Eligibility and Repayment of MBA Education Loan

Eligibility and Repayment of MBA Education Loan

To get a loan is way easy if one gets admission in top management colleges like IIM (Indian Institute of Management), IIT (Indian Institute of Technology), FMS (Faculty of Management Studies) Delhi, XLRI Jamshedpur, SPJIMR Mumbai, and few others. In such cases, some private banks and Education loan providers like Credila and Avanse might even call the students themselves. The contact details of students are often shared by the institute with the banks and loan providers they collaborate with. This makes it all the cooler as the bank may sometimes come to the customer’s doorstep to carry out the loan processing formalities. Following article will help you to understand the Eligibility and Repayment of MBA Education Loan.

 Documents required to Apply for MBA Education Loan:

  • Loan application in bank’s format
  • Proof of admission to the course
  • Passport size photos
  • Address and age proof if you are not an existing bank customer
  • Copies of mark sheets in the qualifying exams
  • Schedule of expenses for the course (course prospectus where the course fee is mentioned)
  • Statement of Bank account for the last six months of borrower/co-borrower
  • Income tax assessment order not more than two years old (students or parents’)
  • A brief statement of assets and liabilities of the borrower.

 Work out the economics
Assuming that the fee structure of the MBA programme requires an amount of Rs.10 lacs to complete the 2 years’ programme, let us discuss what amount would be feasible in different prospective income scenarios. One can avail an MBA education loan if s/he is an Indian citizen and has a documentary proof of having secured a confirmed admission to the course. It should be kept in mind that most lenders give a loan to individuals in the 16-35 years age group. Try to repay the amount of simple interest applied to your study loan amount. It would reduce the interest burden when compounding of interest begins after 1 year of completion of course.

Repayment of MBA Education Loan

Repayment ideally starts after completion of the moratorium period.  It can go from 1 year to 9 years.  It’s always a good idea to repay early but if you can get longer repayment period, you can get relief in Income Tax. The entire part of interest repaid on education loan is reduced from your income. It can be a better option to have a longer repayment period. On the reverse of it, there are banks who offer interest benefits on MBA education loans for shorter repayment period for example PNB.

On an average, the MBA college fee and expenses in India are Rs. 12–18 lakh. It’s easy to get a loan of Rs. 10 lakh or less in India as it gets quickly and easily sanctioned. The option that gives maximum loan at minimum fixed interest should be preferred. Normally for an Rs. 10 lakh loan, the borrower will end up paying around Rs.16 lakhs at a 10 percent interest rate. This means they will pay around Rs.17,000 every month for eight years after their post-graduation. Banks can finance up to 100 percent of the loan depending on the amount of MBA Education Loan and the category of the institute. For most banks, there is no margin money required for an MBA education loan up to Rs. 4 lakhs. For loans above Rs 4 lakhs up to Rs 7.5 lakh, a third-party guarantee is required. A collateral is asked for a loan exceeding Rs. 7.5 lakh. However, State Bank of India’s Scholar Loan for students of certain premier business schools (except Indian School of Business, Hyderabad), as well as the Central Bank of India’s IIM scheme, does not ask for any collateral security.

Options for the shorter repayment period
Repayment of Loan for MBA Education starts one year after completion of the course or six months after securing a job, whichever is earlier. This relaxation period is termed as a moratorium. The repayment period is generally between five and seven years but can be extended beyond that as well, depending on the bank’s terms and conditions. Think about reducing the repayment period. Banks have tactfully revised and extended the same. The burden of interest in a longer period will be more. For example, the cited loan amount at the given interest rate if you repay in 10 years, you will end up paying the interest amount of more than Rs.6.4 lacs. On the other hand, if you repay in 7 years, the amount of total interest would be around Rs.4.35 Lacs.

Calculate well the repayment
The options to avail the study loan are plenty and can be exercised with private or public sector banks depending upon their prevailing schemes. Taking a loan is probably less difficult than repaying it regularly for a long time. In fact, longer the repayment period, more will be the amount you would be paying to the bank. On the top of it, when the loan amount is more, higher EMI is to be paid and when the income is low it becomes very difficult to find out the ways and means how to make regular repayment without causing financial crunch. In case you choose not to pay the amount regularly, the tiny concession of 0.5 to 1 % that could have otherwise been available to you on regular repayment no longer exists.

Example-1- Expected Annual Gross Salary: Rs.7.20 Lacs.

Net (in hand) salary: Rs.5.76 Lacs
(After allowing 20% for various components like Medical Insurance, HRA, PF,)

Maximum recommended education loan amount: Rs 10 lacs @ 11% pa Maximum recommended EMI: 30% of net in hand salary -Net per month salary: Rs 48,000/- -EMI of Rs.10 lacs for 10 years: Rs 13700/- -Total repayment in 10 years: Rs. 16,44,000/- -Total interest paid on loan: Rs.6,44,000/- Example-2- Expected Annual Gross Salary: 4.8 Lacs.
Net (in hand) salary: Rs.3.84 Lacs
(After allowing 20% for various components like Medical Insurance, HRA, PF,)

Maximum recommended education loan amount: Rs 7 lacs @ 11% pa
Maximum recommended EMI: 30% of net in hand salary

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

Example 3- Expected annual Gross salary: Rs. 3.6 lacs.
Net (In hand) salary: Rs.3 Lacs
(After allowing 20% for various components like Medical Insurance, HRA, PF,)

Maximum recommended education loan amount: Rs 5 lacs @ 11% pa
Maximum recommended EMI: 30% of net in hand salary

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

If you wish to pursue your MBA with Bank loan and expect this much of salary after 2 years. You are advised not to go beyond this amount of education loan. It will be better to arrange from other sources, instead of going to borrow from Banks. Understand the repayment schedule and avoid the financial crunch.

Conclusion

Doing MBA is an expensive affair and when it comes to pursuing your flagship Management programme from IIM Ahmedabad, Bangalore, Calcutta, MDI Gurgaon, XLRI Jamshedpur or any other top B-school, you need to shell out between Rs.19 lakhs to Rs. 21 lakhs to pay only for your tuition fee and other key charges included into it, as almost all the top B-schools have increased their fee structure. The calculation is must to know the actual need of funds to pursue MBA. If you borrow more you repay more. There are Banks and other financial institutions which offer 100% study loan and ask for interest rates in the range of 9 to 12%. Almost all the good B schools have banks in their campus. They have tailor made study loan schemes at affordable rates to pursue MBA from your dream B school. You should cross check with it before exercising other options to cater to your need.

 

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