Education Loan for MBA: MBA Education Loan In India by Private & Public Sector Banks, NBFCs

Before we discuss more about Education Loan for MBA, let’s have a look at the fees of MBA colleges. Given their high fees, it is clear that without an MBA education loan it is difficult to pursue your MBA programme from IIMs and other top B-schools in India.

(Actual fee may revised before admission)

Education loans for MBA in India are offered by Public Sector banks like State Bank of India, Punjab National bank, Central Bank of India, Punjab & Sind Bank, Dena Bank, Canara Bank among others.  MBA education loans are also offered by private sector banks like ICICI Bank, Axis Bank, Kotak Mahindra Bank. There are also specialized NBFCs like HDFC Credila Financial Services Limited,  Avanse Financial Services which provide MBA Education loan in India.

Accordingly, you have number of MBA education loan options. However, the cost of these MBA education loan options may go up or down due to differentiation in rate of interest and you have to take care of this problem. 

What’s important to note is that most financial institutions offer differential MBA loan interest rate schemes for education loan for MBA in IIMs and other top rated MBA colleges as compared to other MBA colleges. Education loans for IIMs and high ranked MBA colleges are generally available at lower interest rates when compared to lower ranked colleges. 

Following are the key Education loan schemes offered by different financial institutions which will be funding for MBA programmes:   

Almost all the Public Sector Banks offer Education loan for MBA programme. Top Education Loan Providers in India for MBA among the public sector banks and financial institutions who offer MBA admission education loan are:

Education loan for MBA by Private banks and NBFCs is available to a large extent. Most of the private sector Banks and Non-Banking Financial Companies also offer Education Loan for MBA as under:

SBI Education Loan for MBA in India is considered low cost and covers a major part of all the expenses while funding your MBA. One of the key features of Education Loan for MBA in SBI is that you will get the education loan in SBI at low interest rate if you have got MBA admission in a premier MBA college.

The scheme of education loan for MBA in State Bank of India is covered under its different schemes for study in India and abroad.

Education Loan in SBI for MBA in top B-schools is given under the Scholar scheme. These Education loans for MBA in SBI are offered to study in the top rated management institutes – IIMs and other top B-schools while for other B-schools regular study loans are offered.

The tailor made education loan schemes for MBA in SBI are offered for IIM Ahmedabad, IIM Bangalore, IIM Calcutta and other IIMs as well as for MDI Gurgaon, XLRI among others in accordance with their fee structure. MBA loan interest rate for different schemes is different.

• Maximum Loan amount: Rs.30 Lakhs (for students of IIM Ahmedabad, for others as per their fee structure)
• Rate of interest: 8.05% for IIMA; for others like MDI 10.15%
• Margin amount: Nil for IIM A; 5% for others
• B schools covered for Rs.30 lakhs cap: IIM A,B,C, XLRI
• B schools covered for Rs.20 lakhs cap: All other IIMs, MDI, XIMB,IMT 
• Collateral security: No collateral needed for top B-schools, co-borrower required. For other B-schools collateral required

If you adhere to following 5 tips while securing finance for MBA with Education Loan, you will not only get the best deal but will also save a lot of money during repayment of the education loan with interest:

1. Calculate your Estimated Expenses
Calculate the MBA funds requirement on the basis of 4 factors, namely 2 years funds requirement; Prospective job market after 2 years; Amount needed to live a non luxurious life during the course and EMI on repayment based on interest rate and period of repayment

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.

2. Look for Cheapest MBA Education Loan
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 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 in 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 lower interest rate. Corporate/Head offices of these banks publish updated list of such premium B schools.

If your institute falls under the category of premium MBA college, 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 in interest rate can make a cumulative effect coming in lakhs at the end.

3. Compare MBA Funding Schemes of Different banks
Education loan for MBA is available from almost all the banks and other specialized financial institutions in private and public sector including Avanse, Central Bank of  India, Credila, Dena Bank, IDBI Bank, HDFC, Punjab National Bank, State bank of India, Punjab & Sind Bank 

These MBA funding schemes are known by different names to ascertain the various terms and conditions, maximum amount, concessionary rate of interest, clubbing of co borrower, need of margin and security.

SBI has named its education loan scheme for premier B-schools as ‘Scholar loan scheme’ and SBI student loan; PNB has named it as PNB Pratibha and PNB Saraswati. But our prime objective is not to go for the name but to know where we can get maximum at minimum interest rate.

4. Opt for Shorter Repayment Period
Think on reducing the repayment period of your education loan. Banks have tactfully revised and extended the same. The burden of interest in a longer period will be more. For example, if you repay a loan amount in 10 years for which accrued interest is Rs.6.4 lakh, the same amount if repaid in 7 years, will carry the total interest of around Rs.4.35 lakhs as the rate of interest will be less due to shorter repayment period.

5. Pay interest during course period
Try to repay the amount of simple interest applied on your study loan amount. It would reduce the interest burden when compounding of interest begins after 1 year of completion of course.

While you are thinking about financing your MBA, it is useful to understand how you can reduce your study expenses. Here are some tips.

1. Save on International tour
   Many B-schools have started foreign study tour to various foreign institutes or have engaged in international exchange programme. The fee for foreign tour or international exchange programme runs in lakhs. If you are able to convince the B-school that you wouldn’t like to go for it, it is very much likely that you are exempted from it. Moreover, the value of the international tour may not be so much as it is claimed by the B-school.
2. Get Scholarship and “Negotiate” your Fee 
   There are B-schools who can offer you discount, scholarships, fee concessions and waivers. Cross check how much of it you can get. This will further reduce your financial burden while pursuing MBA.
3. 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.

Here is how you can plan to repay your loan EMIs from your salary.

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/-
• 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/-
• Proportion of repayment to net salary: 28%
• Total interest paid on loan: Rs.328,000

While funding your MBA, you may be attracted to higher MBA education loan than actually required. This may put you in debt trap. Getting into MBA 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.  

There is no doubt that Education loan for MBA is the best option to finance your MBA study, but it is also important to avoid falling into the education loan trap after completing the MBA programme. Falling into education loan trap without giving it a proper thought while procuring it is definitely bad which shows your poor management skills.

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 EMI due to the hidden charges, high rate of interest, compounding interest system, guarantee and security system as well as irrelevant documentation.

So, watch your steps
Sometimes, you spend more than you can afford and then struggle to pay off the loan getting compounded at a hefty interest rate. Remember, how much alluring that education loan scheme might look, but the repayment of it can take years of your life, to recover from. So be cautious while moving forward with your idea of taking education loan for MBA that may lead to falling into a loan trap which you never expected. Following are the key steps that can save you from falling into the loan trap:

Step-1: Read Carefully the MBA Education Loan CAP
MBA education is expensive and you may need Rs.10 to Rs. 30 lakhs to pursue it.  Find out which Bank can cater to your needs. If you need Rs. 20 lakhs and the education loan upper limit of the Bank is Rs.15 lakhs, it will be a difficult situation and you will have to arrange additional Rs.5 lakhs from some other sources which may put you in multiple financial burden.

Step-2: Look for the Margin Required by the Bank
There are some Public sector and private Banks who do not ask for margin amount on MBA education loan even for an amount as high as Rs. 20 lakhs for example SBI, Central bank of India, Union Bank of India, Avanse Financial Services. On the other hand there are banks who will ask for a margin in a range of 5 to 10 percent on the loan amount exceeding Rs.4 lakhs.  It is always better to confirm from the bank about their updated schemes since sometimes they also do not update it on their site.

In case banks collect margin money from you and you pay it because you need the loan and do not have much time left to deposit the fee, you may later on ask for the refund of the same. Banks as per the rules, if charge anything which they shouldn’t have charged, have to refund it and in case of any resistance from them you can claim the refund with interest by writing to their higher authorities, ombudsman and you will get the refund with all expenses paid.

Step-3: Check for the Processing Charges
Some of the banks and financial institutions charge one time processing fee of Rs.5000 or so, or charges it in the form of 0.5% to 2% of loan amount. Most of the public sector banks have no such charges especially on education loans. Still you have to check whether it is charged by the Bank which you are approaching and whether it can be waived. In most of the deserving cases Banks can waive the processing charges while granting education loans.

Step-4: Compare Interest Rate Structure
This is most important. It is the price for the education loan that you are going to pay. New interest rate structure defines the base rate, this base rate is usually the base lending rate. A bank can fix a rate over or below this base rate which will eventually become the actual interest rate.

For example if the base rate is 10.25% pa and the bank announces its education loan interest rate as 0.25% above the base rate, it will become 10.50% (add 0.25% to base rate). Sometimes when there is mention like Base Rate + 1.50% or 2.25% above the base rate, we are tempted to think that it means a very low interest but in fact it is high enough. So, before applying for MBA education loan, you should check the base rate of the particular bank and then add the rate mentioned by the bank.

Step-5: Interest Application Process on loan during the MBA course
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 loan. 

It’s very much possible that while entering the details and data in their computer system, either due to omission or due to the ignorance of banking personnel, they are not able to feed the correct moratorium period or they may have faulty software.  Whatever may be the reason but the loss will be yours as the banking system will go on compounding the interest even during the moratorium period.

It has happened with number of MBA, Engineering, Medical and other professional educational loans. 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.

Sanctioned MBA education loan-Rs.18 lakhs;

• Rate of intt-10.70%; simple interest during moratorium period
• All the expenses at IIMB-Rs.18 lakhs

Fee and other charges to be paid in 4 equal instalments:  Rs.4.5 lakhs x 4= Rs.18 lakhs

1st instalment paid by the bank-Rs.4.5 lakhs;  yearly interest-4.5 lakhs x10.70%=Rs 48150/- pa

Monthly interest shall be-Rs.48150/12=Rs.4012/= per month

In case of simple interest Rs.4012/- only per month will be charged, whether you repay the interest during course period or don’t pay it. In no case it will be added to your principal amount of Rs.4.5 lakhs; the interest amount will be parked separately. 

Now, the catch: Banks forget the mechanism many times and the monthly interest amount is added to the principal amount and next month you will find higher amount of interest having been charged in your loan account.

How to check?: Check every month the application of interest in your account; ask for account statement. Banks provide internet facility, so you can check and verify at your end also. In case of discrepancy, immediately contact the bank in writing. They forget the verbal communication; this is true especially in case of public sector banks.

Step-6: Changes in Interest rate subsequently
Almost all the Banks are providing MBA education loans on floating rate of interest. It means if there is any change in their base rate the effective interest rate will also change.

What should you do? In case of increase in base rate all the banks remember to change the interest rate. But in case of reduction in base rate or reduction due to other factors, they forget to implement. Better to confirm on the Bank’s site the base rate. The irony however, is that they also forget to update on their site. Be cautious and monitor regularly

Step-7: Take Benefit of Reduced Interest during MBA Course
Some of the banks reduce 0.25 to 1% interest burden, if the interest charged during course period is regularly repaid.  It can also reduce a substantial financial burden.

Step-8: Work Experience can reduce the Interest Burden
Number of banks have brought this feature. If you have work experience of 2-3 years and are pursuing MBA, interest concession in the range of 0.25 to 0.5% can be available to you. Please enquire about it before applying for education loan

Step-9:  Less Interest rate for Females
MBA education to girls can be cheaper as concessional rate of interest will be applied on their loans. Banks like PNB offer education loans to girls at lower interest rate.

Step-10:  Opt for Best Repayment term
Repayment ideally starts after completion of 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. 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.

Although most of the financial institutions do not charge prepayment penalty on education loans repayment. But you never know about the change in their policy. Just confirm this fact before applying. There are number of competitors and competition among public and private sector banks is high enough. Take benefit of this stiff competition.

Find out if there are any hidden charges, understand their mechanism. The interest is usually charged on daily reducing balances, ask and confirm this fact from the bank. Do not allow either the Private or the Public sector bank to cheat you on any point.  Instead of following the irregularities later, it’s better to nip in the bud.

Advisory
Contact the B-school campus branch of the bank first. Banks situated in the B school campus have all the relevant details and are more expert in the job of MBA admission education loan. On the basis of your choice on MBA education loan options offered by the banks, they can issue in-principle sanction letter for the loan amount with all the terms and conditions written therein. You may approach the nearest branch to your residence to get the loan disbursed. Most of the banks have centralized processing centres to sanction the loans. They then direct the concerned branch to release the funds to finance your MBA education.