IIM Degree set to become dearer this season

The IIM degree is set to become more expensive this year. Some Indian Institutes of Management (IIMs), including the top ones have either increased or are in the process of increasing the course fee. Read on to know more.

Some of the Indian Institutes of Management (IIMs), including the top ones like IIM Ahmedabad, IIM Bangalore, IIM Calcutta and IIM Indore, and their newer counterparts IIM Rohtak, IIM Ranchi, IIM Trichy, IIM Amritsar and IIM Udaipur have either increased or are in the process of increasing the course fees for the 2018-20 batch.  The main reasons being cited for this increase are inflation and increased operational expenses, which includes faculty salaries and infrastructure costs.

 

In absolute terms, MBA students in these IIMs will now have to pay anywhere from Rs. 80,000 to Rs. 2 lakh more for their MBA education. 

 

 

Course Fee (Class of 2019) (in Rs. Lakh)

Course Fee (Class of 2020) (in Rs. Lakh)

Increase (%)

IIM Ahmedabad 21 22 5%
IIM Bangalore 19.5 21 8%
IIM Calcutta 20 21 5%
IIM Indore 14 16 14%
IIM Trichy 12 14 17%
IIM Ranchi 12.5 14 12%
IIM Rohtak 11.5 12.3 7%
IIM Udaipur 13.2 14 6%
IIM Amritsar 9 10.5 17%

 

IIM Ahmedabad, now has the highest course fee among all IIMs, followed by IIM Bangalore and IIM Calcutta.  IIM Ahmedabad increased their course fee by Rs. 1 Lakh.  IIM Calcutta too has raised the course fee by Rs. 1 Lakh, while IIM Bangalore increased the fee by Rs. 1.5 Lakh.  IIM Indore will increase the fee by Rs. 2 Lakh.  IIM Trichy too has increased the fee by Rs. 2 Lakh.

 

The move also has to do with the fact that top IIMs are required to generate their own revenue to sustain themselves.  Attracting qualified faculty required attractive pay-packages.  Additionally, the cost for operating lodging facilities, security, infrastructure etc. also increase with inflation.  The future MBA aspirants must brace for more and frequent fee hikes.

 

So, what should an MBA aspirant do?

 

It is a fact that an MBA degree from a reputed B-school provides great returns on investment (ROI) throughout your post MBA career. However, in the recent past, several top B-schools have increased their course fees. In fact, if you choose to study in top-30 B-schools in the country, you can expect your MBA education about 7.5% costlier than it is at present. The average MBA tuition fee presently touches Rs. 14 Lakh and more. Remember that it is only tuition fees; you’ll have to bear additional expenses of books & stationary, food, laptop, travel, clothing and other activities.

 

Arranging for such an amount will certainly be a daunting task for many of you. However, you must always remember that an MBA degree is a lifetime asset – so, you will not regret investing in it. Therefore, if you have secured a place in a reputed MBA program, please do it. The path to a good, rewarding career begins with investing in the correct education.

 

Still, you will have to think about the sources of funds. As with anything, financing for any endeavour comes from three sources: internal funds, debt, and equity. You must prioritize the sources of financing. First of all, explore internal financing – it may be in the form of your savings, scholarships and even your parents funds. If you have not already begun in this direction, we’d suggest that you start to minimize your unnecessary expenses, and start saving. We will show you how even small amount saved will impact your overall monetary obligations later on.

 

The next in the sources of funds is debt. These days almost all Banks are willing to give you Education Loans, covering even the entire tuition amount if you are selected in a top MBA school. However, there is a catch – debt comes with an extra cost, known as Interest. The interest rate of Education Loan hovers around 12% at present. Therefore, it is wise to minimize your loan as much as possible. On rare occasions, you may choose to take loan from your parents and friends (we say rare because not many people are known to pay interest to their parents and friends). If that is possible, please do it – you will not be stressed for timelines and can payback in more flexible manner.

 

The last resort in the sources of funds is equity. How can it be done? Well, sometimes, your current employer may choose to fund your MBA education, with a promise that you will work for their company for a few years post your education. While this arrangement may look convenient, it seemingly costs much – because you might be losing out on higher salary, and /or more attractive work for the payment of your MBA tuition.

 

Illustrative example

 

Suppose, an MBA student takes an Education Loan of Rs. 15 Lakh, split 50-50 during the two years of education. The current lending rates are 12%. We will work on 3 scenarios – loan for 5 years, 7 years and 10 years; combined with no internal funds (savings); Rs. 2 Lakh in savings and Rs. 4 Lakh in savings.

 

Case 1: No internal funds

Loan Amount (Lakh)

1st Year: Rs. 7.5

2nd Year: Rs. 7.5

1st Year: Rs. 7.5

2nd Year: Rs. 7.5

1st Year: Rs. 7.5

2nd Year: Rs. 7.5

Term (Years)

5

7

10

EMI (Lakh)

Rs. 0.35

Rs. 0.28

Rs. 0.23

Total Loan Expense (Lakh)

Rs. 21.22

Rs. 23.58

Rs. 27.37

 

Case 2: Rs. 2 Lakh in internal funds

Loan Amount (Lakh)

1st Year: Rs. 5.5

2nd Year: Rs. 7.5

1st Year: Rs. 5.5

2nd Year: Rs. 7.5

1st Year: Rs. 5.5

2nd Year: Rs. 7.5

Term (Years)

5

7

10

EMI (Lakh)

Rs. 0.30

Rs. 0.24

Rs. 0.20

Total Loan Expense (Lakh)

Rs. 18.23

Rs. 20.26

Rs. 23.52

 

Case 3: Rs. 4 Lakh in internal funds

Loan Amount (Lakh)

1st Year: Rs. 3.5

2nd Year: Rs. 7.5

1st Year: Rs. 3.5

2nd Year: Rs. 7.5

1st Year: Rs. 3.5

2nd Year: Rs. 7.5

Term (Years)

5

7

10

EMI (Lakh)

Rs. 0.25

Rs. 0.20

Rs. 0.16

Total Loan Expense (Lakh)

Rs. 15.24

Rs. 16.93

Rs. 19.66

 

So, you can see that even a small amount of Rs. 2 Lakh in your savings could reduce the overall outgo by 14%, while a saving of Rs. 4 Lakh could reduce it by 28%. There definitely is great incentive to start saving money for your MBA education now.

 

The average graduating salary from the top-30 MBA institutes is Rs. 10 – 12 Lakh per year. Therefore, depending upon your loan repayment terms and loan obligation, your take home salary will be lighter by 22% - 35% (if you don’t have any savings to finance for your MBA education). That is a big pay-cut to live with for long. So, if possible, sign up for shorter loan repayment terms. Although, there is some kind of tax incentive on Education loan interest payment, it is not a great incentive to carry it in your bank balance for long.

 

Related articles:

 

(1) Financing your MBA education (Part 1)
(2) Financing your MBA education (Part 2)
(3) Easy steps to follow while availing an education loan for your MBA