How To Fund Your MBA In India - All You Need To Know

When most of us think MBA, we see those $$$ pouring out of our wallets, and hopefully, $$$ pouring back in. Return on Investment (RoI) is one of the most relevant factors when deciding on a B- school. And why not! When you get lucrative packages post final placements, and the amazing recruiters that pop up on campus, you know that you’re getting the bang for your buck. But all this is true if you’re shortlisted and convert a call from one of the top B-schools in India, because that’s when banks decide to roll call you and actually ask if you want a loan. Let’s step back a bit though. What if you’re not going to one of the premiere B-schools? What if you’re joining a B-school that a bank does not offer you a loan on a platter for?

Types of Education Loans

Basically, there are 2 types of loans.

1. Education loans.
2. Education loans for premiere b- schools. (IIM A, IIM B, IIM C, IIML, IIM I, IIMK, XLRI, MDI, FMS are some B-schools in this list)

Education loans are for any student who needs financial aid to complete his or her education. But most banks offer specific non collateral loans to students who convert a call to premiere b- schools. And if you check out loan details for different banks online, you’ll find a list of institutes that they give out such loans for. Basically, if you’ve converted a call to any of the top 10 b- schools, you will get loans easily. In this article on loans, we discussed some commonly asked questions you may have around your loans. Today we take a deeper look at loans offered by the private sector banks. We also give you some simple examples of loan repayment schedules.

MBA Education Loan Options

You have number of MBA education loan options. However, you need to keep in mind, that due to different rate of interest, the cost of these MBA education loan options may go up or down. Education loans for MBA in India are offered by public sector banks like State Bank of India, Punjab National bank, Central Bank of India, Punjab & Sind Bank, Dena Bank, Canara Bank among others. Another MBA education loan option is to get a loan from private banks like ICICI Bank, Axis Bank, Kotak Mahindra Bank, and non-banking finance companies (NBFCs) like Credila Education loan, Avanse Financial Services amongst others.

Interest Rate Schemes

It’s important to note that most financial institutions offer differential interest rate schemes for an educational loan for MBA in IIMs and other top rated MBA colleges as compared to non premiere MBA colleges. Education loans for IIMs and high ranked MBA colleges are generally available at lower rates when compared to lower ranked colleges. When it comes to loans from public sector banks, you might get a loan between 15-30 lakhs with a rate of interest starting from 8.35% and going up to 11.8%. When it comes to private banks or NBFCs, you may even get a loan up to 75 lakhs by Axis Bank, but the rate of interest also shoots up to 12.5%. Notedly, SBI and PNB have very student friendly schemes, especially if you get into a top b- school. Check out the details here.

5 Simple Tips To Secure A Loan

• Calculate your expected expenses.
• Look for cheap MBA loans.
• Compare loan options from different banks.
• Opt for shorter repayment period.
• Pay interest during course period.

1. Calculate Your Expected Expenses

You can calculate your requirement on the basis of 4 factors:

• 2 year funds needed.
• prospective job market after 2 years
• amount needed to survive during the course
• EMI for repayment (based on interest rate and period of repayment)

2. Look For Cheap MBA Loans Different banks have different study loan schemes to fund your MBA education. These study-loan schemes are divided into 2 segments – one is the regular study loan for the students of normal professional colleges and the other is meant for premium institutes like IITs, IIMs, XLRI, MDI, SPJIMR, IMI, IMT, IIFT. If your institute is a premium MBA college, you will get a loan at lower interest rates. This means you will save quite a bit during the repayment tenure, especially in the initial years. 3. Compare Loan Options From Different Banks Banks and other specialized financial institutions in private and public sector including Avanse, Central Bank of  India, Credila, Dena Bank, IDBI Bank, HDFC, Punjab National Bank, State Bank of India, Punjab & Sind Bank, etc all provide you with loans. These loan schemes are known by different names to ascertain the various terms and conditions, maximum amount, concessionary rate of interest, clubbing of co borrower, need of margin and security. SBI has named its education loan scheme for premier B-schools as ‘Scholar loan scheme’ and SBI student loan; PNB has named it as PNB Pratibha and PNB Saraswati. But your purpose needs to be getting maximum benefits at minimum interest rate. 4. Opt for Shorter Repayment Period Common sense dictates that the more time you take to pay off your loan, the  higher the interest you pay. Banks have tactfully revised and extended loan repayment periods for this reason. For example, if you repay your loan amount in 10 years for which accrued interest is Rs.6.4 lakhs, the same amount if repaid in 7 years, will carry the total interest of around Rs.4.35 lakhs as the rate of interest will be less. 5. Pay Interest During Course Period This is a tough one, but if possible try to repay the amount of simple interest applied on your study loan amount. It would reduce burden when compounding of interest begins after 1 year of completion of course.

Loan Repayment Plan

Here is how you can plan to repay your loan EMIs from your salary. 

Loan Repayment Plan - Example - 1 

Expected Annual Gross Salary: Rs.7.20 lakhs. Net (in hand) salary: Rs.5.76 lakhs (After allowing 20% for various components like Medical Insurance, HRA, PF.) Maximum recommended education loan amount: Rs. 10 lakhs @ 11% p.a. Maximum recommended EMI: 30% of net in hand salary -Net per month salary: Rs 48,000/-

• EMI of Rs.10 lakhs for 10 years: Rs 13700/-
• Total repayment in 10 years: Rs. 16,44,000/-
• Total interest paid on loan: Rs.6,44,000/-

Loan Repayment Plan - Example - 2

Expected Annual Gross Salary: 4.8 lakhs. Net (in hand) salary: Rs.3.84 lakhs (After allowing 20% for various components like Medical Insurance, HRA, PF.) Maximum recommended education loan amount: Rs 7 lakhs @ 11% p.a. Maximum recommended EMI: 30% of net in hand salary.

• Net per month salary: Rs 32,000/-
• EMI of Rs.7 lakhs for 10 years: Rs 9600/-
• Total repayment in 10 years: Rs. 11,52,000/-
• Proportion of repayment to net salary: 30%
• Total interest paid on loan: Rs.4,52,000/-

Loan Repayment Plan - Example - 3

Expected annual Gross salary: Rs. 3.6 lakhs. Net (In hand) salary: Rs.3 lakhs (After allowing 20% for various components like Medical Insurance, HRA, PF.) Maximum recommended education loan amount: Rs 5 lakhs @ 11% p.a. Maximum recommended EMI: 30% of net in hand salary.

• Net per month salary: Rs 25,000/-
• EMI of 5 lakhs for 10 years: Rs 6900/-
• Total repayment in 10 years: Rs. 828,000/-
• Proportion of repayment to net salary: 28%
• Total interest paid on loan: Rs.328,000.

To conclude, make sure that you’re calculating and thinking of pitfalls before signing up for any loan. Contact the B-school and seniors if needed to get clarification on various aspects. Best of luck with your research and securing a loan! You may also be interested in reading more about the hidden costs of an MBA, and how many days you would take to recover your MBA costs in 2019.