Save Rs 2 Lakhs on your MBA admission fee, Know the tricks

Getting an offer of admission in MBA programme from a top rated B school like an IIM, SPJIMR, IIFT, MDI, IMT is not easy, given the volume of competition.  Losing the chance of doing MBA from a coveted B school due to high fee structure and non availability of funds is like missing the link to building the career and repent later.

If we go with a planned and well thought of process in our search of getting the maximum funds at the minimum cost from available options to finance the MBA study, we may save even more than Rs 2 lakhs during the tenure of repayment. MBAUniverse.com works 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.

Which B school? Check the Fee structure 

Fee structure, with other parameters like faculty, infrastructure, programme structure and placement remaining almost the same, could be stated as the base to choose the B school. There are 13 IIMs and other top rated B schools like IIFT, SPJIMR, MDI, NITIE, IMT, IMI and all have different fee structures. Even the 6 new IIMs have different fee structure in a range of Rs. 9 lakhs to Rs.13 lakhs while the USPs are more or less remain the same; other older IIMs and top B schools go upto Rs.17 lakhs. Take the decision why to pay more when there is not much difference in ROI.

How much is the need?

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 who offer 100% study loan and ask for interest rates in the range of 10 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 that particular B school. Better to cross check with it before exercising other options to cater to your need.

Different loan cap and interest rates

All the banks have their own policies to fund the higher 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, IMT, IIFT.  The difference in both types of schemes is that the study loan schemes for premium institutes carry higher amount with lesser interest rate. Corporate/Head offices of these banks publish updated list of such premium B schools.

Schemes of different Banks and institutions

Saving can be more than Rs.2 lakhs

‘Money saved is money earned’ goes the saying. While going through the various schemes of the banks and other financial institutions, try to zero in the best one in your favor.
If I need Rs.12 lacs to study in a good B school, I find that almost all of the above, except one or two, can cater to my need.  What I have to calculate now is how I can save even more while getting my education loan sanctioned from any of the low interest charging Bank.

Wouldn’t you prefer Canara Bank, Union Bank, State bank and Central bank to the other ones? Even if the formalities are a little more, the comparison of interest saving of more than 1.5% on Rs.12 lacs would come to Rs. 18K per year. During the repayment period of 10 years with application of interest on reducing balances, it will be somewhere around Rs.1.25 lacs.

Even before going for other negotiating points, I have already saved Rs.1.25 lacs, if I go for an education loan of Rs.12 lacs to be repaid in 10 years after completion of my MBA.

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Check other offers: Save even more

Education loan schemes have some offers which depend upon your punctuality, understanding of the scheme and negotiating skill

Opt for simple interest charging Bank: Banks offer to charge simple interest during moratorium (course) period. It means the amount of interest being charged will not be added back to your principal amount.  Once the course is over and you are placed, banks will start charging compound interest on the education loan account. Why not pay interest during course period to get some relief.

Loan amount Rs.12 lacs; course period 2 years; rate of interest 10.70% PA

Simple interest amount per month: Rs. 10,700 (Yearly Rs.128400/-)

Compound interest amount per month: (Please remember Banks have the system of monthly interest application, hence Rs.10700 will be later compounded followed by other monthly applications)

It would go up to somewhere around Rs. 12000/- per month if you choose not to repay during course period (Yearly Rs.142, 000/-)

If you make monthly repayment of interest only, you will save: Rs. 14000/-

Choose Floating rate of Interest

Floating rate of interest means there would be changes in interest rate in case of increase/decrease of their base rate.  This is beneficial for you also.  Banks link their rate of interest to the base lending rate which goes downwards also. Check the correct prevailing base rate and link it as specified. Whenever the base rate is reduced your interest rate will be reduced.

Get your Parent as co-applicant

If your parent is co-applicant/co-borrower, interest may be reduced further by 0.25 to 0.50%. It will be a handsome amount in a range of 25k to 50k PA during the repayment period, assuming that you have taken a loan of Rs.12 lacs.

1. 0.25%  of Rs.12 lacs: Rs.3000; in 10 years Rs.30,000
2. 0.50%  of Rs.12 lacs: Rs.6000; in 10 years Rs.60,000

The small reduction in interest can fetch good saving potential if you are little careful.  

Relief in interest on regular re-payment- Some of the banks give relief to the tune of 0.5% in interest amount, if you regularly make repayment. When you re-pay regularly, you not only save on compounding of interest but your principal amount also gets reduced.

0.5% of 12 lacs: Rs. 6000 per year. Total saving in 10 years on reducing balances will be somewhere around Rs.45000/-.  Initially it will be more saving, later it will continue to decrease with the reduction in balance in your loan account. 

Concession to Working Professional- Working professionals getting admission in MBA at good B school can be further provided relief in interest by 0.25% by some of the banks.
This can again give you benefit of Rs. 30,000/- during the repayment period

Concession to Women MBA aspirants- In addition to above, if you are a girl student, you may be awarded further reduction in interest by 0.25 to 0.5%

While some banks give a relief for 0.25%, some offer it to the tune of 0.50% Even the minimum is considered, you save Rs.30, 000/- more

Negotiate to get the processing charges waived-Some of the banks charge one time processing fee for Rs.5000/-. This fee can be waived if you discuss well and given an application to the bank to waive it. Their controllers have the authority to waive it and they do it frequently.

Government of India has also issued the directive not to charge processing fee on education loan. The logic behind waiving the processing fee is that Education loan is covered under priority sector loans and banks are not supposed to recover processing charges on it. With a little effort you could get the same waived.

GOI Interest subsidy schemes
Government of India has also launched a scheme of waiving/providing interest subsidy on education loan. If the yearly income of your parents is less than Rs.4.50 lacs you may get your entire interest amount waived in a particular year, more than 1 year or may be provided relief to some extent.

This amount would also come in the range between Rs. 12000 to Rs. 36000 depending upon the announced scheme. 

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Decide whether you wish to pay margin

More you borrow more you repay. Usually Banks demand 5% margin amount. If you think you can very well contribute it, the same will reduce your repayment burden else you may approach such banks who do not ask for margin or reduce the amount of loan.

This margin amount is nil upto Rs.4 lakhs in all the banks but above that all the banks have their own schemes. Paying the margin improves Bank’s trust on you which will be beneficial to you in the long run, if you opt for entrepreneurship after completion of the course.
 
All the campus branches in the B school have special education loan scheme with provision of higher amount without any margin. It will also be good to explore the lending schemes from them.

The best saving part would be on Income Tax

Entire interest charged and repaid on education loan on yearly basis will directly be deducted from your income for the purpose of income tax calculation for the financial year.

Understand how it will save not less than Rs 1 lakh every year during the period of repayment
Loan amount: Rs. 12 lakhs
Interest rate:10.70%
Yearly interest amount: Rs.128400/-

Suppose, you got minimum placement package of Rs.7 lacs. Going by the current rates, you would be in the tax slab of  20%. The tax on Rs.128400x20%=25680/- for one year.

But, you don’t need to pay it since your income gets reduced by Rs.128400/- as the interest repayment on education loan is fully exempt from income tax and with the application of Standard deduction you go well below Rs.5 lakhs. Now you are in the tax slab of 10%

You have not only saved Rs.25680/- on Income Tax but the tax rate is also reduced to lower slab.

Fabulous Saving on education Loan

If you at all choose to calculate the total savings on your funds, taking into account all the concessions, it will go well beyond Rs. 2.5 lacs. Bank knows well that after completion of your MBA from a good B school your pay packet will be pretty high. It is eyeing your future requirements as well. It will fund your MBA according to the programme’s requirement with all the negotiation options kept open. Please calculate well before signing the documents.
 
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If you have any query on MBA Education Loan, talk to our LIVE Counsellor to get right advice and suggestions, Click Here: http://www.mbauniverse.com/mbau_faq/client.php

Also read our earlier articles:

Want a Fee refund from your MBA College? Admission withdrawal cases; How to avoid

10 steps to save you from falling into MBA Education loan Trap

Bank 'maange' more; Read this cautiously before taking Bank loan for MBA

Education loan for MBA, Think twice and negotiate with banks

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