How to Pay for IIMA or Harvard

It's the final innings for admissions to the prestigious Indian Institute of Managements and other business schools.


23 April 2010
In a few days, students will know whether they have made it or not. If you are chosen, you may not get too much time to celebrate – you have to figure out how to pay for that expensive education.

Several IIMs recently increased their fees by 100,000 rupees or more. A two-year management of business administration program at the coveted IIM Ahmedabad now costs around 1.4 million rupees ($31,500), while the fees are 1.35 million at IIM Calcutta and 1.3 million rupees at IIM Bangalore. Only a small percentage of students qualify for breaks in fees at these schools.

Luckily, there's help at hand.

India's banks have been increasingly boosting their education loan portfolios and new players are entering the market. In December, home loan giant HDFC Ltd. bought a 41% stake in non-banking financial company Credila Financial Services, which specializes in giving education loans. HDFC hopes to eventually buy out the entire company.

For banks, education loans are bitter-sweet – they carry a higher interest rate than some other loans like home loans, but they are also more risky. Due to Reserve Bank of India rules, banks are not allowed to accept any security or collateral for loans of up to 400,000 rupees.

Education loans are still a small portion of banks' loans portfolios. But the government considers education loans to be one among a list of "priority-sector" loans so government banks sometimes give these loans to fulfill their quota for priority-sector lending. And in recent years, several private banks have been increasingly focusing on this area.

Unfortunately, many deserving students still struggle to get loans. Banks ask for a co-signor to the loan – typically a parent -- and for 100% collateral to cover the loan even when it contravenes government rules. That can be very tough for the poor to afford, says K. Srinivasan, co-ordinator of Education Loan Task Force, an online activist group which works with students of Tamil Nadu. "Because of lack of finance, many of the students with more than 90% marks (in school) have to work at tea stalls," says Mr. Srinivasan.

Banks typically give loans of up to 1 million rupees for study within India and up to 2 million rupees for studies abroad. For loans of more than 400,000 rupees, you need to put in some money of your own -- 5% for domestic education and 15% if the student is going abroad. For large loans, banks accept a number of assets as collateral, such as property owned by you or your co-signing parent, a life insurance policy with a surrender value, or fixed deposits in the bank.

To get a loan, you must already have admission in what the bank considers to be a worthy institution. Many banks publish a list of courses which qualify for loans, but they don't list each and every institution approved by them. Which means you will still have to go to your nearest bank to find out for yourself. IIM's qualify.

While banks are required to lend to all eligible applicants, it may be easier to get the loan if you already have an account or other relationship with a particular bank.

At the moment, interest rates on these loans vary from 11.25% to 12.75% depending on the amount of loan. These rates can change during the term of the loan, in case the Reserve Bank of India raises broad interest rates.

There is a lot of variation though. Students of IIMs and some other prestigious schools can get better deals. Union Bank of India, for instance, is charging only 10.5% to students admitted to a select number of schools. Women pay 0.50 percentage point less.

Unlike banks which typically charge a fixed rate for a certain category of students, HDFC's Credila charges different rates depending on the school and the student's grades. Credila country head Prashant Bhosle says that this ensures that all students have a good shot of getting a loan, even if it's at a little higher cost. Credila's interest rate ranges from 9.75% to 12.5% currently.

You have to give the usual list of documents to support the fact that you do have admission to the particular school, your and the co-signor's bank account and income tax statements, proof of residence, and statement of assets and liabilities.

Students planning to study abroad can also apply for loans, though sometimes they face a chicken-and-egg situation. Some foreign colleges, such as those in the U.S., require a proof of finances at the time of admission. However, most banks in India don't sanction a loan till the student has a confirmed admission in the given college.

HDFC-backed Credila has a solution to this. It provides a letter of credit on behalf of the student which typically satisfies the college, and then converts it to a real loan when the admission goes through.

Students are expected to start repaying their loans within six months of landing a job or after one year of graduation, whichever is sooner. Most banks require that students pay simple interest on the loan even as they are studying. The loan is extended for five years to seven years typically.

Bankers advise students to be careful while selecting the course and college they want to get in to, especially given the large number of new institutions that have sprung up around the country. Just because you're hungry for admission, don't rush into a program which may not result in a good salary and future, says C.S. Jain, head of retail banking at IDBI Bank Ltd.

http://online.wsj.com/article/SB127192427389980923.html

Loans to educate you

What is the right time to start looking for education loans? Mala Kumar scouts for answers


12 April 2010
When the student is in the final year of school, it is an exciting period for the family. Irrespective of what you score in a board examination, this is the stage when you take a firm step into the world of higher studies. Once you have decided on what you want to study and where, the entrance exams, college applications, and submission deadlines keep you busy. This is also the time when the family should sit together to discuss finances.

When to apply
In India, many public sector banks and multinational banks give education loans. Among loans, education loans are a priority in most banks. These are loans for recognised courses within India or abroad, and most banks give upto Rs 20 lakh for oversees education. What is the right time to start looking for loans? This is a tricky question. Some colleges demand a bank statement to show proof of affordability BEFORE they give a provisional admission letter. And most banks that give education loans ask for an I-20 (a US government form that certifies that the learner is eligible for an F-1 visa ) BEFORE they start your loan process.

The earlier you start gathering information about bank loans, the better. While all banks have excellent websites that give a lot of information, there is one big problem - most of them do not have up-to-date information or ask you to register on the site to allow an officer to call you 'within 24 hours'. Also, contact numbers given on the website are sometimes old, discontinued, or unreachable.

There is no point wasting energy by getting irritated by this phenomenon. Just keep trying. Sometimes, things happen on the very first try. For example, this writer called several banks to gather information, but was unsuccessful.

A call to Credila, however, was attended to immediately. “We are an exclusive education loan provider, and believe in student-friendly service,” said Business Development Manager Krupakumar. “Once the admission is confirmed, students can apply online, meet an officer, or ask for an officer to meet them at home, to start the loan process. Loans are based on eligibility. We process multi-city, multi-co-borrower applications,” he added. This means that if the student is in Pune, the co-borrowers father and mother in Chennai and Delhi respectively, the organisation would still process the application quickly. Banks give loans depending on the nature of the guarantor, (who may or may not have an account in the bank where the loan is sought,) on the nature of the university where admission has been accepted (the better known the institution, better your chances of getting a loan), and on the nature of the course itself (job-oriented courses like MBA have a better chance of getting you a loan than a Master of Arts, say in Urban Studies).

Keep your papers ready

While you check with friends and relatives who have taken education loans, it is also a good idea to get the following papers ready. You may require most of them, and in such situations more is better than less.Mark sheet of last qualifying examination for school and graduate studies in India.

Proof of admission to the course (an admission letter giving details of year-wise fee, boarding and lodging expenses).

Schedule of expenses for the courseIf you have got a scholarship, then copies of letter confirming scholarship.

At least 2 passport size photographseach of student, applicant, co-borrower.Statement of bank account for the last six months of borrower (on a bank letterhead, duly signed and stamped).

Latest income tax assessment order (should not be more than two years old).

Brief statement of assets and liabilities of borrower.

If you are not an existing bank customer you would also need to establish your identity and give proof of residence (other than the same for the borrower).

Copies of documents for proof of age/date of birth and proof of residential address can now be attested in all Bangalore One centres, if you are a Bangalorean.

Copy of Passport/Visa, cost of air fare (documentary detail) in case of studies abroad.

Says Ritesh Patel, now a software engineer, "My family could just about manage to fund my engineering course, but I insisted on taking a bank loan. Rather than allow my parents to lock their savings in my education, the loan allowed them to plough back their savings into the business, and I could start repaying the low-interest education loan six months after I started earning. Now within three years of completing my degree I have already repaid most of the loan."

Repayment of education loans starts only six months after you take up a job after finishing your course, and most banks give upto seven years to repay the loan. To make sure that your loan application is accepted, you have to make sure that your institution is recognised by the bank, that your papers are in order, and that the borrower’s/guarantor’s credentials are good. The bank may take a week to come and check the property/collateral that has been mentioned in your application. The entire process of getting a loan may take upto a month, though some loans are sanctioned in very quick time.

Good luck with your loan, and your studies.



http://www.deccanherald.com/content/61301/

HDFC announces a 41% stake in Credila

Submitted by Anuj Gupta on Sat, 11/14/2009 - 19:21

HDFC, India's major mortgage lender will soon purchase approximately 41% stake in the Credila Financial Services. The corporation has decided to buy stake in the privately owned company from DSP Merrill Lynch Capital Ltd.

In a proclamation, the financial major said that the acquirement of the equity stake is subject to compliance with appropriate norms.

DSP Merrill Lynch Capital Ltd holds a minority equity stake in Credila Financial Services, which is an education loan provider.

Stock of Housing Development Finance Corporation Ltd settled the day on Friday (13 Nov) at Rs 2,758.45, up 0.54 per cent on Bombay Stock Exchange (BSE).

http://www.stockwatch.in/hdfc-plans-purchase-41-stake-credila-financial-24085