Is a study loan worth it?
HTMoney spoke to three professionals between the age group of 20 and 35 years from different educational backgrounds.Updated: Sep 17, 2018 04:14 IST
To compete in the changing job market, every year, many professionals across the country consider opting for higher education. However, investing in yourself for future income growth comes at a cost. In fact, inflation in education is among the highest, usually in double-digits. Also, education is only one of the many aspects of our financial lives. To give you a sense of how to manage your education cost and other financial needs, HTMoney spoke to three professionals between the age group of 20 and 35 years from different educational backgrounds.
When New Delhi-based Shruti Rai, 23, a mass communication graduate, was not satisfied with her profession, she decided to switch from communication to market research. Rai, who worked for less than a year, is now heading to Canada to do her diploma. “I will be eligible for three years of work permit once I enrol for a two-year diploma course,” said Rai. Her college, Rai says, offers a ‘co-op’ option which means students get to intern with companies and can be absorbed in the company. Rai will take an education loan of Rs 20 lakh with the help of her father who is a government employee and is eligible for lower interest rate. “Nearly 90% aspirants take an education loan for management programs,” says Manish Gupta, chief consulting officer, MBA Crystal Ball, an education consultant. Rai’s father will also fund her living expense from his savings. Financial planner Vikram Krishnamoorthy of Insightful, says, “The education loan of Rs 20 lakh may seem like a burden on her father, but he can use the holiday period offered by most financial institutions — which means that he need not make EMI payments until the course is over. The daughter can pay off the loan once she gets a job.”
Like Rai’s father, when Pune-based 27-year-old Nikita Moharir, who worked as an engineer at Oracle, wanted to go for higher education, Moharir’s mother promptly opened her purse strings to fund it. “After working for five years, I think shifting to a management role will help me climb the corporate ladder faster,” said Moharir, who is now pursuing MBA at Great Lakes Institute of Management in Chennai. On the advice of financial planner Swapnil Kendhe, Moharir refused to dip into her mother’s retirement corpus and instead took a Rs 20-lakh loan at 8.3% interest rate per annum. “They (Moharir parents) didn’t have adequate assets to fund their own retirement. If savings were used to reduce the daughter’s education loan, there will be little liquidity left in their portfolio,” said Kendhe. According to Kendhe, every parent should assess their financial situation before putting their savings into their child’s education. “Moharir’s MBA, which can increase her earning potential, could be looked at as an investment in her human asset,” said Kendhe. The average salary post her education is estimated to be Rs 13-14 lakh.
Moharir realised in five years she has to reinvest in herself. Some take the step a little later in life. By then, you may have dependents and other liabilities. A case in point is 31-year-old Bangalore-based Rohit Gupta, an IT professional, who has been working for nine years. “The core skills in my job are only relevant till a particular stage. A degree from INSEAD and the likes can propel my career growth,” said Gupta, who is married and is the sole earning member in the family. He has a Rs 50-lakh home loan and is likely to spend Rs 1 crore on the post graduate management program in Paris.
Besides the education cost, Gupta will have to plan out the living expenses of his spouse, considering the home loan. To begin with, Gupta will have to be adequately insured. “As Gupta already has a home loan of Rs 50 lakh and is planning on taking a loan of Rs 80 lakh, there is a need for a higher life insurance cover. Apart from a Rs 50-lakh cover, Gupta should purchase an additional online term policy of Rs 2.5 crore well before leaving the job,” said Mumbai-based Melvin Joseph, chief financial planner of Finvin Financial Planners. Gupta should also take a family floater health insurance of at least five years, besides travel insurance, said Joseph. For Gupta, taking a Rs 80-lakh loan for seven years will mean an equated monthly instalment of around Rs 1.4 lakh per month. The average salary is estimated to be RS 60-70 lakh per annum, according to educational consultants.
If you are planning to go for higher education loans, compare the interest rate, processing charges, administrative fees and other costs if any. Make sure that you don’t default on repayment. Any default will negatively impact your borrowing ability. Also, keep a tab on your other financial needs.