How to get cheapest finance to fund your MBA programme: Best education loans & tips to negotiate with banks

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Updated on June 23, 2017
Most of the IIMs and other B-schools have funding arrangements with certain banks and other education loan providers who will readily fund your MBA education, but you need to know who among them can offer you funds at the lowest interest rate and other concessions to reduce the financial burden of loan repayment
MBA funding
Higher amount of loan for MBA education is available at lower interest rate, lower margin or no margin money, without collateral security and without too many formalities upto the full amount of fee for premier institute

Doing MBA is an expensive affair and when it comes to pursue your flagship Management programme from IIM Ahmedabad, Bangalore, Calcutta, MDI Gurgaon, XLRI Jamshedpur or any other top B-school, you need to shell out between Rs.19 lakhs to Rs. 21 lakhs to pay only for your tuition fee and other key charges included into it, as almost all the top B-schools have increased their fee structure.

There is no doubt that all these top B-schools have funding arrangements with certain banks and other education loan providers who will readily fund your MBA education. But you do not know what will be the cost of this study loan or education loan. Cost of loan implies – the rate and amount of interest you have to pay during the repayment period of the loan. Besides, at the time of loan disbursement banks or financial institutions sometimes do not reveal whether it is simple or compound interest.

You therefore need to be smart enough to judge your requirements and find out the Bank offering the best deal or other financial institution that can cater to it in the manner best suitable to you and at low cost. According to the experts you should avail the loan only after assessing your requirement and should finalize it after cross checking it with other loan providers.

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Step-1: Assess your financial requirements

You will need funds to satisfy the following needs

  • Sufficient amount anywhere between Rs.8 lakhs to 21 lakhs towards tuition fee, Lab fee, Library fee, caution money, security deposit. 
  • Rs. 2 to 4 lakhs towards Lodging & Boarding. It includes the hostel accommodation, single or double seater; mess and other charges related to it.
  • Rs.1.5 to Rs.2 lakhs towards study material and laptop. Books and stationery are no less expensive. You will need around Rs. 1 lakh to Rs. 1.5 lakhs for this purpose. Laptop and accessories are a must in present day education if you wish to remain connected to the rest of the world, an added provision of Rs.50000 to Rs.100000 for this will be needed. You may not need recurring expenses for internet services as almost all the hostel accommodations are wi-fi enabled 
  • Rs. 2 to 3 lakhs for study tours or foreign university tours
  • Rs. 2 to 3 lakhs towards other expenses like clothing, travelling, outing, entertainment (if you get time at all) etc.

Apart from this you never know about other unforeseen expenses like medical etc. Now you have to search for the institution that can fund your above needs and in return doesn’t impose much financial burden in terms of rate of interest, processing fee, margin and can offer you the study loan at most affordable rates.

Step-2: Know the loan CAP for your MBA programme
Different banks and financial institutions in Private and Public sector have different criteria to fund MBA education in different institutes according to their own ranking. Banks publish and display on their website periodically list of premier B schools and other B schools. Accordingly, higher amount of loan for MBA education is available at lower interest rate, lower margin or no margin money, without collateral security and without too many formalities upto the full amount of fee for premier institute as compared to other B-schools not falling in the premier B-school league. However, it depends upon the classification of the institute by the Bank’s own standard.

Apart from this, a bank situated in the premises of the particular MBA College may also provide some special funding schemes to pursue MBA from that particular institute.  For example, State Bank of India at IIM Ahmedabad campus offers education loan upto Rs.30 lakhs without any collateral security and at 9.35% interest but the same Bank at MDI Gurgaon campus offers education loan upto Rs. 15 lakhs to pursue MBA and would need 5% margin also.

Step-3: Compare 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 loan 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.

Let us compare among the prominent loan providers:

Private sector NBFCs

Avanse Financial Services
Avanse is a non-banking financial company and is the finance arm of DHFL. It is a private company offering education loans to the students studying in India or abroad.  

Maximum loan amount: No limit depending upon the B-school fee and expenses
Rate of interest: 11.5% + Spread ( Between 0.5 to 1.5%)
Margin amount: Nil (one time processing charges between 1-2% of the loan amount + taxes will be recovered)
Collateral security:  Required as per the quantum of loan account
B schools covered: All the IIMs, XLRI and other top B schools

Credila’s Education Loan
CREDILA is a private non-banking finance company (NBFC). It is a subsidiary of HDFC Ltd Company and primarily focuses on education loan. It offers customized education loan packages to pursue higher studies in India or abroad.

Maximum loan amount: Rs. 25 lakhs or may be above as per offer letter from the B school
Rate of interest: 12.10% (Credila’s base lending rate) + spread as applicable for education loan
Collatoral security: Not required for low amount loan, required for high amount loans
Margin amount: Nil (Origination fee will be charged)
B schools covered: IIMs, XLRI, and all the other top B-schools

IDBI Education Loans
IDBI Bank Ltd. is a young, new generation, public sector universal bank. IDBI offers personalized banking and financial solutions to its clients. Education loans are provided by IDBI for higher education in India as well as abroad.

Maximum loan amount: Rs. 15lakhs
Rate of interest: MCLR 8.30 + Spread between 0.15 to 2.15%
Margin amount from borrower: Upto 4 lakhs- Nil; Above Rs.4 lakhs-5%
Collateral security: Required for loan above Rs.4 lakhs
B schools covered: IIMs, XLRI, XIMB, SPJIMR, MDI and other B-schools offering AICTE/UFC recognized programme

Public Sector Banks offering specialized Education loans

Central Bank of India
It is a public sector bank and will cater to the needs of all types of loans.

Maximum loan amount: Rs. 20 lakhs
Rate of interest: MCLR 8.40+0.5% for top B schools and 2% for other B-schools (Would come to 8.90 for top IIMs, XLRI and 10.4% for others)
Collateral security: Required for loan amount above Rs.7.5 lakhs
Margin amount from borrower: Nil for top IIMs, XLRI but required for other institutes.
B schools covered: All IIMs, XLRI, XIMB, SPJIMR, MDI and other B-schools

State Bank of India
The largest bank of India offers education loan under its different schemes for study in India and abroad. The Scholar scheme loans are offered to study in IIMs and other top B-schools while for other B-schools regular study loans are offered. The tailor made education loan schemes are offered for different B-schools like IIM Ahmedabad, MDI Gurgaon in accordance with their fee structure.

Maximum Loan amount: Rs.30 Lakhs (for students of IIM Ahmedabad, for others as per their fee structure)
Rate of interest: 9.35% for IIMA; for others like MDI 10.70%
Margin amount: Nil for IIM A; 5% for others
B schools covered for Rs.30 lakhs cap: IIM A,B,C
B schools covered for Rs.15 lakhs cap: All other IIMs, MDI, XLRI, XIMB,IMT  
Collateral security: No collateral needed for top B-schools, co-borrower required. For other B-schools collateral required

Punjab National Bank
Two different education loan schemes are available with Punjab National Bank for students. The schemes are named as Pratibha and saraswati. Different institutes are covered in these 2 loan schemes.

Maximum Loan amount: No limit depending upon the repayment capacity. However, loan is sanctioned as per the fee requirement of the B-school
Rate of interest: 8.35% to 10.95%
Margin amount:  Nil upto Rs. 4 lakhs; 5% above it.
Collateral security: Required above the loan amount of Rs.7.5 lakhs
B schools covered: IIM A,B,C,L, Kozhikode, Indore, Shillong,  XLRI,  New IIMs, MDI, IMT, SPJIMR, IIFT, FMS, JBIMS, NMIMS, NIRMA, Symbiosis

Dena Bank
Maximum loan amount: Rs.15 lakhs for IIMs; Rs.10 lakhs for other A rated B-schools
Rate of interest: 10 to 11.8%
Margin Amount: 5%
Collateral security: Required for loan above Rs.7.5 lakhs
B schools covered: MDI, IIMs, IMT, SPJIMR, XLRI and other top rated B schools

Canara Bank
Canara Bank offers education loan to study in top B-schools like IIMs, ISB at a concessional rate under ‘Vidya Turant’

Maximum loan amount: As per requirement of IIMs upto Rs.25 lakhs; for ISB upto Rs.36 lakhs; for others Rs.20 lakhs
Rate of Interest: MCLR-8.45% + 0.20% (For others interest rate will be higher)
Margin amount: 5%
Collateral security: Not required for top B-schools
B schools covered: IIM A, B, C, ISB and other A & B rated MBA colleges

Union Bank of India
Special education loan scheme has been prepared to study at IIMs, XLRI and other top B-schools with various concessions.

Maximum loan amount: Rs.30 lakhs for IIMs and other top B-schools
Rate of Interest: 8.65%
Margin amount: Nil under this scheme else 5% above Rs.4 lakhs
Collateral security: Not required under this scheme else needed above Rs.7.5 lakhs
B schools covered: All the IIMs, XLRI, SPJIMR, MDI and other A graded B-schools  

Punjab & Sind Bank
Maximum loan amount: Rs.10 lakhs (Higher amount considered for study in IIMs & other B-schools)
Rate of Interest: 9.75% for IIMs and other top B-schools; 10.75% for others
Margin amount: 5% for loan above Rs.4 lakhs
Collateral Security: Required above the loan of Rs.7.5 lakhs
B schools covered: All the IIMs and other B schools

Finally, key points to negotiate with Bank
You may find number of points in the Banks’ schemes where you can negotiate with the bank and other financial institutions. A few of them are

  • Check which Bank or financial institution doesn’t ask for any repayment during the course period
  • Check which bank or financial institution gives relief in interest, if you pay interest during course period
  • Check which bank or financial institution reduces rate of interest if your parent becomes co-borrower
  • Waiver of processing charges. If you are taking loan from the institution that charges processing fee, try to negotiate and ask them to waive the same. They know well that Public sector banks are not charging this component. With a little effort you could get the same waived.
  • Rate of interest can be negotiated. Banks link their rate of interest to the base rate which goes on changing. Check the correct prevailing base rate and link it as specified because correction at later stage becomes a problem due to the many constraints. For example if the base rate today is 8.25 and rate of interest on education loan is 0.25 above the base rate; your rate will come to 8.50%. Be aware about this fact
  • Ask for the screen shot when loan account is opened. Number of banking personnel due to the ignorance about their own schemes enter higher rate of interest, other charges, moratorium and repayment period in their system without ascertaining your eligibility criteria. Better to check what they have entered at the time of sanctioning and disbursement of education loan.  
  • Check for margin amount. If the bank asks you for the margin amount while it is not applicable, be on your guard. Education loan upto Rs.4 lakhs for any B school doesn’t call for the margin amount and loan for higher amount, which goes upto Rs.30 lakhs without margin, is sanctioned and disbursed in accordance to the specified scheme for the particular institute. 
  • No guarantee or security can be taken by the Bank upto the specified amount of MBA education loan according to the scheme. In case the amount is higher than specified in the loan scheme, please check and confirm whether the same can be taken by the Bank.

Understand 3 key points
Discuss with the authorized person and in case of need, talk to their controlling office, send mail and letter and make it a documentary proof. Please remember-

  • No 3rd party guarantee unless specified in the scheme
  • No collateral security unless specified in the scheme for the prescribed amount
  • No margin upto the specified amount

These 3 items are to be properly understood as at a later stage Banks usually take the plea that they didn’t ask for the above but the borrower had offered and the bank didn’t refuse. Once they become the part of your loan document it is very difficult to take the security back before repayment except the margin money that you were asked to pay.

Don’t agree on margin money, if not applicable
In case banks collect margin amount 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 charge have to refund it and in case of any resistance from them you can claim the refund with interest which you will get with all expenses paid.

Discuss with campus Bank first
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. 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.

Stay tuned to for more updates on MBA funding options      

Also See:
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MBA through KMAT 2017All about the last MBA entrance exam for admission in 2017 in Bangalore & rest of Karnataka
PGCET 2017Karnataka Govt PGCET 2017 on July 2 for MBA 2017 open for all category candidates
CAT 2017 in changed patternKnow all about CAT 2017 exam notification date, registration, pattern, IIM cutoffs  
MBA Ranking 2017Check MBA Ranking 2017 for top 100 B-schools in India to guide you in MBA admission decision