L for Loan comes before M for MBA

Brijesh Shirodkar

Brijesh Shirodkar has completed his engineering from Mumbai University in Computers. He is an MBA from NITIE, Mumbai. After his engineering, he was working as an ERP consultant for Ness Technologies. Currently he is a Senior Business Analyst at Cognizant. He enjoys dealing with student issues.He has a flair for writing and has received accolades for the same during his engineering and MBA days.

MBA education can be an expensive affair. The total expenses for a full time 2-year course will be around Rs.4 to 7 Lakhs. This amount can be a substantial load on students and their families. Many candidates postpone their dreams of pursuing MBA because of the high costs. Student Loan is the ray of hope for many budding MBA applicants.

Many banks now provide attractive loan schemes for pursuing MBA courses. Nationalized banks like SBI, Canara, Bank of Baroda as well as a host of co-operative banks have separate loan schemes for students. Many have simplified the process of obtaining the loans. However the decision to take a loan is never a simple one. Let us analyze the nuances of student loans which will help you take a prudent decision.

Student loans are offered to the limit of around Rs.5 to 7 Lakhs. These loans mostly cover tuition fee and hostel fees. Some also cover expenses like books, canteen charges and computer costs. The interest will be compounded on a monthly basis at a rate around 9-12%. This would not be a fixed rate but will vary in manageable proportions. The student needs to repay the loan only after the completion of the course. The payment can be done through monthly installments spread over upto 7 years. Current Tax regulations allow the interest paid on student loans to be deducted from taxable income.  

Estimate how much money you need in the two years of the course. Include cost of tuition fee, hostel/canteen charges, books, and computer/laptop. Sundry costs include stationery, blazers, contributions to events like special guest lectures, industry interactions, B school competitions etc. These expenditures vary across colleges. Note that these expenditures are not a one time event but are spread over 2 years. Take your lifestyle into account and try not to under estimate the final amount.

Next step is to speak to your family to correctly gauge your financial situation. If you feel the MBA will result in a severe financial crunch, the decision is straightforward. Start calling the banks around you.

Many students like me feel we can somehow manage without the loan, but are not 100% sure. I took the middle way out.  I got the loan sanctioned for a sum sufficient to cover most of my expenses for the next two years. It involved some paperwork and few thousand rupees in processing fee. I now have a financial backup for two years and I can study without any worries. I take the disbursement only for the amount I need.  I took the loan to pay my tuition and hostel fees but did not use a loan disbursement to pay for the laptop. Next year I may pay a part of the fee from my savings, if however I find the going tough then I can always take a disbursement from the bank. Note that the bank charges only for the actual amount disbursed and not the amount sanctioned.

Some tips:

1. Inquire with multiple banks. A difference of even 1-2% in interest rate will save you thousands later.
2. Some banks may have a tie up with your college. This will include a preferential rate of interest (upto 2-3% less), waiver of security/guarantor requirement and an extended moratorium period.
3. Give due attention to all the clauses in the loan agreement.

A student loan is a soothing financial balm but only if you need one.