When It Makes Sense To Borrow

December, 8, 2014

Instead of downsizing the dreams of higher education, students are exploring the option of education loans, says Ajay Bohora, CEO, CEO, HDFC Credila Financial Services.

Give a man fish, and you'll feed him for a day, teach him to fish, and he'll require a venture capitalist. Talk to a hungry man about fish, and you are an MBA! There are hardly any organisations in the world where we don't find MBAs. The number of B-schools in India has grown to 4,500 with around 3,60,000 seats collectively as per an Assocham study.

Once, a young professor was disappointed to see his students doing very badly in his class. While discussing the matter with the director of the institute, he said, "I guess, it just proves you can lead a horse to water, but you cannot make it drink." To this the director replied, saying, "Dear professor, let me give you a piece of advice: your job is not to make it drink. It's to make the horse thirsty."

In innovative institutes, the faculty has started teaching students to learn by themselves. Students can be rigorous in learning concepts on their own, however, faculty intervention is required to develop the perspective, the skills, the value systems and the attitude. Intensifying the research orientation of the faculty can make Indian management education world class.

Fees And Financing

There are global agencies that are formally rolling out well-researched reports on ‘return on investment' in B-schools. The reports show return on the total fees paid in terms of life-time earnings of the graduating classes. In addition to the prestige of the reputed institutes, students have been comparing pay-back period of B-school fees. 

While most institutes have been raising fees to pay for higher costs, some B-schools, which struggle to find threshold enrolment numbers, have been closing down. Fees charged by Indian B-schools vary quite widely, from Rs 2,00,000 to Rs 25,00,000.

With rising fees, self-funding is proving difficult. Instead of downsizing the dreams of higher education, students are exploring the option of education loans. There is unlimited tax deduction on the interest paid by students or parents on their education loans under Section 80E of the Income Tax Act, 1961, provided the loan is taken from approved lenders. HDFC Credila not only funds tuition fees but also the entire ‘cost of attendance', which includes living-related expenses. Also, no margin money is required to be put in by parents or students on their education loan from Credila. 

Funding Education With Loans

While evaluating education loan applications, multiple parameters, which include but are not limited to the academic background of the student, co-borrower, collateral security offered, course, college or university selected for higher education, etc., are evaluated. HDFC Credila doesn't have a one-interest-rate-fits-all kind of approach. Instead of negotiating interest rates, HDFC Credila offers the best possible rates to students based on their credit evaluation. 

On education loans, usually, principal repayment doesn't start until six months after a student graduates. By then, students start earning. Depending on the course, the fee structure and the requirement of the student and his/ her family, comfortable repayment options are offered to students at Credila. HDFC Credila customises education loan products, where repayment terms can be as long as 10 years. It is important for students to repay the loan on time and not let it go into default. In most cases, the first loan that students take is an education loan. Timely repayment of education loans, therefore, offers the best opportunity to students to build their credit history. This enables students to avail other loans at competitive rates in the future.

Entering The Corporate World

In addition to the institute, the city where a student pursues his MBA also has an impact in terms of soft skills, networking with the industry, etc. Currently, the number of jobs available in the Indian market is less than the number of graduating students. Employers, therefore, have the luxury to take in candidates with higher qualifications than what they functionally require. With more choices available to employers, allied knowledge and skills also get evaluated. New-age industry employers who are on the growth trajectory have relatively higher budgets for salaries.

Go, Take On The World!

Many MBA aspirants feel that a wrong choice of B-school would lead to their future honeymoon shifting from New York to Navi Mumbai! However, that's not the case. In most instances, there is a huge salary differential in the graduating class of the same course, from the same institute. Besides, not all CEOs are from top B-schools, globally or in India. Knowledge is evolving! It's not the B-school that decides the destiny of a student, but the burning desire of the student to make an impact and the passion to learn, unlearn and relearn. Not everything can be taught; but anything can be learnt! Margaret Mead once said, "Never believe only a few passionate people can't change the world. For, indeed, that's all who ever have!"

Author: Ajay Bohora