New Delhi: There are certain truths when it comes to higher education in India. Of the three things students look for—an institution that offers quality education, has plentiful seats, and is within their budget—they will be lucky to get two out of three.
But when it comes to paying for higher studies, such as an MBA (master’s in business administration) programme, there are more options than ever. Substantial need-based assistance is available in various forms for students belonging to economically disadvantaged families.
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These loans are the most popular source of funding for higher education, say experts.
“While only a limited number of MBA aspirants get scholarships and sponsorships, others have to rely on educational loans. Banks have clearly emerged as a popular option, thanks to the easy process followed by them for granting education loans,” says Hemant Rustagi, chief executive of Mumbai-based Wiseinvest Advisors Pvt. Ltd.
The Reserve Bank of India and the Indian Banks Association have partnered to frame a loan policy to ensure deserving candidates are not deprived of an education, says Surya Bhatia, principal consultant, Asset Managers, a private wealth management company in New Delhi.
In the present scenario, banks collaborate with institutes and universities to offer students loans. State Bank of India (SBI) has a tie-up with the prestigious Indian Institutes of Management, where fees cost an average Rs2.5 lakh per year. Allahabad Bank and Oriental Bank of Commerce (OBC) have partnerships with Amity University, which offers dozens of degree and diploma courses across India. All courses at Amity are covered for grant of loan. For speedy disposal of loan application for a course at Amity, sanction can be accorded by any on-campus branch of Oriental Bank, irrespective of the location of the student. For example, a student applying to Amity, Noida, but located outstation, can apply at the bank’s branch in Noida and have it communicated to the hometown branch for disbursement after due verification and signing of documents. The bank sanctions these loans at a concessional rate of interest compared with its normal schemes. Student can cover expenses such as hostel and stationery while applying for a loan.
One can get a loan of up to Rs10 lakh by keeping collateral of the same value as the loan amount—that could be a parent’s house, savings or a guarantee from someone whose net worth is more than the loan amount—if the course is done in India. For overseas programmes, the loan amount can go up to Rs20 lakh.
Repayment for education loans occurs through equated monthly instalments, or EMIs, which begin one year after the completion of the course or six months after a job begins— whichever comes first. If, say, a Rs10 lakh loan is taken for a period of seven years at 13.5% rate of interest, then the EMI works out to Rs15,230.
Considering the current volatility of the market and rising interest rates, rates on education loans have increased but these loans, by design, cannot exceed the benchmark prime lending rate (BPLR) fixed by banks voluntarily. Currently BPLR is between 12% and 16%. If a loan amount exceeds Rs4 lakh, however, the rate can go up by 1% over the benchmark.
Canara Bank, Bank of Baroda, SBI and Punjab National Bank are all big players in education loans. And remember, a student can still borrow Rs7.5 lakh without security.
If the money is still not enough, or perhaps the student does not qualify for an education loan, then he/she can apply for a personal loan. Terms and conditions vary by bank, and there often is no deferral period. But financial experts do not recommend this route because it represents a higher rate of interest, requires tangible security and mandates an early repayment system.
Scholarship and charity
Scholarships are a source of finance provided by the university, government, non-profits and other institutions to those who have strong academic and co-curricular records. “There are various charitable groups and trusts formed on the basis of community, religion and, sometimes, region... The benefits could be taken keeping your education and credibility as base,” says Gaurav Mashruwala, director of ACE, a Mumbai-based financial planning consultancy, also a certified financial planner.
“The criteria for granting scholarships and lending are previous academic records, secured admission seat, full scholarship or half scholarship (same rule would apply for the loans) for the course and the repayment mode for the loan,” Mashruwala adds.
(Online resources for more information on such scholarships include the websites www.scholarshipsinindia.com and www.indiaedu.com)
Executive MBAs present an educational opportunity for working professionals without causing serious disruption in their personal and professional lives. To pursue such a course, one needs to have work experience of two-seven years. Students, in turn, can fund their study with their earnings.
“While learning, you can go for earning. There are various options available—this formula is a hit abroad. Even our country is opening its arms to it,” Mashruwala says.
Here, an employer or company funds an employee to pursue higher education in order to retain the employee’s services or with the hope that skills acquired can be applied back to the organization. But it is rare.
“As regards the corporate sponsorship, not many offer this facility. Even those corporates that offers sponsorship, they mainly do so for distance learning and part-time MBAs,” says Rustagi.
Genpact, for example, has a tie-up with the Institute of Management Technology, Centre for Distance Learning, Ghaziabad, to offer management programmes to its employees. And IBM Daksh, in collaboration with Symbiosis Centre for Distance Learning, Pune, offers MBA to employees who have been with the company for at least a year and pays 80% of their fees or Rs80,000, whichever is less.
“The most recommended source to pay for higher education is personal savings—or those of one’s parents. Sometimes, selling off additional land or bonds would not prove to be a loss if you weigh their potential appreciation against the interest you might end up paying over the life of a loan,” says Mashruwala.
Analysts advise seeing education as a lifetime investment—along with the job security many MBA programmes offer. They are of the view that tapping into savings relieves one of future payments, interest and mental anguish over how to make ends meet down the road.
STAGES OF MBA
Pursued straight after graduation. Two sources of finance available: personal finance and borrowings
Where the employer pays your fees
When you take a break from your career for higher studies. Personal finance and borrowings are the two sources of funding available