India: Financing education

Financing education can be a daunting task. Dearth in finance can put all the efforts to secure admission to one of dreamt school at risk.
Financing can be broadly classified into three different categories
1) Loans
2) Scholarships
3) Personal Sources

Loans:

Getting a loan is a piece of cake if one is admitted in top US universities , typically the university help in getting loan , I guess degree is kept with the bank as a collateral.

If you don’t want to go to US or if you are not the lucky one to get into the top US University than financing your education specially MBA might be challenging.

The very first option that everyone looks for is loans. Now loans can be taken from within India or from outside India.

Loans from Outside India:

You can get a loan from banks outside India by either providing a guarantee by local resident to giving the bank a guarantee from Indian bank. The benefit of getting loan from outside India is that you can get a very low interest rate.
French banks give interests rate as low as 2.35%.

There are firms like prodigy finance that might also help finance the education ie provide a loan, without any collateral.


Loans from Within India

I will just cover getting loans over 15 lacks from India. There are actually two options for getting loans of or over 15 lacks.

a) Provide a third party guarantee
b) Provide collateral

a) SBI provides loan of 15 lacks against third party guarantee. Again the interest rate on which one can get a loan varies from branch to branch that is depends on branch manager. I was able to get a loan at 10.75% though the prevailing rate is 12.25% and I know some of my friends who got at an interest rate of over 13%. Basically your interest rate will depend on your ability to convince the bank that the loan is secured. The more the perception of security that branch manager has the lower interest rate he would be willing to get.
Central bank gives relaxation of 1% for IITians in interest rate.
b) All the major public banks give loan against collateral. This is the least risky loan that bank can provide. Most often people give real estate property in the form of collateral and bank assess the property at 50-75% of the market value. So if you need a loan of 20 lacks then the market value of the property should be anywhere between 27 to 40 lacks.

Now though every bank has procedure of providing loan for education, local branch manager plays an important role in providing the loan. Depending on their perception they might reject your loan application or bring additional requirement that might be difficult to fulfill. Some of the examples that I have come across
1) SBI bank (Indore branch) tells student that it does not provide loan to students who have had employment before.
2) Punjab national bank tells a student that they need to provide document that they will be able to repay the loan (even though collateral in the form of property was provided). Bank is not willing to accept the employment statistic provided by the b-school. Now virtually there is no way a person can provide a document that he will be definitely able to earn more than what the EMI of the loan would be. Even though previous salary of the student is more than the EMI bank is not ready to accept that future salary might also be more than EMI. So perception of local bank manager plays an important role.
3) Centurion bank wants to have equitable liquid collateral against loan. Collateral in the form of cash, mutual funds etc. Again this will not make any sense as what the bank is telling is that we will keep collateral at around 9.25% (FD rate) and give loan at 12.25%. I don’t understand why anyone will do that.
4) There are numerous other examples where bank manager perception plays an important role in bank loans.

If one does not have sufficient collateral to provide against loan then an option is to take multiple loan from different banks against guarantee. Union bank provides loan upto 7.5 lacks without any third party guarantee. So one can take 2-3 different loans of lesser amounts against guarantee and avoid any kind of collateral.

Scholarship:

This can be a very important source of funding for an individual. Often one has to write essays to get scholarship, so the worth of those essays might be a lot if one gets scholarship.

Scholarships are provided by schools. Apart from that there are lot of other scholarship that one can avail. Typically the deadline for these scholarships is in Jan – Feb. So one has to apply in first round of application to get these scholarships.

Personal Savings: I don’t think I need to elaborate on this.