An MBA degree needs a good amount of financial investment unless you get substantial scholarship to compensate your fee structure which may run anywhere in the range of Rs 8 lacs to Rs 15 lacs. Even with the admission offer in hand, it’s difficult to decide whether to pursue MBA degree or better to think about it later. This situation further worsens when you are already working and drawing handsome salary. You suffer on both counts- loss of job as well as incurring the expenses till you get the job again after MBA.
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 period, more will be the amount of interest you would be paying to the bank.
On the top of it, when the 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.
Key factors to decide
We may split the situation on the basis of following 4 factors-
- 2 years funds requirement
- Prospective job market after 2 years
- EMI on repayment based on interest rate and period of repayment
- amount needed to live a non luxurious life
Different Income scenario
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
Scenario 1- 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
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 financial crunch
Scenario-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. 11,57,00/-
-Proportion of repayment to net salary: 30%
-Total interest paid on loan: Rs.4,57,000/-
Scenario-3- 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. 16,53,000/-
-Proportion of repayment to net salary: 28.5%
-Total interest paid on loan: Rs.6,53,000/-
Key points to remember
Other Expenses:
Most the times it is not necessary that you would get the job in the city of your choice, so you may have to be in some other city than your native place in the first phase of your career. The expenses like rentals, conveyance, food, medical are also to be included. Assuming that you are single and living in a sharing apartment you may have to shell out an amount of not less than 10-12K from your pocket. In case you go for any other loan like that of a 2 wheeler, consumables like TV/Fridge/ other appliances, as everything is available on EMI, will this quantum of study loan amount suit your requirement, think twice before proceeding for it.
Income Tax
Another issue is income tax. You will have to either pay the tax or invest some amount to the extent the tax is saved. You will again need funds for the purpose.
Avoid crossing the advised limit
It is advisable to remain within the suggested loan limit. If you cross it, it is likely that you may fall into the debt trap as you have seen that only the interest part is huge enough to repay. In case of requirement of more decide judiciously since the average job market at present is of this nature only. Unnecessary financial burden will create problems in future.
Opt for reducing the repayment period
Think on 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 on the above 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.6.5 lacs. On the other hand if you repay in 7 years, the amount of total interest would be around Rs.4.35 lacs.
Explore Scholarship options also
If you can get the scholarship during the course of studying MBA, you may not need that much amount of study loan. It will be better to explore the opportunity.
Repay 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.
Stay tuned to MBAUniverse.com for more MBA funding options
