Education loan is a good reason to get into debt
There are so many Benefits and Expenses covered under MBA Education Loan. Loan for MBA education is one of the few worthwhile reasons for getting into debt. But falling into a trap without giving it a proper thought is definitely bad which shows your poor management skills. Getting into education loan trap is easier than you think and usually, we run into a bank the scheme of which appears lucrative but has many loopholes to plug. Sometimes we have to approach other banks to take over the existing education loan to get rid of the vicious cycle of these schemes since it becomes difficult to regularly repay the same after competition of the same due to their hidden charges, high rate of interest, compounding interest system, guarantee, and security system as well as irrelevant documentation. You can get a loan up to 100 percent of your cost of education. There are many benefits of Education Loan which could cover expenses under MBA Education Loan.
Most banks offer loan approval before your confirmed admission. This helps you show proof of funding for your admission. EMI typically starts one year after completion of the course or six months after securing a job, whichever is earlier.
Usually, for loans up to Rs. 7.5 lakh, you may not need to give a collateral or a security, but for loans above that, you will have to. A collateral need not only be a residential property. Lenders accept fixed deposits, insurance policies, National Savings Certificate, and even Kisan Vikas Patra as collateral. Benefits under Income-tax Act – The borrowers of the education loan get an income tax benefit under Section 80(E) of the Income Tax Act of India. Loans help you pay for your tuition fees, study materials, and living and travel expenses. Education loans for MBA degree programs may differ from other types of loans as the interest rate may be low and the repayment schedule can be deferred while the student is still in education.
Expenses covered under MBA Education Loan
There are other expenses encountered by the student during the course of MBA other than the tuition fees. Apart from seeking funding for tuition Fee you have to think of Lodging & Boarding expenses, Computer, stationery, books, clothing among others. Taken together all these expenses may be very high. But you would incur them it is for sure.
An education loan covers 100 percent of the basic course fee. Usually, the bank may also cover other related expenses while granting a loan, like:
- Fee payable to college (tuition fee) and hostel (accommodation)
- Examination, Library, and Laboratory fee
- Books, equipment’s, instruments and other study material
- Caution deposit, building fund, refundable deposit supported by Institution bills or receipts.
- Travel expenses, passage money for studies abroad
- Purchase of Laptops, computers-essential for completion of the course
- Any other expenses required to complete the course- like study tours, project work, thesis etc.
Even the cost of a two-wheeler is covered as part of education loan by leading banks.
One of the loan schemes provided by State Bank of India (SBI), called SBI Global Ed-Vantage Loan Scheme, gives the loan to students ranging from Rs. 20 lakhs to Rs. 1.5 crore with 9.5 percent to 10 percent interest rate. Under the SBI Global Ed-vantage Scheme, one may get 90 percent coverage for expenses such as tuition fee, admission fee etc. and the remaining 10 percent should be borne by them.
Cheapest Funding options for MBA
MBAUniverse.com Research team has worked out the economics on how you can save at least Rs.2 lakhs on your admission fee if you opt for the study loan from the right financial institution after negotiating a little. All the banks have their own study loan schemes to fund the MBA study in India and abroad. These study-loan schemes are divided into two 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.
The difference in both types of schemes is that the study loan schemes for premium institutes offer you higher amount with less interest rate. Corporate/Head offices of these banks publish the updated list of such premium B schools.
If your institute falls under the category of premium B-schools, you will get MBA study loan at low-interest rate and during the repayment tenure of 7 years or so, you will be able to save a huge amount as in the initial years even a 0.25% hike rate in interest rate can make a cumulative effect coming in lakhs at the end.
Negotiate with the Bank
You may find the number of points in their schemes where you can negotiate with the bank and other financial institutions. A few of them could be as follows
- Check which Bank or financial institution doesn’t ask for any repayment during the course period
- Check which bank or financial institution gives relief in interest if you pay interest during the course period
- Check which bank or financial institution reduce the rate of interest if your parent becomes co-borrower
- Waiver of processing charges. If you are taking the loan from the institution that charges the processing fee, try to negotiate and ask them to waive the same. They know well that Public sector banks are not charging this component. With a little effort, you could get the same waiver.
- The rate of interest can be negotiated. Banks link their rate of interest to the base rate which goes on changing. Check the correct prevailing base rate and link it as specified because correction at the later stage becomes a problem due to the many constraints. For example if the base rate today is 10.25 and rate of interest on education loan is 0.25 above the base rate; your rate will come to 10.50%. Be aware of this fact
- Ask for the screenshot when the loan account is opened. Number of banking personnel due to the ignorance about their own schemes enter the higher rate of interest, other charges, moratorium and repayment period in their system without ascertaining your eligibility criteria. Better to check what they have entered at the time of sanctioning and disbursement of education loan.
- Check for margin amount. If the bank asks you for the margin amount while it is not applicable, be on your guard. Education loan up to Rs.4 lakhs for any B school doesn’t call for the margin amount and loan for the higher amount, which goes up to Rs.20 lakhs without margin, is sanctioned and disbursed in accordance to the specified scheme for the particular institute.
- No guarantee or security can be taken by the Bank to the specified amount of MBA education loan according to the scheme. In case the amount is higher than specified in the loan scheme, please check and confirm whether the same can be taken by the Bank.
This is another grey area where financial institutions can play foul unless regularly monitored. Most of the Banks charge simple interest during the moratorium period i.e. Course period plus the grace period granted to begin the repayment of the loan.
It’s very much possible while entering the details and data in their computer system, either due to the omission or due to the ignorance of banking personnel they are not able to feed the correct moratorium period or they may have the faulty software. Whatever may be the reason but the loss will be yours as the system will go on compounding the interest even during the moratorium period. It has happened with the number of MBA, Engineering, Medical, and other professional educational loans. The number of candidates despite running from pillar to post couldn’t get it corrected. The height of audacity has been so much that even the staff of the bank was not spared.