My cousin Vandana, who is based in Ghaziabad, was on a short visit to Mumbai recently. As we were meeting after many years, it was obvious that we discussed our children. The discussion involved her son Arjun who completed his BTech last year and is a candidate for an MBA with a major in international business at a foreign university. He has identified the institution and course in California. So what was the hitch?
Vandana confided in me that she found the cost prohibitive (more than Rs. 30 lakh) and therefore was reluctant about Arjun joining an MBA course overseas. Going by my experience at Apnapaisa, I came up with an instant solution — education loan. Vandana was pleasantly surprised at the suggestion and she found it quite feasible too.
An international MBA with an Indian education loan - seems to be a good combination. Moreover, it will not burden her financially and will enable Arjun to become more responsible (hopefully). Now she wanted the details to proceed in the matter. It was my turn to dig deeper to further enlighten her on education loans.
Education loans are gaining popularity these days. Here in the case of Arjun, an education loan became a key deciding factor for pursuing higher education, and I am sure it is the same for many Arjuns of this world. Most nationalised, private and foreign banks provide education loans, including Credila Ltd (subsidiary of HDFC Ltd) which specialises in education loans. One of the important criteria for this loan is that the student should be over 18 years of age but if he/she is not, then the loan is granted to the parents. So, if you fulfil this criterion you need to satisy other factors like:
* Do my courses qualify?
* How much money can I get as loan?
* What documents are required?
* What will the repayment schedule be?
* What expenses does the loan cover?
* Do I have to provide collateral or a guarantor?
But the most pertinent question is how to select the right lender. To do so, you should keep the following things in mind like:
* Low interest rate
* No prepayment penalty
* Minimum or no collateral requirement
The education loan may be viewed as an important means of value enhancement in a person’s career. You can visit price comparison sites to know the rates offered by various lenders. Also, a student can exercise choice between fixed and floating rates of interest.
Coming back to loans, banks generally offer loans for MBA, engineering, medicine and other professional courses whereas conventional courses such as BCom or BA do not find favour with the banks. Many banks have tie-ups with institutions/ universities offering graduate/postgraduate courses recognised by the University Grants Commission/All India Council for Technical Education/ government etc.
The costs covered in the loan include fees payable to the college, school or hostel, including tuition, examination, library and laboratory fees, purchase of books, instruments and uniforms, caution deposit, refundable deposit supported by the institution’s bills or receipts, travel expenses for studies abroad, buying computers essential for completion of the course and any other expenses needed to complete the course.
Many find it a cumbersome process to apply for an education loan as it requires a lot of documentation. Unlike other loans where documents relating to, say, property, might come in at a later stage and may cause delay. In the case of education loans, documents relating to admissions are mandatory even before the bank considers the loan application. The bank will verify the enrolment of the student from the concerned institute. One may also require collateral security such as papers relating to property to be mortgaged if the loan amount is above Rs. 4 lakh. Loans up to Rs. 4 lakh do not require any collateral or any income proof. In Arjun’s case, the costs involved are way above R4 lakh, hence a higher amount will be required. PSU banks normally provide Rs. 20 lakh as the maximum loan amount. That too is a great help towards fulfilling one’s dream of higher education.
My qualifications Got me the loan
I have recently applied for an education loan of Rs. 16 lakh from Central Bank of India in Ahmedabad. Since I have cleared the CAT and have got admission in IIM Ahmedabad, I didn’t have to go through any procedural hassles. In fact, the bank didn’t even ask for a guarantor. I just completed the basic formalities such as my residential address, my father’s work details etc. Since I will pursue a two-year postgraduate programme in management (PGPM). The bank will disburse the amount directly to the institute as per the latter’s fee schedule. In the first lot, it will pay the fee for the first semester. As far as repayment is concerned, I have a couple of options. I can start repaying the loan whenever I want but the bank will give me six months’ time after the completion of the course. Though the rate of interest is somewhere around 10.5%, I haven’t given much thought to the amount. My good educational background worked in my favour while applying for the loan. Before appearing for CAT, I had completed my BTech from IIT Kharagpur. After finishing the course I got a job in Chennai. I have now resigned and will leave for Ahmedabad soon.
As told to Jeevan Prakash Sharma
I took a loan and so Did My Son
In my time, parents found it difficult to fund postgraduation education. You would take an education loan because you didn’t want to burden your family. Out of self-respect, you wish to pay for your education. After my BTech from Chennai, in 1969, I got an education loan of about Rs. 60,000 to Rs. 65,000 from the Canara Bank Silver Jubilee Education Fund to do my two-year postgraduate programme in management (PGP) from the Indian Institute of Management, Ahmedabad. The PGP cost about Rs. 2 lakh to Rs. 2.5 lakh, including fees, hostel, travel etc. The interest rate for my loan was about 7.5-8% and the repayment period was five years. At that time, getting a loan was easy. After finishing my PGP, I joined Madura Coats in Chennai. I repaid the loan in 3-3.5 years and I am a loyal customer of the bank to date. Like me, my son got a student loan to earn an MBA from the Wharton School in the United States. He took about $70,000 (while the MBA cost about $90,000 for two years) as loan at an interest rate of 3-4%. He passed with an MBA degree in 2007 and has since repaid the money. He now works in the US.
As told to Rahat Bano
The author is chief editor, Apnapaisa.com, a price and features comparison engine for loans and investments