May 18 2010

FEES for some MBA courses could cost as much as the price of a house in a small city. Even if a student has worked and saved all the money, he/she may just fall short of the basic tuition fee. The starting range for an MBA course in any of the institutions is at least Rs 1 lakh and can go up to Rs 30 lakh or even more, if you include food and accommodation expenses. Apart from your parents, banks can come to your rescue given the sheer size of the amount required. However, there are certain thumb rules followed by banks when it comes to education loans. Here are some of them:


Usually, students are not required to pay any margin money for loans up to Rs 4 lakh. For loans above Rs 4 lakh, the margin money is 5%. For schemes specifically offered to students by certain premier institutes, some banks have completely done away with this requirement. For instance, Union Bank of India and Central Bank of India do not ask for any margin money under their special education loan schemes.


Under a regular education loan scheme, a student borrower doesn't have to provide collateral for loans up to Rs 4 lakh. The bank asks for collateral in the form of a suitable third-party guarantee along with assignment of future income for loans between Rs 4 lakh and Rs 7.5 lakh. For loans above Rs 7 lakh, the student has to offer tangible collateral security equal to 100% of the loan amount along with assignment of future income. However, SBI Scholar Loan — for students of certain premier business school (except Indian School of Business) — as well as the Central Bank of India-IIM scheme do not ask for any collateral. Under SBI-ISB loan scheme, the certificate will remain in the custody of SBI during the currency of the loan. The student can also provide a third-party guarantee (TPG), preferably of an earning sibling of the student or a person known to the bank. In some cases, education loan from HDFC Credila to ISB students, for instance, a lien on ISB certificate and transcript serve as the security, in addition to co-obligation (from parents, siblings or spouse) is required. As per Central Bank of India-IIM scheme, a student has to provide comprehensive life insurance policy in his/her name for at least the loan amount and a minimum period of 10 years assigned in favour of the bank. Similar is the case for loans granted by other banks through a tie-up with ISB.


Under an ordinary education loan scheme, the moratorium period specified is a year after the completion of the course or six months after securing employment, whichever is earlier. This period of nonpayment of loan instalments is called the holiday/moratorium period. However, some special schemes differ on this count as well. The moratorium period under the SBI-ISB scheme is up to three months after the completion of the course. The time-frame is higher at six months (after course completion) under SBI Scholar scheme. Similarly, loans extended by the Union Bank of India to ISB students features a moratorium period of 18-24 months or soon after placement, whichever is earlier.


Typically the repayment period stretches up to seven years. HDFC Credila Financial Services offers a longer repayment period of up to 10 years.


Cash in on the holiday period. Most banks offer a 1% concession on study loans, if you service the interest component of the loan during the moratorium period. The question is: can your parents afford to service the interest component of your loan? If they can, it could be a viable option as they can seek tax relief to the extent of the interest outgo. This also eases the burden of repayment off your shoulders.