Education loan for an IIM – A personal perspective

Some of the readers who are familiar with my profile, will know that I have done my PGDM from IIM Calcutta. That was a long time back now, I passed out in 1988 after having secured admission in 1986, immediately after completing my BE in Computer Science & Engineering from Jadavpur university. In those days education was greatly subsidized and my father was able to foot the cost of both my professional courses as well as the MBBS which my sister did around the same time – all this with being an Engineer in SAIL.

Times have changed a great deal today. Education in quality private colleges is an expensive affair and if you want to know more you can read up some of my posts on this subject in my blog. Though the IIM s are not really private, nowadays they are not being subsidized by the government and are therefore forced to hike up their fees considerably in the past few years. This, of course, is quite justified as the older IIM’s are way ahead of other management institutions in terms of branding as well as quality of education.

For the reader who may not be aware of the IIM’s let me give a brief introduction. These started in early 1960’s with Calcutta and Ahmedabad being the first 2. Bangalore was established in 1973, Lucknow in 1985, Indore in 1991 and Kozhikode in 1997. These six are normally referred to as the “old” IIM. Shillong and 6 others which were established in 2007 and 2011 respectively are termed the “new” IIM. Finally the latest 6 which have just started in 2015 are termed as the “baby” IIM. In terms of fees A/B/C are in the range of 20 lacs for the course, L/K/I about 14 lacs and the rest between 11 and 13 lacs. Of course, you need to add another couple of lacs for living and other expenses such as travel over the two years one will need to spend there.

Are the expenses worth it? Definitely so, as any student doing well in the course will have a head start in terms of his/her career. An average salary of 18-20 lacs is the norm in the older institutes and, even with some of this being variable, it is a great starting point. Contrast this to even a good Engineer, starting with 6-8 lacs a year and working at least 4-5 years to reach a similar level. But, more than the money it is really the change that such education brings about in you as a person that I consider critical. It sets you apart from most others and is a lifelong asset.

Coming back to the point of this post – I have been thinking about all this as my daughter Rinki, who is in the final year of her BE course in BITS, is seeking admission into an IIM or XLRI this year. She has applied to only the older IIM’s and as she has a few calls, we are hopeful about her converting at least a couple of them. Given her track record in Education so far, it is very likely to be one of the better ones. I am therefore looking at the need for funds and education loan seems to be a good option. Even though I am able to fund this expense for my daughter, as a matter of principle I believe that children should take responsibility for their PG education expenses, of course with their parents being guarantors who can cover for paying the EMI should there be any problems.

Based on the requirement of 20 lacs, it seems that the best loan available in the market today is the SBI Scholar loan. You can get a loan up to 20 lacs without collateral for the institutes we are looking at. The rates are attractive at 9.7% and there is a further reduction in the rate for women students. The student has to start paying the EMI only after she gets a job, though the interest will obviously be charged from the point of time the money is actually disbursed. For a 20 lac loan paid over 3 years the EMI will come to 65000 or so, which is not a problem given the likely jobs that people get. The interest paid is completely tax exempt and there is no cap on it.

Of course, an option is to pay for the course directly without getting into this loan issue. A lot of people have told me that it will be a good idea to do so as it leaves the child free without any burden of EMI at the start of her career. As there are a couple of months to go for actual results of admission, I am still thinking about it. On the balance I think I will treat her as an adult, take the loan but give her the confidence that I will cover for it should she decide to do something on her own etc. I do want her to be responsible but at the same time, do not want her to be constrained because of the loan. If she does not want to do a regular job and wants to have a start-up of her own, I will take care of the loan.

Overall, I am quite happy with the conclusion I have reached on this. More importantly, I am happy that my daughter and I are on the same page on this, though she keeps telling me I should not preempt such plans, rather wait till she gets a final admit somewhere. 

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