wish to acquire higher, specialised managerial skills.

 

Questions to ask before you apply for a loan 

  • What expenses and fees are covered by the loan?
  • What is the maximum amount that can be availed?
  • What is the rate of interest?
  • Is a guarantor required?
  • Is any collateral required? If so, how much?
  • How long will it take for the loan application to be processed?
  • What are the payback procedures and terms?

 

Need for a guarantor and collateral

Most banks have done away with collateral requirement for loans up to Rs. 4 lakh. For higher amounts, one would need to present details of collateral security, which is valued by a valuation authority approved by the government. In some cases, depending on the loan amount (usually over Rs. 4 lakh), banks also ask for a third party guarantor.

For very high loan amounts, the collateral should be in the form of immovable property or transferable securities. Having a life insurance policy can be beneficial to a student who wants to avail a loan. The bank also benefits from such security; therefore, a few banks provide an insurance cover to a student who avails an education loan (for instance, the Union Bank of India (http://www.unionbankofindia.co.in/personal_retail_education.aspx) has provisions for an insurance policy in their education loan scheme).

 

Tie-ups that help

Many of the leading banks have tie-ups with premier institutes like the IIMs, IITs, XLRI, etc to name a few. The State Bank of India and Bank of Baroda are a few such banks. This is helpful for many students, as they do not have to search for the best loan deal with the lowest interest from a host of banks. These tie-ups provide students easy access to loans at the best interest rates and a reduction in the loan processing time.

For instance, Allahabad Bank (https://www.allahabadbank.in/english/Education_Loan.aspx) has drawn up a list of over 80 educational institutes whose courses it will finance, and it has special rates for IIMs/IITs/ISB etc. The bank also provides lower interest rates for girl candidates.

To summarise, female students with admission to premier institutes really have an advantage in terms of the interest rates on education loans. On a more general note, students who have secured admissions to some of the new or upcoming institutes may have to try harder to convince the bank to give an education loan.

 

Important things to note before you apply for a loan 

Usually, students opting for professional courses tend to get loans smoothly and much more easily than those choosing to pursue higher studies in the liberal arts or sciences. It is important to understand the eligibility criteria stated by each of the banks. Each of the banks has its own set of preferences when it comes to assessment of a loan application; some may stress on good academic record, while others may have age constraints.

For instance, it is seen that typically, education loans can be availed of within a 15 to 35 years age bracket. HDFC Bank (http://www.hdfcbank.com/personal/products/loans/educational-loan), for example, has an age bracket of 16-35 years for its education loan. Some banks insist on financing only certain kinds of courses or programmes from select institutes.

However, the general eligibility criteria followed by most banks in India are as follows.

The candidate seeking a loan must be an Indian national and must have secured admission to the programme intended for study on merit, i.e., either based on individual academic performance or the screening test scores (like CAT/XAT/GMAT/SNAP/NMAT, etc to name a few).

Banks also insist that one should not have any outstanding education loans from other banks/institutes.

 

Following is a list of documents generally needed while applying for the loan (this will again differ between banks):

  • B-school admission letter along with details of year-wise fees and other expenses
  • Scholarship letter (if any)
  • Attested copies of birth certificate (or any other proof of age) and proof of residential address
  • Passport size photo of the applicant, co-obligants and guarantors
  • Copies of mark sheets / degree certificates of previous academic qualifications
  • Income proof / latest income tax returns of co-obligants, guarantors (if any)
  • Details of collateral security along with valuation certificate of government approved valuer (if any)
  • Last six months' bank statements of the applicant / co-obligants / guarantors (if any)
  • Copy of passport/visa, cost of air tickets in case of studies abroad

 

How to apply

Most banks now have the provision for an online application for an education loan. After all the research and information gathering process is complete, one can visit a representative of the nearest branch of the bank chosen.

So, to summarise, management education is booming, and recruiters are constantly on the lookout for good talent from the top B-schools. Avenues for funding are ample and one just needs to be aware and informed. At the end of the day with funds secured, the decision should largely be guided by the rationale behind studying for an MBA and the immediate expectations from it.

Here is a comparison of the interest rates charged by various banks for the Education Loans -

 

Bank

Base rate (BR)

Interest rate per annum

Maximum quantum of loan (in Rs. lakhs)

Eligibility

Axis Bank

(http://www.axisbank.com/personal/loans/education-loan/education-loan-features.aspx)

9.50%

Up to Rs. 4 lakh = BR + 7%, Rs. 4 to 7.5 lakh = BR + 8%, more than Rs. 7.5 lakh = BR + 6%, Girl child = less 0.5%

10

Indian national, secured admission to the institute on merit

Bank of Baroda

(http://www.bankofbaroda.co.in/pfs/eduloans.asp)

9.65%

Up to Rs. 7.5 lakh = BR + 2.5%, more than Rs. 7.5 lakh = BR + 1.75%; Girl child = Less 1%; ISB= less 2%, 1% concession for IIMs, IITs, IIFT, XLRI, MDI, SPJIMR

10

Indian national, secured admission to the institute on merit

Bank of India

(http://www.bankofindia.co.in/english/EducationLoan.aspx)

9.70%

Up to Rs. 7.5 lakh = BR + 3%, more than Rs. 7.5 lakh = BR + 2.5%, Girl child = less 1% for loans above Rs. 50,000

10

Indian national, secured admission to the institute on merit, admission to  IIMs, IITs, XLRI, and other institutes set up by Central/State Govt

Bank of Maharashtra (http://www.bankofmaharashtra.in/credit_fac_edu.asp)

9.70%

Up to Rs. 4 lakh = BR + 2.5%, Rs. 4 to Rs. 7.5 lakh = BR + 2%, above Rs. 7.5 lakh = BR + 1.25%

10

Indian national, secured admission to the institute on merit

HDFC Bank (http://www.hdfcbank.com/personal/products/loans/educational-loan/education-loan-for-indian-education)

9.30%

Not provided

10

Indian national of 16 to 35 years of age, secured admission to the institute on merit

IDBI Bank (http://www.idbi.com/education-loan.asp)

9.75%

Up to Rs. 10 lakh = BR + 1%, more than Rs. 10 lakh = BR + 2%

10 (30 for IIMs, IITs and ISB, or  95 % of the total cost of the program (Inclusive of insurance cover) whichever is lower)

Indian national, secured admission to the institute on merit

Indian Overseas Bank (https://www.iob.in/vidya_jyothi.aspx)

9.70%

Current floating interest rate; up to Rs. 4 lakh = 11.7%, Rs. 4 to 7.5 lakh = 12.95%, more than Rs. 7.5 lakh = 12.7%

30

Indian national, secured admission to the institute on merit

Punjab National Bank (https://www.pnbindia.in/en/ui/educationloanscheme.aspx)  

9.60%

Up to Rs. 4 lakh = BR + 2%, Rs. 4 to 7.5 lakh = BR + 3%, above Rs. 7.5 lakh = BR + 2.5%

Need based, subject to repaying capacity of the parents/students (after completion of course)

Indian national, secured admission to the institute on merit

State Bank of India (https://www.sbi.co.in/portal/web/interest-rates/education-loan-scheme)

9.30%

BR + 0.4% (IIMs, IITs, ISB, XLRI, MDI, BITS)
BR + 0.65% (NMIMS, GIM, IIFT, IMI, NITIE, SPJIMR, SCMHRD, SIBM, XIMB, less 0.25% for work experience more than 2 years)
BR + 1.9% (Others)

30 without collateral (IIM-A, ISB)
30 with collateral, 20 without collateral (other IIMs, IITs, ISB, XLRI, MDI, BITS)
20 without collateral (NMIMS, GIM, IIFT, IMI, NITIE, SPJIMR, SCMHRD, SIBM, XIMB)
7.5 without collateral, 30 with collateral (others)

Indian national, secured admission to the institute on merit

UCO bank (https://www.ucobank.com/loan.htm)

9.70%

Upto Rs. 7.5 lakh = BR + 2.5%, more than Rs. 7.5 lakh = BR + 2.25%

10

Indian national, secured admission to the institute on merit, maximum age 28 yrs (30 for SC/ST) for PG courses

Union Bank of India (http://www.unionbankofindia.co.in/personal_retail_education.aspx)

 

9.65%

Up to Rs. 4 lakh = BR + 3%, Rs. 4 to Rs. 7.5 lakh = BR + 2.75%, above Rs. 7.5 lakh = BR + 2% (fixed), 0.50% concession for female students

10

Indian national, secured admission to the institute on merit

Central Bank of India (https://www.centralbankofindia.co.in/site/mainsite.aspx?status=2&menu_id=120)

9.70%

BR + 2%, less 0.5% for girl child, IIMs/IITs

10

Indian national, secured admission to the institute on merit

ICICI Bank (http://www.icicibank.com/ebor/personal-banking/loans/education/index.html)

9.35%

11%, 0.5% less for girl child

10

Indian national, secured admission to the institute on merit

 

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