Education Loan For MBA, B-Schools

Higher education in India is becoming costlier in past few years especially management education. IIMs have increased their fees drastically in last few years. A two-year management course in IIM Ahmadabad will cost you 13.7 lakhs whereas in IIM Calcutta, it will cost you Rs. 13.5 lakhs.  These amounts are too much for any middle class or higher middle class family. Even if a student has worked before and saved all the money, he/she may just fall short of the basic tuition fee. But you should not allow the high fee structure to keep you away from that coveted B-School degree. You should select the right loan and pursue your dreams.

The starting range for an MBA course in any of the institutions is at least Rs 1 lakh and can go up to Rs 30 lakh or even more, if you include food and accommodation expenses. Apart from your parents, banks can come to your rescue given the sheer size of the amount required. Some banks also have tie-ups with some of the premier institutes, where a special rate of interest which is lower than market rate of interest is offered to the students.

There are certain key points which you must know when it comes to education loans. Here are some of them:

Margin

Margin is the amount of fee which students are supposed to pay. Generally, students are not required to pay any margin money for loans up to Rs 4 lakh. For loans above Rs 4 lakh, the margin money is 5% for studies in India and 15% for overseas studies. For schemes specifically offered to students by certain banks to premier institutes, these banks have completely scrapped this requirement. For instance, Union Bank of India and Central Bank of India do not ask for any margin money under their special education loan schemes.

Collateral

Under a regular education loan scheme, a student borrower doesn’t have to provide collateral for loans up to Rs 4 lakh. The bank asks for collateral in the form of a suitable third-party guarantee along with assignment of future income for loans between Rs 4 lakh and Rs 7.5 lakh. For loans above Rs 7 lakh, the student has to offer tangible collateral security equal to 100% of the loan amount along with assignment of future income. However, SBI Scholar Loan — for students of certain premier business school (except Indian School of Business) — as well as the Central Bank of India-IIM scheme does not ask for any collateral.

Under SBI-ISB loan scheme, the certificate will remain in the custody of SBI during the currency of the loan. The student can also provide a third-party guarantee (TPG), preferably of an earning sibling of the student or a person known to the bank. In some cases, education loan from Credila to ISB students, for instance, a lien on ISB certificate and transcript serve as the security, in addition to co-obligation (from parents, siblings or spouse) is required.

As per Central Bank of India-IIM scheme, a student has to provide comprehensive life insurance policy in his/her name for at least the loan amount and a minimum period of 10 years assigned in favour of the bank. Similar is the case for loans granted by other banks through a tie-up with ISB.

Moratorium period

The period of non-payment of loan installments is called the holiday/moratorium period.
If you take an ordinary education loan scheme, the moratorium period specified is a year after the completion of the course or six months after securing employment, whichever is earlier. However, some special schemes differ on this count as well. The moratorium period under the SBI-ISB scheme is up to three months after the completion of the course. The time-frame is higher at six months (after course completion) under SBI Scholar scheme. Similarly, loans extended by the Union Bank of India to ISB students features a moratorium period of 18-24 months or soon after placement, whichever is earlier.

Repayment

Typically the repayment period stretches up to seven years. Credila Financial Services offers a longer repayment period of up to 10 years.

Key Tip: Cash in on the holiday period.

Most banks offer a 1% concession on study loans, if you service the interest component of the loan during the moratorium period. The question is: can your parents afford to service the interest component of your loan? If they can, it could be a viable option as they can seek tax relief to the extent of the interest outgo. This also eases the burden of repayment off your shoulders.

For easy comparison of the interest rate and loan amount provided by various banks for education loan, you can find refer the table below:

Some banks also have tie-ups with premiere institutes and in such cases, banks offer interest rates which are lower than the market rates to the students of such institutions. Details of such tie-ups are mentioned below: