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Financing Your MBA

  If you are a deserving candidate and have secured admission to a good school on the basis of merit, paying your way through B-school is no longer the challenge it used to be. Scholarships aside, there are several banks that offer loans to fund your MBA education.  

It is a fact that an MBA degree from a reputed management institute provides the best returns on investment in the form of high salaries. Over the years, all the top management institutes, including the IIMs, have been raising their fees for their MBA programmes consistently and significantly, and this investment is certainly not a meagre one. Let us take a look at the economic costs of an MBA and at some of the important things that should guide your decision in this respect.

Tuition and living costs
Tuition costs make up a massive part of all MBA expenses. The fees are different for different universities and vary widely with courses. Once a student decides his budget and passes the necessary tests, he is free to decide the institute of his choice. Tuition fees differ as indicated; some include living costs in their fees, some include the costs of reading material; a few are inclusive of all expenses. Fees vary from nearly `21 lakh at IIM Ahmedabad for the batch of 2017-19 (boarding, other expenses not included) to `17.5 lakh at IIM Kozhikode (including boarding, personal expenses extra) to XLRI’s `20 lakh. At the same time, you also have IIT Delhi’s Department of Management Studies charging approximately `8 lakh for the four semesters as tuition fees. The annual fee at FMS, University of Delhi is Rs 10,500 approximately and is definitely the lowest in the world among truly high-quality MBA programmes.
Living expenses in India are not as high and the cost of living in college hostels is strictly dependent on the college or universities. In government run institutes the costs are nominal; it can start from as low as `6,000 per year but go up to `60,000 per year. The cost of private hostels, too, varies according to the city and the available facilities.
So, financing one’s management education is no longer a cakewalk for all. There have been serious debates in all circles on whether achieving an MBA dream will eventually be restricted to the moneyed lot. Fortunately, however, finances are less than likely to pose a constraint for the truly meritorious, given the options of bank loans.

Bank loans
There was a time when loans for education were not something that the Indian psyche accepted very readily and the general tendency as a student was to shy away from any arrangement that would impose any financial debts. Over the years, this mindset has changed, given the rising costs of professional education, the simultaneously rising returns on an investment therein, and the emergence of a generally bolder and economically more robust generation.
Several banks have come forward to help students finance their chosen programmes in higher education in the country and abroad through education loans at really reasonable interest rates these days. An education loan will allow a student to pay for educational, living and personal expenses incurred during the course of the programme.

The lending of banks was based on a base rate, fixed by individual banks. With effect from April 1, 2016, the base rate, introduced in 2010, has been replaced by a rate called the Marginal Cost of funds based Lending Rate (MCLR). This is minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI.
The shift has been made from base rate to the MCLR, as the latter is more sensitive to changes in policy rates. This is very essential for the effective implementation of monetary policy.

What is covered in an education loan?
Essentially, an education loan provides financial assistance to pursue a college or vocational course in India or abroad. The loan amount will cover the tuition fee, exam fee, living expenses (hostel charges), equipment fee (laptops, study material, etc), travel expenses for passage abroad, etc. A few additional costs may be covered depending on the scheme and the bank that is sought out. Banks usually don’t have conditions such as minimum qualifying marks in the last examination, or margins and securities for loans up to `4 lakh.
Apart from freshers, there are schemes for working executives as well. There are quite a few public and private sector banks that provide loans to working executives who join a course in the middle of their career. These are called “Career Development Schemes” by a few. For instance, the Bank of Baroda has a scheme called Baroda Gyan, aimed at already employed persons who intend to pursue higher education, vocational courses, trainings, skill upgradation, diploma or degree courses, etc in India and abroad. This is certainly a leg up for future management leaders who wish to acquire higher, specialised managerial skills.

Questions to ask before you apply for a loan

  • What expenses and fees are covered by the loan?
  • What is the maximum amount that can be availed?
  • What is the rate of interest?
  • Is a guarantor required?
  • Is any collateral required? If so, how much?
  • How long will it take for the loan application to be processed?
  • What are the payback procedures and terms?

Need for a guarantor and collateral
Most banks have done away with collateral requirement for loans up to `4 lakh. For higher amounts, one would need to present details of collateral security, which is valued by a valuation authority approved by the government. In some cases, depending on the loan amount (usually over `4 lakh), banks also ask for a third party guarantor.
For very high loan amounts, the collateral should be in the form of immovable property or transferable securities. Having a life insurance policy can be beneficial to a student who wants to avail a loan. The bank also benefits from such security; therefore, a few banks provide an insurance cover to a student who avails an education loan (for instance, the Union Bank of India has provisions for an insurance policy in their education loan scheme).

Tie-ups that help
Many of the leading banks have tie-ups with premier institutes like the IIMs, IITs, XLRI, etc to name a few. The State Bank of India and Bank of Baroda are a few such banks. This is helpful for many students, as they do not have to search for the best loan deal with the lowest interest from a host of banks. These tie-ups provide students easy access to loans at the best interest rates and a reduction in the loan processing time.
For instance, Allahabad Bank has drawn up a list of over 80 educational institutes whose courses it will finance, and it has special rates for IIMs/IITs/ISB etc. The bank also provides lower interest rates for girl candidates.
To summarise, female students with admission to premier institutes really have an advantage in terms of the interest rates on education loans. On a more general note, students who have secured admissions to some of the new or upcoming institutes may have to try harder to convince the bank to give an education loan.

Important things to note before you apply for a loan
Usually, students opting for professional courses tend to get loans smoothly and much more easily than those choosing to pursue higher studies in the liberal arts or sciences. It is important to understand the eligibility criteria stated by each of the banks. Each of the banks has its own set of preferences when it comes to assessment of a loan application; some may stress on good academic record, while others may have age constraints.
For instance, it is seen that typically, education loans can be availed of within a 15 to 35 years age bracket. HDFC Bank, for example, has an age bracket of 16-35 years for its education loan. Some banks insist on financing only certain kinds of courses or programmes from select institutes.
However, the general eligibility criteria followed by most banks in India are as follows.
The candidate seeking a loan must be an Indian national and they must have secured admission to the programme intended for study on merit, i.e., either based on individual academic performance or the screening test scores (like CAT/XAT/GMAT/SNAP/NMAT, etc to name a few).
Banks also insist that one should not have any outstanding education loans from other banks/institutes.

Following is a list of documents generally needed while applying for the loan (this will again differ between banks):

  • B-school admission letter along with details of year-wise fees and other expenses
  • Scholarship letter (if any)
  • Attested copies of birth certificate (or any other proof of age) and proof of residential address
  • Passport size photo of the applicant, co-obligants and guarantors
  • Copies of mark sheets / degree certificates of previous academic qualifications
  • Income proof / latest income tax returns of co-obligants, guarantors (if any)
  • Details of collateral security along with valuation certificate of government approved valuer (if any)
  • Last six months’ bank statements of the applicant / co-obligants / guarantors (if any)
  • Copy of passport/visa, cost of air tickets in case of studies abroad

How to apply
Most banks now have the provision for an online application for an education loan. After all the research and information gathering process is complete, one can visit a representative of the nearest branch of the bank chosen.
So, to summarise, management education is booming, and recruiters are constantly on the lookout for good talent from the top B-schools. Avenues for funding are ample and one just needs to be aware and informed. At the end of the day with funds secured, the decision should largely be guided by the rationale behind studying for an MBA and the immediate expectations from it.  

Bank MCLR Interest rate per annum Maximum quantum of loan (in INR lakhs) Eligibility
Axis Bank 8.20% Up to `4 lakh = 15%, `4 to 7.5 lakh = 14.5%, more than `7.5 lakh = 13.5%, Girl child = less 0.25% 75 Indian national, secured admission to the institute on merit, at least 50% in 12th and graduation
Bank of Baroda One year
MCLR = 8.30%
Up to `7.5 lakh = MCLR + Strategic Premium + 2.5%, more than `7.5 lakh = MCLR + Strategic Premium + 1.75%;
MCLR + Strategic Premium;
List-A institutes (Other IIMs, IIFT, ISB, MDI, SPJIMR, IIT Kanpur, Delhi, SCMHRD, SIBM, XIMB, et al
Up to `15 lakh = MCLR + Strategic Premium + 0.25%, More than `15 lakh = MCLR + Strategic Premium;
List-B institutes (FMS, IIFM, IMT, IRMA, JBIMS, LIBA, MICA, NMIMS, NITIE, Nirma, TISS, et al
Up to `7.5 lakh = MCLR + Strategic Premium + 0.75%, More than `7.5 lakh = MCLR + Strategic Premium + 0.50%
10 Indian national, secured admission to the institute on merit
Bank of India One year MCLR = 8.30% Up to `7.5 lakh = MCLR + 1.75%, more than `7.5 lakh = MCLR + 2.5%; Girl child = less 1% for loans above `50,000; less 0.50% for Management courses subject to 1 year MCLR 10 Indian national, secured admission to the institute on merit, admission to  IIMs, IITs, XLRI, and other institutes set up by Central/State Govt
Bank of Maharashtra One year MCLR = 8.75% Up to `7.5 lakh = MCLR + 1.7%, more than `7.5 lakh = MCLR + 2.50%
Less 0.50% for girl child
10 Indian national, secured admission to the institute on merit
HDFC Bank One year MCLR = 8.15% Not provided 10 Indian national of 16 to 35 years of age, secured admission to the institute on merit, collateral for loans over `7.5 lakh
IDBI Bank 6-month MCLR = 8.35%
One year MCLR = 8.55%
Up to `10 lakh = MCLR + 0.85%, more than `10 lakh = MCLR + 1.45% (Premier institutes including ISB = 6-month MCLR + 0.05% for all amounts) 30 (IIMs, IITs, ISB, IIFT, top management colleges, or 100% of the total cost of the program, whichever is lower) 20 (for other institutes) Indian national, secured admission to the institute on merit
Indian Overseas Bank One year MCLR = 8.40% Up to `7.5 lakh = 10.40%, More than `7.5 lakh = 11.40% 30 Indian national, secured admission to the institute on merit
Central Bank of India One year MCLR = 8.50% IIMs, XLRI, XIMB, SPJIMR, MDI = MCLR;
Male students = MCLR + 2%, Female, SC/ST students = MCLR + 1.50%
Others = 10
Indian national, secured admission to the institute on merit
Punjab National Bank One year MCLR = 8.15% General
Up to `7.5 lakh = MCLR + 2%, More than `7.5 lakh = MCLR + 2.6%
Up to `7.5 lakh = MCLR + 0.50%, More than `7.5 lakh = MCLR
Other than IITs, IIMs, XLRI
Up to `7.5 lakh = MCLR + 0.60%, More than `7.5 lakh = MCLR + 0.10%
Need based Indian national, secured admission to the institute on merit
State Bank of India One year MCLR = 7.95% General
Up to `7.5 lakh = MCLR + 2%, More than `7.5 lakh = MCLR + 2.75% (less 0.50% for girl child);
List AA institutes
All amounts = MCLR + 0.35%;
List A institutes (IIMs)
All amounts = MCLR + 0.35%;
List A institutes (Others)
All amounts = MCLR + 0.50%;
List B institutes
All amounts = MCLR + 1% (less 0.25% for work ex students);
List C institutes
All amounts = MCLR + 2%"
List AA institutes
(IIM-A,B,C,I,L,K, XLRI, ISB) = 35
without collateral;
List A institutes
(other IIMs, IIFT, IITs, MDI, BITS, SPJIMR, NITIE, SIBM, XIMB, IMT) = 20 without collateral, 30 with collateral;
List B institutes
(FMS, BIM Trichy, GIM, IMI, JBIMS, NMIMS, WeSchool, etc) = 20 without collateral;
List C institutes
(IIFM, LIBA,  etc) = 7.5 without collateral, 30 with collateral
Indian national, secured admission to the institute on merit
UCO bank One year MCLR = 8.45% General
Up to `7.5 lakh = MCLR + 2%, More than `7.5 lakh = MCLR + 2.4%;
List A, B, C institutes
All amounts = MCLR + 1.15%;
All amounts = MCLR;
General = 10;
List A institutes (IIMs, XLRI, ISB, FMS, SPJIMR, etc) = 30;
List B institutes (IIFT, Nirma, IMT, XIMB, MDI, SIBM, MICA, IRMA, TISS, etc) = 20;
List C institutes (IMI, FORE, BIMTECH, TAPMI, LIBA, GIM, etc) = 15
Indian national, secured admission to the institute on merit, maximum age 30 yrs (33 for SC/ST) for PG courses, 38 (max 40) for premier institutes.
Union Bank of India One year MCLR = 8.20% Up to `7.5 lakh = MCLR + 2%, More than `7.5 lakh = MCLR + 2% (male) & MCLR + 1.50% (female);
Tier II = MCLR + 1.65% (less 0.50% for girl child)
ISB = 40;
Indian national, secured admission to the institute on merit