Should One Take Education Loan To Pursue MBA?

MBA and loans are synonymous in today’s times, thanks to the regular fee hike by B-schools. Where on the one hand there’s a huge demand from students to pursue MBA from premier b-schools, banks have taken it upon their shoulders to maintain the supply track, by inviting students with folded hands to apply for education loans.

Be it college graduates or working professionals, the accumulation of MBA fees is difficult for both. Repaying these loans may take about 3-5 years on average. Thus, proper research and planning are recommended before embarking on this journey.

The perfect example of Demand-Supply chain

Do you remember the law of demand which says “ceteris paribus, the price of goods is inversely proportional to the quantity demanded”. The law holds true if we consider an MBA programme as a product and its fees as a price. With the constant rise in demand for MBA, there has been a proportionate increase in fees charged by b-schools offering the course. The same scenario was repeated in 2021 when almost all IIMs brought a hike in MBA fees, few of them given below.

Note: Some of the colleges may have additional fees in the form of the hostel, mess, or other charges. Thus, there are chances of differences in the actual fee and projected fees.

Click here to check increased MBA fees for all IIMs

Measuring returns from education loan

Considering the ever-rising MBA fees in top b-schools, it is clear that taking loans to pursue this course needs careful planning. One of the metrics that is generally used in such planning is the payback period i.e. the estimated time to repay the loan.

For instance, you take a loan of Rs.10 lakh for your MBA and considering the average CTC offered in a b-school at the time of placements, it is anywhere between Rs.8 lakhs to Rs.25 lakhs. Apparently, you may believe that you can recover the loan amount in just a year. However, points like:

• CTC presented by colleges may not be the actual in-hand amount.
• Till the time you are in college, the accruing interest sums up to a hefty amount.
• Even after getting placed, it will be difficult to pay the entire loan amount as other expenditures add a burden to the pocket.

Thus, an analysis of all these points while considering whether to opt for an education loan is necessary.

MBA Education Loan by Public Sector Banks

*ROI may vary as per the category of the institute and loan amount

MBA Education Loan by Private Sector Banks & NBFCs

The tie-up between Banks & Premier B-schools

In the case of premier MBA colleges, banks already have tie-ups with the institute. While sending admission offers to the candidates, the college provides contact details of various banks for availing of education loan.  Also, you may find bank representatives in the b-school campus on your very first day of the new academic session to lure you to apply for a loan. 

Tax savings while you opt for an MBA education loan

You can just save your taxes by applying for an MBA education loan. Manjira Haldar, assistant manager at CitiBank says, “After finishing MBA, your income will be 10LPA or higher in general. So, you will have a good amount of income tax liability. But education will come to your rescue. You will be able to save tax by showing the interest paid on the education loan which is over and above 80C in case you go for the old regime. So, suppose you pay 7% interest on an education loan, but you make a wise investment of your earnings and earn a minimum of 7%, your minimum gain is the tax you were able to save due to the education loan.”

What do finance experts say?

You might be apprehensive about whether it is wise to invest lakhs in pursuing an MBA. According to Girish Menon, Senior Manager, Yes Bank, “If one does an MBA from a tier 1 or tier 2 institute, the payback period and the return on investment is good considering the median salary of around 15 lakhs. Also, for most colleges, the investment would be in line with the median annual salaries. So, you could pay back the loans or even prepay unless you truly mess up your placements. So assuming this, your salary would be enough to pay back your EMI, plus any savings could be invested at a rate greater than the interest rate of the loan.  So, if one does have an aptitude for doing an MBA, one should do it. The Market does pay you better for a higher degree. All this is from a financial point of view keeping emotions at bay.”

Tips to secure MBA loan

As you opt for an education loan for MBA, you will come across a lot of choices and bank return policies to choose from. Thus, it becomes more important to make a wise choice. The following tips will surely come in handy as you decide.

• Explore all available options: Research well on all possible loan options offered by various banks. Choose the one that will work best for you.

• Keep an eye on Hidden charges: Some banks have hidden charges as you apply for an education loan. Late payment, prepayment fees, etc are a few. Make sure that you don’t become a victim of it.

• Borrow what you need: Try not to stretch yourself when you are thinking of going for an education loan. Make a rough calculation of all your expenses, keep it minimum and borrow the least possible amount.

• Negotiate with the Bank: Make an attempt or a negotiation to reduce or waive the processing fee on your education loan. This is charged by the banks which is a certain percentage of the education loan amount that you have borrowed.

While the matter is highly subjective in concern with the reputation of the b-school one is joining and its placement records, what one needs to be highly cautious about is the financial stability that allows the person to opt for an education loan or not.

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