Educational Loans To Fund Your MBA

You're all set to get into b- school. Just a couple months to go, before lectures start in earnest. Many of you have preparatory courses to help you along. You're pumped about going to b - school. Talking to your peers and figuring out stuff are hygiene steps you take. But you're kind of worried. Because there's a whole lot about loans that you don't know. And that's how you plan to pay for those 2 years in b- school. In our efforts to make your transition to b- school effortless, here's all you'll need to know about loans...

Basically, the education industry is never hit by recession. The number of Indians opting for higher education is growing every year. With the increase in the cost of education, Indians are finding it difficult to afford higher education.

Many students, just like you, need some kind of financial aid. Which is why, the RBI has included education loans as part of the priority sector lending of banks. They aim to provide need-based finance to a meritorious student for taking up higher education.

And let's face it, if you've converted a call to any of the top 10 b- schools, you're a shoo in for getting that loan. We've also answered some common questions you might have around loans in the FAQs section of this article? So check them out...

There's also a glossary of terms that you need to know down below. Keep reading and scrolling!

Your FAQs

1. How much time does a loan get sanctioned in?

Ans: If your CIBIL score and co - borrower details are in line, once you submit the documents, it takes 2-4 working days for the loan to get sanctioned.   2. Shall I go to the home branch and get my loan application done? Is there a bank presence in my b- school? Ans: Some banks have a branch on or near college campuses and you can depend on them for the formalities in case of your term fees. Your application will have to be done before you go to b- school, so check your application dates. Decide when you need to finish paying the fees depending on the circulars and mailers you get from the college. Ideally, colleges like IIM A, IIM L have bank booths on campus during registration days as well. So you can compare options and get the loan of your preference. Many b- schools make groups and communities for the new batch, so you can even ask your peers for bank preferences and interest rates. Finally, once you've converted the call and registered, banks may start calling you. So be sure to ask about the rate of interest, details about when the fees will be deposited, what is covered by the loan, details about a c0 - borrower, and tenure or duration for paying back the loan.   3. SBI vs. PNB What bank shall I opt for? Depending on your b- school, you could be eligible for collateral free loan upto 40 Lac ₹.  Note that the rate of Interest is cheapest in Government Banks (SBI, Union Bank, PNB; 8.55%) against Private banks where rate of Interest is upwards of 11% (Axis, ICICI).  

Bank	Type of Loan	Loan Limit	1 Yr MCLR	Effective Interest Rate	Rset Period
SBI	Student Loan	Upto Rs 7.5 Lacs	8.50%	10.50%	1 year
		Concession	0.50% concession in interest for girl students
	Student Loan	Above Rs 7.5 Lacs	8.50%	10.75%	1 year
		Concession	0.50% concession in intrest for girl students
			0.50% concession for students availing of SBI Rinn Raksha or any other existing policy assigned in favour of our Bank
SBI	Student Scholar Loan- All IIMs & IITs		8.50%	8.85%	1 year
	Student Scholar Loan- Other institutes		8.50%	9.00%	1 year
SBI	SBI Global Ed- Vantage Scheme	Above Rs. 20 lacs & Upto Rs 1.5 Cr	8.50%	10.75%	1 year
		Concession	0.50% concession for students availing of SBI Rinn Raksha or any other existing policy assigned in favour of our Bank
		Further Concession	0.50% concession for girl students
PNB	PNB Kaushal	Loan up to Rs. 1.50 lac	8.50%	MCLR+1.50%	1 year
		Education Loan to children of PNB`s Employees where employee is either co-borrower or guarantor (Under CGFSSD-Optional)	8.50%	MCLR+0.50%	1 year
		Others	8.50%	MCLR+0.10%	1 year
		Loan up to 7.50 lac	8.50%	MCLR+2.00%	1 year
		Loan Above Rs, 7.50 lac	8.50%	MCLR+2.60%	1 year
		Loans irrespective of amount (where 100% tangible collateral security in the shape of IP,enforceable under SARFAESI Act,and/or liquid security security is available)	8.50%	MCLR+1.85%	1 year
		Loan for pursuing education from premier foreign universities and educational institutes (200) under PNB Udaan Loan up to 7.50 lac Covered under CGFSEL	8.50%	MCLR+1.85%	1 year
PNB	PNB Saraswati/Udan	Loan up to 7.50 lac	8.50%	MCLR+2.00%	1 year
		Loan Above Rs, 7.50 lac	8.50%	MCLR+2.60%	1 year
		Loans irrespective of amount (where 100% tangible collateral security in the shape of IP,enforceable under SARFAESI Act,and/or liquid security security is available)	8.50%	MCLR+1.85%	1 year
		Loan for pursuing education from premier foreign universities and educational institutes (200) under PNB Udaan Loan up to 7.50 lac Covered under CGFSEL	8.50%	MCLR+1.85%	1 year
		Others	8.50%	MCLR+1.85%	1 year
PNB	PNB Pratibha admission to other than IITs , IIMs, XLRI Jamshedpur and NITs	Loan up to Rs. 7.50 lac	8.50%	MCLR+0.60%	1 year
		Loan above Rs. 7.50 lac	8.50%	MCLR+0.10	1 year
PNB	PNB Pratibha admission to IITs , IIMs, XLRI Jamshedpur and NITs	Loan up to Rs. 7.50 lac	8.50%	MCLR+0.50%	1 year
		Loan above Rs. 7.50 lac	8.50%	MCLR	1 year
PNB	PNB Honhaar	Loan up to Rs. 10.00 lac	8.50%	MCLR+2.00%	1 year
PNB	PNB Bihar Student Credit Card Scheme	Loan up to Rs.4.00 lac	8.50%	MCLR+2.00%	1 year
	Concessional Loan to Persons with Disabilities	Women	8.50%	3.50%	1 year
		Others	8.50%	4.00%	1 year
		No further concession in interest shall be available to any category of borrowers for regular servicing of interest during moratorium period.			1 year

  Find details for SBI loans here. Find details for PNB loans here. Find out more about the PNB Pratibha Loan here. *Note that the MCLR (marginal cost of funds based on lending rate) is subject to change and may not remain constant.   4. If I pay the registration from my own pocket, will my loan reimburse it? Ans: Depends. Mostly yes. But ask your bank account manager.   5. What about repayment? Does it start after b- school is over? This is where you pre determined tenure of repayment comes in. The EMI/repayment may start after 6/12 months after completion of MBA usually.  Simple interest is charged before the EMI starts, post which it is charged as Compound Interest. The effective rate of interest after you start working is going to be around 5.5-6% since you'll get a rebate on tax, assuming you will fall in the 30% tax slab. Note that you must check for any extra charges of pre-payment/advance repayment while applying for the loan.   There are some basic terms you'll need to know if you're applying for a loan this year. Here they are:  

Amount and Rate of Interest

This can be the single deciding factor into whether you should take that loan from a particular bank. Every bank decides the amount of loan as per applicant’s details. These loans often cover fees for tuition, examination, library, laboratory, accommodation, money for purchasing books, equipment, instruments, travel expenses for studies abroad, etc. In some cases, there are limits on some of these items. The loan also pays for expenses on study tours and project work. Some of the banks don’t have an upper limit on the amount of loan.

The rate of interest can depends on the MCLR rate or Marginal Cost of Funds based Lending Rate (MCLR). This is the minimum interest rate, below which a bank is not permitted to lend. The MCLR rate is set by the RBI. Note that Government or state banks give you a lower rate of interest, often starting from 8%. But fundamentally,  banks decide the loan amount and the rate of interest based on employability and consequent ability to repay the loan. Again, if you've converted that call, you're proving your employability, so don't worry!

Some Banks prepare and publish a list of eligible courses they consider for sanctioning of student loans. Details such as the percentage of final year students getting a job offer through campus placement, average salary offers etc. are collected for each institute for evaluation of employability of students. Often students from the premiere institutes get offered a preferential rate of interest. Banks also monitor the academic progress of the student. Generally, college authorities will provide progress report after every semester /year.

But note, all this is subject to a good CIBIL score! And if you've a parent or a spouse with a bad CIBIL score sometime in the past, this too can spell doom for your prospects!

Co-applicant or Co Borrower

A co-applicant has to be selected for education loans taken for full-time courses. Co-applicants can include siblings, spouse, parents or other family members. In case of non-repayment, the student’s own credit history, as well as his co-applicant's history, gets affected. A co-applicant is basically an additional person considered in the underwriting and approval of a loan. Applying for a loan with a co-applicant can help to improve the chances of loan approval and also provide for more favorable loan terms. A co-applicant may also be called a co-borrower. Both are responsible for the payment of the loan. They can catch you or your co-applicant if you don't pay on time. For a bank, this is simply balancing the risk.

Collateral

No security has to be submitted for education loans taken up to Rs. 4 lakhs. Third party guarantee has to be furnished for loans between Rs. 4 lakhs and Rs. 7.5 lakhs and tangible collateral security is required for loans above Rs. 7.5 lakhs. Having said this, depending on your b- school, you may still get a collateral free loan for a higher amount. This depends on your bank and application.

Documents required

1. Admission Proof

2. Tuition fee details

3. KYC documents of the student

4. Academic records

5. Co-applicant details and financials

6. Collateral Security, if required

Loan Repayment

Most of the banks grant loans in Indian currency and expect the repayment in the same currency. Generally, the repayment starts when the course is completed. Some banks even provide a relaxation period of 6 months after securing a job or a year after the completion of studies for repayment. The repayment period is generally between 5 and 7 years but can be extended beyond in certain cases.

Multiple ways to payback:

1. Equated Monthly Instalments (EMI) - Till your payback tenure gets over.

2. Prepayment - You can pay some amount in between as part payment, which would get deducted from your principal amount.

3. Full payment - You can, at any point of time after completion of the course or before, pay back the whole amount. As per RBI regulations, there would be no charge for full payment closures.

Tax Benefits

The interest paid on education loan is allowed as a deduction from the total income under section 80E. However, the deduction is provided only for interest part of the EMI and there is no tax benefit for the principal part of the EMI. Only an individual can claim this deduction. For example, parents can claim the benefit for the higher education of their children.

The deduction allowed is the total interest part of the EMI paid during the financial year. There is no limit on the maximum amount that is allowed as deduction. The deduction for the interest on loan starts from the year in which you start repaying the loan. It is available only for 8 years starting from the year in which you start repaying the loan or until the interest is fully repaid whichever is earlier.

It means if entire payments are done in 5 years only, then tax deduction will be allowed for 5 years and not 8 years. If your loan tenure exceeds 8 years, then you cannot claim a deduction for the interest paid beyond 8 years. Every bank has its own policies and it is advisable to read all the terms and conditions of the loan application form because there might be some hidden costs as well.

Here's hoping that this article is helpful to you. Drop us a comment if you wish to know something specific!